Lawmakers take an early peek at tax reform

Lawmakers met Friday for a reminder of where they left state income tax proposals before the session ended in June. Secretary of Administration Jeb Spaulding, who joined the House Ways and Means Committee meeting to discuss related data-sharing between state offices, also had his memory jogged.

In early 2013, lawmakers discussed several ways to restructure the state income tax. Some recommendations became law with Act 73. A suite of other possible changes stalled in a conference committee, where select lawmakers try to work out the differences between House and Senate.

Committee members recalled that part of what had stood in their way was Gov. Peter Shumlin’s adamant opposition to any new or increased taxes. They asked Spaulding if there had been any “movement” in that regard.

“To be perfectly up front with you, we have no idea what the Legislature is proposing,” Spaulding said.

The pronouncement was met with more than a few incredulous stares, clenched jaws and guffaws around the room.

“When we ask the Joint Fiscal Office to provide a copy of it, we don’t get it,” Spaulding said. “When I ask Senator (Tim) Ashe (chair of the Senate Finance Committee) the same thing … I don’t get it.” Spaulding said the administration would be more than happy to review a legislative proposal for income tax reform, if there were such a thing.

Rep. Janet Ancel, D-Calais, chairs the House Ways and Means Committee. Photo by Hilary Niles/VTDigger

Rep. Janet Ancel, D-Calais, chairs the House Ways and Means Committee. Photo by Hilary Niles/VTDigger

Rep. Janet Ancel, D-Calais, chairs the House Ways and Means Committee. She quietly recalled to Spaulding the legislative proposal she handed Shumlin at a meeting before the summer break.

“That is the proposal we would like you to react to,” Ancel said. She clarified that it’s not an official conference committee recommendation. “And it has been the same thing since May.”

“We’d be more than happy to,” Spaulding replied. He expressed some confusion about whether the proposal was the same one put forth by the Senate, and admitted that he had not looked at it since May.

According to a review document prepared by Peter Griffin of the Legislative Council, the upshot of the proposal would be threefold:

• For tax year 2014 only, require a minimum tax on income greater than $125,000 of federal adjusted gross income. (The minimum would be either the existing Vermont income tax, or 3 percent of the taxpayer’s federal AGI.)

• Limit a taxpayer’s itemized deductions to 2.5 times the standard deduction that would apply to that taxpayer. (For married couple filing jointly, that’s typically around $30,500. This limit would start in tax year 2015.)

• Condense Vermont income tax brackets and lower their rates. (Where five tax brackets exist now, bookmarked by 3.55 percent and 8.95 percent tax rates, only four brackets would exist starting in 2015, ranging from 3.43 percent to 8.75 percent tax rates.)

Spaulding said whatever the Legislature proposes for income tax restructuring, it will not change the governor’s fiscal priority of establishing single-payer health care for all Vermonters.

“That is the single biggest financial lift that this state has ever undertaken,” Spaulding said. With that goal in mind, he urged committee members to tackle any changes to income tax comprehensively, rather than one piece at a time.

“Our hope is that people would at least consider the possibility that it might make sense to do this all at once, not some this year and some next year,” he said.

Some lawmakers expressed a preference for achieving some reforms soon, rather than delaying any change for the chance at a bigger bite of the apple down the road. Some concern also surfaced about how the public might respond to large-scale change.

But aside from some philosophical differences about reform strategies, the committee is grappling with limited access to tax data on which to base their decisions. A memorandum of understanding between the Tax Department and the Joint Fiscal Office has been in the works for some months.

The JFO would like to gain access to more tax data, so it can independently develop financial models that predict the impact of proposed tax changes. The Tax Department is reluctant to share information that might compromise personal personal privacy and corporate confidentiality. The two offices are working toward an agreement that will satisfy as much as possible of both of their needs.

“It is in our best interest to make sure you have access to good, reliable data when you’re developing these plans,” Spaulding said.

On this point, both Spaulding and the committee members appeared to agree.

Hilary Niles

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