The Vermont House has overwhelmingly rejected a last-minute Progressive-led push for an income-tax surcharge on the state’s wealthiest residents to help deal with the state’s pension crisis.
The proposal, an amendment to this year’s miscellaneous tax bill, would have added a 3% surcharge to any income over $500,000. Estimates were that the top 1.45% of earners in the state would have to pay the surcharge.
Rep. Brian Cina, P-Burlington, lead sponsor of the amendment, said the surcharge could raise $40 million to $50 million a year, according to a preliminary estimate from the Legislature’s Joint Fiscal Office.
Cina said that while the state has worked to pass balanced budgets over the years it made “one big mistake” in underfunding its retirement obligations.
The pension system for state employees and teachers is facing a projected $3 billion shortfall, with the hole getting $600 million deeper this year, state Treasurer Beth Pearce said earlier this year.
“In our attempt to provide services to the people, we did not properly take care of the people providing the services,” Cina said of the pension problem. “Now, we have to face the consequences of those choices and we have to make things right, and now is the time to bring back a surcharge.”
He compared the proposal to an agreement reached by Gov. Dick Snelling and the Legislature in 1991 that temporarily enacted a tax surcharge on Vermont wealthiest residents to help the state weather the effects of a recession.
The amendment failed 125-21, with all Republicans and a vast majority of Democrats opposed.
Legislators criticized the amendment for skirting the legislative process: it received no testimony or committee deliberation, and lacked a financial analysis.
The amendment was released just 30 minutes before legislators convened Friday morning, said Rep. John Gannon, vice chair of the House Government Operations Committee, which has been tackling pension reform this year.
“I am thankful that ideas are beginning to be generated to help us understand different ways we can stabilize our public pension system,” Gannon said. “But it does not help us to develop a holistic long-term solution to saving the retirement future for our teachers and state employees when an amendment is presented at the last minute, with no analysis and ability to understand its impact.”
The income-tax surcharge on the wealthy was proposed after Democratic House leaders unveiled an initial plan this week to tackle the pension system’s shortfall.
The plan was quickly criticized by unions and some lawmakers because it would trim benefits while asking for higher contributions from teachers and state employees. The House budget sets aside an extra $150 million in one-time money to help the state pay down debt, as legislators continue to develop the plan.
But Progressives and some Democrats want the state to raise new revenue to deal with the mounting unfunded liabilities, and help avoid having teachers and state employees bear the added cost.
Rep. Robert Hooper, D-Burlington, who supported the amendment, called the House’s initial pension plan “draconian” and the state budget’s $150 million pay-down of the obligations isn’t enough.
“It’s appreciated, but leaves a gap that will basically shift the burden of this unfunded liability onto the backs of the workers that, not that long ago, we decided we would praise for staying in the classroom, taking care of our highways, patrolling our roads, working in our health clinics,” said Hooper, a former president of the Vermont State Employees’ Association — the state employees union.
Rep. Janet Ancel, D-Calais, chair of the House Ways and Means Committee, said the surcharge “short-circuits” the House effort to tackle the pension crisis “just as it’s starting.”
“And it does it by making a very substantial change in our income tax structure without any testimony, or any analysis at all,” Ancel said.
Rep. Gabrielle Stebbins, D-Burlington, voted against the surcharge and said she doesn’t support “developing tax policy via House floor amendment.”
But she also said she found “saying no troubling and challenging,” and the pension proposals she’s seen so far have “a long way to go, to ensure we keep our word to those who have trusted in us.”
“I truly hope that this discussion is heard for what it is: an urgent call to action to creatively, collaboratively and deliberately come up with a fair, equitable and responsible solution,” Stebbins said.
During his press conference on Friday, Gov. Phil Scott called the pension plan that lawmakers put forward this week “a step in the right direction.”
“This is going to have to be something passed by the House, over to the Senate, And then we’ll be all working together along the way. But, again, I give credit to the House speaker and others for moving forward with this,” Scott said.
Asked about taxing the wealthy to raise money for the retirement obligations, Scott, who has opposed new taxes and fees during his time in office, has called the idea an “easy talking point.”
“When you really actually look into the details and find out how many of these high-wage earners we have, we’ll find out very quickly that there’s not many,” Scott said.
“And to raise that amount of money without doing anything about the structural issues within the pension funds and the retirement funds are significant,” he said.
House Speaker Jill Krowinski, D-Burlington, said Friday that she’s open to proposals to raise revenue to tackle the pension crisis. But she said that she wants to find consensus with Scott on a path forward.
“I think it would be really unfortunate for our state if we went through this entire process, and had a veto and we weren’t able to override it,” Krowinski said.
Krowinski said Democrats don’t have enough votes to guarantee a reversal of the governor’s veto — together, Democrats and Progressives hold 99 seats in the House. One hundred votes are needed to override a veto.
The speaker said that whatever plan the House puts forward needs to have the consensus of “everyone around the table.”