The Vermont Senate gave preliminarily approval to a sweeping tax proposal on a voice vote on Tuesday.
The legislation puts a cap on mortgage deductions of $12,000 a year or more, requires Vermonters with adjusted gross incomes of $125,000 per year or more to pay a minimum tax of 3 percent, extends the 6 percent sales tax to bottled water and places a 3 percent excise tax on monthly satellite television bills (up to $35 each month is exempt). Read a synopsis of the bill here.
The tax bill is controversial, but the debate on Tuesday was civil, even low key.
When senators complained about aspects of the bill Sen. Tim Ashe, the chair of the Senate Finance Committee, said he would be happy to hear more about their concerns in his committee.
Westman wants the committee to jettison a cap on tax credits for the Vermont Higher Education Investment Plan. The program, which encourages Vermonters to save money for their children’s college educations, has a high management fee cost and has had trouble building the fund. At this point VHEIP is about $200 million, and management fees are higher here than in other states because the fund is not large enough. If the tax credit is removed for high income Vermonters, they won’t have an incentive to invest in VHEIP, he said. If the plan is solely dependent on contributions from middle class families, it will not become large enough to attract bids from national fund management firms, he said. VHEIP is now managed by TIAA-Cref. Westman, who is the former head of the Vermont Higher Education Investment Plan, told his colleagues that if the fund can’t attract competitive bids, the state may have to consider folding the fund in with another state’s. That’s what happened in Wyoming, he said. The Wyoming fund was rolled into Colorado’s program.
Sen. Peter Galbraith asked why it would be problematic for the state to roll its VHEIP fund into, say, Connecticut’s fund. “What are the Vermont specific options that would not be available in Connecticut?” Galbraith asked.
Westman replied that Vermont would lose state control over programs. When asked what programs the state could see disappear, Westman said the state would lose the ability to tailor marketing campaigns and could possibly lose the ability to work with community action councils as part of an effort to reach out to first-time college students.
Cummings asked the committee to consider tying the mortgage deduction cap to the prime lending rate to reflect the fluctuation in mortgage rates. She is concerned that the cap will hurt some middle class first-time homebuyers, and allow the cap to float, she says would help to alleviate that problem.
Pollina wants the committee to consider raising an additional $21 million in income taxes in order to prepare for federal cuts to state programs next year. He urged the senators to consider a 1.5 percent increase in the top marginal rate, and a 1 percent increase in the second highest rate. Pollina argued that income inequality is growing in Vermont, and the only way to address the problem is to adequately tax the richest Vermonters.
Rodgers offered three amendments. One would give the tax commissioner the authority to evaluate and abate individual cases in which retail business owners have unwittingly neglected to charge sales taxes for items that they weren’t aware were subject to the assessment. He has two store owners in his district — Orange and Essex counties — who have been assessed $100,000 and $250,000 each for back taxes over a seven-year period for sales taxes they weren’t aware they were supposed to collect.
In another amendment, Rodgers called for the removal of the satellite tax.
Another of Rodgers’ provisions would extend a tax credit for wood products manufacturing. The $300,000-plus tax expenditure is designed to support Ethan Allen Furniture, which has operations in Orleans and Beecher Falls. Rodgers said the tax credit is a way of preserving jobs; members of the committee asked why the company hadn’t sought a Vermont Employment Growth Incentive credit instead of a separate carveout exemption.
Lyons has proposed an amendment that would extend the moratorium on the so-called cloud tax. The miscellaneous tax bill is silent on the issue, which means the current moratorium would expire this year.
Most of the proposals addressed issues that members of Senate Finance had already considered, and in the end, the committee opted to vote down six of the eight amendments. The Ethan Allen tax expenditure and the cloud tax items were both tabled.