UPDATE: H.528 was passed out of the Senate Finance Committee in a 6-0-1 vote on Friday.
The Senate Finance Committee has finalized a $10 million tax package.
The bill, H.528, also known as the miscellaneous tax bill, puts a cap on mortgage interest deductions, makes bottled water subject to the sales tax and puts a 3 percent excise tax on satellite television service. The revenues will go to the General Fund.
In a straw poll Thursday evening, Senate Finance voted 6-0-1 to support the proposal.
Sen. Tim Ashe, chair of Senate Finance, shepherded the bill through after weeks of testimony and deliberation. Ashe, who is a member of both the Progressive and Democratic parties, said he worked to create a “fair and equitable” tax package that raised as little as possible. The state faces a General Fund budget gap of about $10 million this year, as a result of a revenue downgrade.
“One of our goals as a committee was to make decisions based on fairness and equity, but also in the confines of the governor’s stated parameters,” Ashe said. “I know that we may also have some dispute over some of the provisions but our goal was to fit into the limitations of the administration. From day one we said we do not need make tax rate increases if we could create more equity within the system.”
Gov. Peter Shumlin, a Democrat, has insisted that the state cannot afford to raise broad-based taxes, i.e., income, sales and rooms and meals taxes because Vermonters are already taxed out. His proposals — using a low-income tax credit and a 10 percent break open tickets tax — have, however, been rebuffed by lawmakers. Last week, the administration offered more conciliatory revisions to their proposals.
The Senate Finance bill was finalized after the governor’s press conference.
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When asked what he thought of some of the proposals on the table, Shumlin said: “I’m sort of in a ‘probably maybe’ world. … Until they vote a bill out, I’m going to be very careful about commenting on what they’re doing, because I don’t have any better sense really of what they’ll actually do than you do.”
The proposed mortgage deduction cap is $12,000, and it is combined with a 3 percent minimum tax for Vermonters who have adjusted gross incomes of more than $125,000. Together, the income tax changes generate about $7.4 million. The mortgage deduction cap would affect about 5 percent of tax filers, or roughly 14,000 out of 343,000 people who file income taxes in Vermont.
The proposal was designed to increase tax contributions from more affluent taxpayers without raising rates, Ashe said.
“We weren’t saying let’s go sock people because we need to find money,” Ashe said. “The mortgage interest deduction is there to help middle class people by homes in an affordable way. We’re making it more like what it was intended for.”
“In the case of the minimum payment, we’re saying, yes, we agree with Gov. Shumlin and former Gov. Douglas,” Ashe said. “Some vermonters at the highest income are paying the highest taxes in the country, and it’s not good enough to go back to them again, going back to the well, so to speak. Instead, some of their counterparts who have incomes that are roughly similar have very very low effective tax rates so it was trying to bring some equity within those income levels.”
Jeb Spaulding, secretary of the Agency of Administration, gave an equivocal reaction to the mortgage deduction proposal: He said the administration’s view hasn’t changed. If it “falls into the category” of raising income, sales or meals taxes, he hinted the governor could reject it, but Spaulding said, “In this stage in the process, it doesn’t really contribute to reaching an agreement, for us to pick apart each individual section of the bill.”
The bill also eliminates an exemption of the 6 percent sales tax on bottled water. The provision raises about $1.2 million.
“We agreed with the House not to raise $1.2 million as a way to capture negative costs associated with bottled water that don’t get captured like other bottled drinks do with redemption,” Ashe said.
The 3 percent excise tax on satellite television service would raise about $1.3 million. The first $40 of a consumer’s monthly bill would be exempt from the tax. Sen. Mark McDonald, D-Orange, said it is unlikely that the tax would affect consumers. The satellite companies, he said, typically absorb the cost of excise taxes and don’t increase rates. Cable companies pay a 5 percent franchise tax. “We’re just trying to create some parity there,” Ashe said.
Ashe and his committee met with Gov. Peter Shumlin on Thursday morning to discuss the bill, and later that afternoon, Jeb Spaulding, the secretary of the Administration made a last-ditch effort to persuade the committee to adopt a bank franchise tax that would have been assessed on state’s five biggest banks. Spaulding said it was appropriate to raise the tax because bank profits are up and the state hasn’t increased the rate in 16 years. The proposal would raise $2.4 million
The proposal was all but rejected. Sen. Kevin Mullin, R-Rutland, proposed that for now, the state should study the bank franchise tax.
On Wednesday, the committee accommodated Shumlin by eliminating a proposed $10.9 million tobacco tax increase on cigarettes and snuff from H.528. The proposal will be added to a technical tax or health care bill Senate Finance is set to review next week because, Ashe said, the tax hike is designed to deter Vermonters from smoking — not as a vehicle for raising revenue. Privately, committee members worried that the governor might veto the miscellaneous tax bill if it contained the tobacco tax.
The Shumlin administration’s 10 percent, then 6 percent break open ticket tax proposal was reduced to a mere $400,000. The Senate panel voted to place a 3 percent excise tax on tickets sold in bars; clubs, like the American Legion or the Elks, would not have to pay a tax.
The bill also includes a provision that requires nonprofit property owners to submit information about the insured value of Real Estate. Lawmakers want to ascertain whether there are discrepancies between insured and reported values.
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The cloud tax is still up in the air. The committee voted 3-3 on an amendment that would have extended the current one-year moratorium another year, which means the issue will likely be a contentious matter of debate on the Senate floor. The Joint Fiscal Office estimates that a cloud tax would generate $1.5 million for the General Fund and $800,000 for the Education Fund. At this point, there is no revenue source to cover that cost in the tax bill. Ashe, however, says he believes the JFO estimates are high.
A change to the estate tax law in the proposal will eliminate the so-called “bubble.” Heirs of estates with between $2.75 and $4.5 million are subject to a much higher marginal rate than those who inherit estates of larger value. The heirs who land in the bubble pay an 18 percent to 35 percent marginal rate, while those who receive 10s of millions of dollars in estate money pay a marginal rate of about 15 percent. The proposed estate tax change would bring down the effective rate for heirs from a 6 percent to 12 percent range to between 1 percent and 9 percent. From year to year, the estate tax is an unpredictable source of revenue for the state. Typically, it generates about $12 million.
Senate Finance will take up the fee bill on Friday. The only controversial proposal is a 5 cent per gallon tax on water extraction that would generate less than $2 million in revenue for the state.
Next week, the committee will analyze the miscellaneous education property tax bill that was recently passed by the House.