The state collected more money in April income tax than expected, a promising sign for lawmakers struggling to balance revenues with spending as the end of the legislative session nears.
General Fund tax revenues collected in April – an important month for tax collection – were $248 million, about $44 million above expectations.
The revenue collections for April are preliminary, but they show personal income tax and corporate income tax revenues that were higher than expected.
Administration Secretary Susanne Young said some of the increase could be organic revenue growth from a booming economy, and some might have resulted from federal tax reforms enacted late in 2017. She said she had heard from the Vermont Tax Department that several states are seeing a similar increase in income taxes this filing season.
“It could be the result of individual taxpayer behavior — individuals who maybe didn’t change their withholdings for tax year 2018, and ended up paying more in in FY19,” she said. The state might also be seeing some additional tax revenues from companies that moved profits back to the U.S. after the federal tax reform.
The higher-than-expected revenues appear to put the state in a similar position to that of last April, when lawmakers were putting the final touches on the state budget and revenue collections showed a $55 million surplus. Young cautioned that it’s too early to know exactly where the state budget will stand as the new fiscal year begins July 1. First the Emergency Board – which includes the governor and key lawmakers – needs to meet in July to assess anticipated revenues for the fiscal year.
“Economists can’t say anything with certainty right now,” Young said. “They have to have a chance to take a deep dive into the tax records, to see how much of this is one-time, and how much we can rely on to pay for ongoing expenses in FY20.”
Some of the tax increase could also be attributable to elements like the Wayfair decision. The U.S. Supreme Court ruled last summer that states could collect taxes on internet sales from companies that don’t have a physical presence in the state. Vermont economists estimated at the time that the Wayfair ruling could result in a $3 million to $10 million increase from sales tax on online purchases in the current fiscal year.
The online sales tax will continue to yield revenue in the future. Sen. Randy Brock, R-Franklin, said he thinks other changes in the tax code will also result in a revenue increase in the future, not just this year.
“This is encouraging,” said Brock. He noted that the administration’s forecast is just a prediction. “But from what the administration is telling me, those numbers look exceedingly good.”
While the economy booms, this has also been a hard year for legislative budget writers. Vermont’s struggling with some significant financial liabilities. One is the state’s $1.5 billion pension debt, an unfunded liability that seems likely to consume about $150 million annually each year for years to come.
This year, the scarcity could be felt in the Senate Finance Committee as it worked on the revenue bill, which is now before a conference committee of Senate and House lawmakers. It’s always a struggle to determine where to raise money and where to cut back on spending, but it was particularly onerous this year, said Sen. Ann Cummings, D-Washington and chair of Senate Finance.
“We have been living on a starvation budget since the recession, for 10 years,” said Cummings as her committee sought to find a way to restore a deduction for health care expenses and pay for other state services without raising taxes on individuals or businesses.
“You make choices, but we’ve gotten to the point where the holes in the safety net are reaching crisis proportions,” Cummings said.
One place Senate Finance looked for revenue this year was through increasing the capital gains tax. Erin Sigrist, president of the Vermont Retail & Grocers Association, testified to the Senate Finance Committee in May that raising the capital gains tax would harm association members who were trying to sell their small businesses.
Brock, a member of that committee, asked Sigrist if she had talked to her members about where a revenue increase should come from, if not from a capital gains increase.
“There is a need for revenue,” he said. “If you object to the use of capital gains, is there any other source of revenue your members would prefer instead?”
Sigrist said she hadn’t asked her members that question.
“I get where you guys are coming from,” she said. “If you’re not coming after one group you’re going to hit other group. It’s unfair for everybody involved; we understand that. I guess there’s just frustration. The small retailers in the state feel like they are attacked every year.”
Brock said Tuesday that he hoped the higher-than-anticipated April revenues would lead lawmakers to reduce the tax increases they were deliberating over in conference committees this week.
“If we can get folks together who can validate that and update our forecast, that can make a difference in what we do from a tax standpoint this year,” he said. “I think there may be different mixes of increased revenues that could be less harmful than some of the things we’ve done; we’ll be talking those in conference committees.”
