[T]he House Appropriations Committee advanced a sweeping tax reform package Thursday that would make broad changes to Vermont’s income tax and education finance system.
The committee voted 9-2 to pass H.911, a proposal crafted by the House Ways and Means Committee this session that would both protect Vermonters from paying about $30 million in additional taxes and change how property tax rates are calculated. The panel passed the bill as introduced, recommending only small changes to be made when the bill goes to a vote on the floor.
The education finance reform plan introduces an income tax surcharge that is expected to raise about $59 million in new revenue and lower the average property tax rate by roughly 10 percent.
“Right now there’s a lot of pressure on the property tax,” the committee’s chair, Rep. Kitty Toll, D-Danville, said in an interview following Thursday’s vote.
“People aren’t particularly happy with the system that we have and if we can move it into a more fair and transparent system, I support that,” Toll said.
The plan retains income sensitivity for Vermonters who make less than $147,000.
It also sets base spending at about $12,000 per pupil for fiscal 2019. Every school district in the state spends more and will be subject to a yield of $8,500.
This part of the plan was designed as a cost-containment measure: Tax rates will increase for every additional dollar school districts spend on their students over the $12,000 base.
Because the proposed yield is lower than under current law, tax rates would increase much faster when schools spend over the base amount, Mark Perrault, a senior fiscal analyst with the Joint Fiscal Office, told the committee Thursday morning.
The provision would put pressure on districts to be more cautious with spending.
“If districts spend more, they’re making a conscious decision to do so and understanding what that would mean to property taxes,” Toll said.
The Appropriations Committee asked the Ways and Means Committee on Thursday to draft an amendment with language that better explains the cost-containment mechanism, which has been the target of criticism.
In a March 9 letter addressed to Rep. David Sharpe, D-Bristol, chair of the House Committee on Education, Paul Cillo, the director of the Public Assets Institute, said the proposal would cause confusion, create an “irrational relationship between spending and tax rates,” and potentially lead to students getting a substandard education.
“Imposing punitive tax rates for spending above an arbitrary threshold undermines equity and pushes Vermont toward a system where all students are allotted the same, fixed amount,” he wrote. “In some cases, individual students require more than the base amount to get an adequate education. School districts have different needs at different times.”
In addition to addressing education finance, H.911 would reform the state income tax to shield Vermonters from an incidental $30 million tax hike caused by the federal Tax Cuts and Jobs Act.
The federal law, passed at the end of December, doubles the standard deduction and eliminates personal exemptions. Since the state’s tax code is closely tied to federal standards, Vermont taxpayers now cannot claim personal exemptions on state taxes.
That means about half of Vermont taxpayers would pay significantly more in taxes.
Among several provisions laid out to return about $30 million to taxpayers, the proposal would create a Vermont standard deduction and Vermont personal exemptions.
The standard deductions would be $9,000 for heads of household, $6,000 for single filers and $12,000 for joint filers. The exemptions would be $4,150 each.
Another section of the bill would lower income tax rates by 0.2 percent for each income bracket and collapse the two highest brackets.
