[G]ov. Phil Scott continues to express trepidation about the Republican tax overhaul being pushed through Congress, but Vermont’s top tax official says, at least in the short-term, the Senate version would be a net income tax cut for most Vermonters.
Among Scott’s concerns are the impact on the federal deficit, the elimination of certain tax credits that boost economic development, the murky nature of its impact on individuals and the rushed and partisan manner in which the legislation is being rammed through Congress.
“With any tax reform of this size there will be some winners and some losers,” Scott said at a news conference Thursday, “While I believe simplification of the tax code would be beneficial to all, I would have preferred to see a more in-depth and open discussion of the proposals and more of an effort to obtain bipartisan support.”
Scott, a Republican, said that, as a “fiscal conservative,” he is particularly troubled by the bill’s effect on the federal deficit. The Senate version is estimated to add more than $1 trillion to the deficit over the coming decade. He said that is essentially “shifting the cost of these reforms onto our children.”
The governor said he does not believe, as many other Republicans have argued, that economic growth resulting from tax reform will offset the bill’s impact on the deficit.
The elimination of housing and historic preservation tax credits could undermine planned downtown development in Bennington and across the state, Scott acknowledged in response to a reporter’s question. That, he said, would be bad for economic development in Vermont.
The Senate bill also repeals the Affordable Care Act’s individual mandate, and Scott said that while the impact on Vermont is not entirely clear, its repeal would also be cause for concern.
There are some potentially positive outcomes to the tax bill as well, Scott noted, including the simplified filing for most individuals and the possibility that corporations will pass savings from their greatly reduced tax rates on to employees.
A preliminary analysis by the Tax Department shows that the majority of Vermonters pay less in combined federal and state income taxes under either the House or Senate versions of the tax bill, said Tax Commissioner Kaj Samsom.
“It’s really hard to generalize, but statewide, with no changes to the Vermont income tax calculation, and given either the House or Senate version being a final law, statewide we would see Vermonters spending less on individual income tax between state and federal combined,” Samsom said.
The commissioner noted that his department had not attempted to see if there are particular income brackets in Vermont that would fare better or worse under the Republican tax overhaul. He also emphasized the preliminary nature of the analysis.
“At this point I wouldn’t take any of that to the bank. I would wait to see a final bill,” Samson said.
The primary objective for analysts at the Tax Department is to work with legislative analysts and the state economists come up with a shared model and framework for analyzing tax reforms, in order to provide the governor and legislators with accurate and timely information during the upcoming session.
Potentially the biggest impact for Vermonters would be the elimination of the personal exemptions, which would increase people’s total taxable income for both state and federal income tax.
However, reduced rates and an increase to the child tax credit means that despite an increase in taxable income, most people would ultimately pay less in income tax.
The Senate version also increases the standard deduction. As a result, the Tax Departments expects, if that change becomes law, half of Vermonters who itemize their deductions would switch over to the standard deduction, Samson said.
Critics of Republican efforts at tax reform note that, because the Senate tax bill is being passed using the budget reconciliation process, the changes for individuals, which could benefit Vermonters, must be repealed after 10 years, while the corporate tax cuts would be permanent.
With versions of a tax bill having passed both the House and Senate, the two chambers must now reconcile the differences between their two bills, before voting on a final version that would go to President Donald Trump for his signature.
