The Senate plans to shrink the House’s proposed child tax credit — potentially by more than half — to include other kinds of credits in its version of a tax relief package.
The House tax relief proposal, passed in February as H.510, would return $1,200 to families for each child 6 and under, affecting an estimated 34,000 Vermonters. It also would expand the Social Security tax exemption. In total, it would reduce state revenue by an estimated $49.7 million, with $48 million due to the child tax credit.
A competing proposal came from Gov. Phil Scott: smaller tax refunds, but to more Vermonters, not just families with young children.
The governor’s proposal would exempt all interest paid on student loans, increase the Earned Income Tax Credit for low- and moderate-income Vermonters, exempt military pensions and send flat $1,000 credits to nurses and child care workers.
Based on committee discussions from the past two days, it seems the Senate Finance Committee is trying to land somewhere in the middle: “meaningful” credits to families, as Sen. Ruth Hardy, D-Addison, said to the committee, while extending some relief beyond just families with young children.
“I think we all agree with the concept of any child tax credit not being a silly little one, but sticking to the House’s construct of if you’re gonna do it, really do it,” Sen. Chris Pearson, P/D-Chittenden, said to the committee on Thursday.
The golden number is $36 million: The committee told Senate budget writers they would stay within that amount, so the Senate Appropriations Committee could finish its draft of the Big Bill. That is expected to be voted out of the Senate Appropriations Committee on Friday.
While Senate Finance — the tax committee — had considered looking for new revenue sources, holding hearings on options like a soda tax, it has decided not to move forward with any of those this session, according to committee chair Sen. Ann Cummings, D-Washington.
“I think we're just not comfortable” banking on the current state of the economy, Cummings said in an interview. “If we need to raise revenue in the future, we might want to hold on to those limited ways we can raise a couple million.”
The committee also did not want to raise other taxes to finance the child tax credit, Cummings said.
So the committee set about shuffling different tax-credit options to whittle down the bill’s impact on the state treasury.
The House child tax credit was pretty much a flat payment — every family would get the same amount, no matter their income, phasing out for taxpayers making $200,000 or more.
Senators were presented with several options within their budget, modeled by the Joint Fiscal Office: They could phase out the tax credit at a lower threshold, or decrease the payment amount, or limit the credit to families with the very youngest children, possibly age 3 and younger, or 5 and younger.
The committee discussed options that would reduce the cost of the child tax credit to $18 million, and considered models from the Joint Fiscal Office where the child tax credit hovered between $22 million and $25 million.
Committee members voiced support for some pieces of the governor’s proposal, particularly the exemption for interest on student loans.
The exemption for military pensions — a policy Scott has pushed year after year — got less traction. Multiple senators expressed concerns about the governor’s other tax cuts based on occupation, for nurses and child care workers.
“Every time you pick one, you naturally create some antagonism,” Sen. Chris Bray, D-Addison, said to the committee Thursday afternoon.
Hardy noted that, while she supported incentives for nurses, the Senate’s economic development bill, H.159, already included millions for nursing.
Cummings warned the committee that a tax exemption is a less flexible way to reward high-need occupations than payouts, as workforce needs can change down the line, and taxpayers are reluctant to give up tax breaks they’ve become accustomed to.
By the end of the day Friday, it appeared the committee was prepared to leave behind any tax cuts targeted by occupation, but Cummings asked the Appropriations Committee to use the money considered for child care worker tax cuts, and instead target them as one-time payments.
Either way, Cummings expects pushback from the House to the overall package.
“All of these bills are going into committee of conference,” Cummings said. The committee’s job is to try to find a middle ground acceptable to both House and Senate.
“None of this is over,” Cummings said.
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