Editor’s note: Inside the Golden Bubble is an occasional column about legislative doings.
At last a magic number has been pulled out of the hat.
For weeks, Sen. Tim Ashe has been mum about just how much money his committee, Senate Finance, needs to raise. Ashe has maintained all along that he won’t raise more taxes than necessary, and he’s been waiting on Senate Appropriations to tell him what the bottom line number will be.
After all, the committee across the hall was supposed to have the big bill voted out on Friday. But the campaign finance debate that meandered on for two days last week wrecked the budget-writing committee’s schedule.
Finally, over the last few days, after much testimony, deliberation and plain old waiting, the figure $10 million has surfaced as the winning number in the tax lottery, as the six lawmakers on the committee make final decisions on $30 million worth of proposals.
The options under consideration are for this year — and next. Typically, the Legislature takes one year at a time, but the specter of a budget gap next year that could be as high as $50 million (both the governor and the Legislature are using one-time funds in that amount to balance the budget in fiscal year 2014), has spurred them to present a two-year tax proposal.
Gov. Peter Shumlin’s budget plan is for next year only, and it raises $34 million in new revenues to pay for enhanced child-care subsidies and a new thermal efficiency program.
The House pared back the governor’s “new spends” and used the elimination of sales tax exemptions, among other revenues, to settle up fiscal year 2014 with about $23 million in taxes for the General Fund and $4 million for the Education Fund; and applied a cap on itemized deductions to raise a total of $33 million in fiscal year 2015. In addition, the House set aside about $9 million in reserves to soften the blow of future federal cuts.
That $10 million Senate figure can mean only one thing: the Green Room mavens, in their deliberations on budget and tax scenarios, are taking a more conservative approach than either the governor or the House. Will the Senate budget proposal have reserves? Not likely. As for more cuts to programs? Very likely. Sen. Jane Kitchel, Senate Appropriations chair, has said she and her team will scrutinize department and agency proposals. And true to her word, the committee has gone deep into the weeds to examine expenditures in the tens of thousands.
As for Senate Finance, it’s been more of a venture into the briar patch than a game of hide and seek in waist-high grass.
Every time the committee comes up with another spending proposal, representatives of yet another constituency line the room and stare dumbfounded at the senators telepathically communicating the underlying question: “How could you raise my taxes?”
Indeed. That is, after all, what Senate Finance does: Raise taxes. Almost every year. On something. Always with trepidation. Usually as strategically as possible. And inevitably at the expense of one group or other.
This year, however, lawmakers seem more desperate than in years past to find ways to balance the budget by eliminating tax breaks and preserving programs. Perhaps this is because the governor’s budget presented them with stark choices they were ill-prepared to face, such as funding childcare subsidies with Earned Income Tax Credit monies, and drastically cutting the Reach Up program while preserving tax incentive programs for businesses.
Last week Vermont Realtors Association members filled the committee room; this week it was executives from the state’s five biggest banks. No one in either group was happy.
Gov. Peter Shumlin proposed an increase in the bank franchise tax of $2.4 million on the state’s five big banks that hold more than $750 million in deposits. Bank executives say the tax unfairly penalizes them at a time when interest rates (and profits) are very low. The bankers said they are already paying more in taxes than in neighboring states, and if the state increases the franchise tax they will have to close branches, lay off employees and reduce loans and other services to consumers and businesses.
The Realtors see the Senate Finance proposal to cap mortgage deductions at $10,000 as a direct assault on their business. And though the cap is meant to hit wealthy Vermonters with second homes in the Caribbean, they say it will instead put an undue burden on middle class families who bought homes at the height of the real estate bubble in 2008 and whose mortgages are now under water. The cap would raise about $7 million in revenues. An alternative proposal that would place a $15,000 cap on mortgage deductions would raise about $5 million.
So how does Senate Finance come up with a total of $10.9 million in fiscal year 2014 and $11.7 million in fiscal year 2015? The remainder comes from a 3 percent minimum tax liability for adjusted gross incomes of $100,000 or more.
There is a fly in this ointment that is particularly pesky. Namely, if income tax changes are put in place effective in 2014, lawmakers would run the risk of assessing an income tax retroactively, and that’s something they are loath to do.
Of the big revenue options in the $30 million total they have to work with, the mortgage cap, in 2014, is least likely to succeed. As for 2015, most committee members indicate it’s a no-brainer.
Another 2015 proposal? To use $14.4 million in state health care assessments on employers to pay for the $18 million health care exchange. In 2014, those tax revenues are being used to pay for subsidies for low-income Vermonters who will be leaving Catamount Health and the Vermont Health Access Plan and entering the exchange.
All of the other taxes on the list would generate tax revenue immediately.
The next biggest chunk of revenue in the committee’s sights is the cigarette tax. Their current proposal — to increase the per pack assessment to $1.25 — would raise the total tax to $3.87 per pack and generate more than $8 million in revenue for the state. The committee is split on whether the increase should be that high, but everyone agrees, so far, on a hike of some kind. Sen. Kevin Mullin, R-Rutland, insists that the tipping point that will lead to more smokers kicking the habit is at about 80 cents to 90 cents. Other lawmakers are leaning toward $1 a pack. The governor doesn’t want any kind of tax hike (there was an increase of 38 cents two years ago) and the House voted for a 50 cent increase.
Smokeless tobacco is also on the list (the price would go up from $2.24 per package to $3.87) and would raise $2.8 million in immediate revenues for 2014.
The elimination of the sales tax exemption has only been applied so far to bottled water (generating $1.2 million), but the committee indicated it will revisit two House sales tax exemptions on candy and soda. Neither of those additions appeared to have much support.
As for break-open tickets, the $17 million pot of gold at the end of the governor’s charitable tax rainbow? The Senate panel has gone with a 3 percent gross receipts tax that would generate about $2.4 million, according to Joint Fiscal Office projections.
What will survive Senate Finance over the next week? It’s likely that the panel will find $10 million in some combination of cigarette and snuff taxes, a sales tax on bottled water and break-open tickets. The senators seem to have little interest in imposing an increase in the bank franchise tax.
The $10,000 mortgage interest deduction cap, at least for 2015, seems to have support in the Senate. Mullin has suggested that if the Legislature can lower property taxes that would be of more benefit than limitless deductions, and Realtors agreed with that point of view in several hearings. But how the Senate will reduce property taxes is an open question. One idea is a tax on Keno, a slot machine style gambling game, which is now illegal in Vermont. Senate Finance will be taking testimony on the proposal this week.
Whatever emerges in the end will likely be subject to enormous changes at the last minute in the all-important conference committees between the House and Senate at the end of the session. There will be more hand-wringing and heart-to-hearts on the Fifth Floor. More proposals. More disappointed constituents. Stay tuned.
