Senate approves its version of new tax bill
By Peter Hirschfeld
Vermont Press Bureau | May 02,2013
MONTPELIER — The stage has been set for the highest-stakes negotiations of the legislative session after the Senate gave final approval Wednesday to its version of the fiscal year 2014 tax bill.
While the House, the Senate and the Shumlin administration have found themselves on mostly common ground when it comes to how to spend money next year, they remain miles apart on how to raise it.
As Gov. Peter Shumlin pledges not to raise taxes on income, meals or sales, a House and Senate controlled by members of his own party have delivered revenue bills that contain increases in all three.
The floor debate Wednesday in the Senate spotlighted the rifts over tax policy in Montpelier, where one-party rule doesn’t mean lawmakers are always marching in ideological lockstep.
From amendments seeking an income tax increase on wealthy Vermonters, to the elimination of sales on bottled water, the Senate offered a glimpse at the competing interests that will clash when House Speaker Shap Smith, Senate President John Campbell and Shumlin meet in the coming days to hammer out a deal.
The rate hike on rich people offered up by Sen. Anthony Pollina on Wednesday mirrored exactly the one he proposed on the Senate floor last year, but for one notable difference: This year’s version would generate 20 percent more revenue.
Higher monetary yields from the same percentage increase, Pollina said, show the rate at which Vermont’s wealth is becoming concentrated among its highest-earning residents.
Instead of resorting to the “regressive” tax increases on bottled water and satellite television contained in the Senate’s fiscal year 2014 tax bill, the Washington County Progressive Democrat said in a floor speech, lawmakers ought to be looking for new money from the Vermonters who can afford to part with it.
“I guess what I’m asking you to do is to simply stand with middle- and lower-income Vermonters, those people who are struggling to make ends meet, and not be taken in by rhetoric that says we can’t ask wealthy people to pay more,” Pollina said.
His amendment to the Senate’s version of the miscellaneous tax bill — it would have raised $21 million — won support from only six of his colleagues. The amendment’s defeat, Pollina said, will prevent the Legislature from addressing “root problems” in the economy that have seen the top 1 percent’s share of the state’s wealth triple over the last 20 years.
Sen. Tim Ashe, chairman of the Senate Committee on Finance, defended his bill against the criticism. He said he agreed that rich Vermonters are faring better than the poor. And that’s why the $10 million revenue bill under consideration Wednesday, he said, didn’t include cuts to the earned-income tax credit, or EITC, being pushed by Shumlin.
The Democratic governor sought to use a $17 million cut in the EITC to support substantial increases in childcare subsidies for low-income parents. But Ashe said his committee worked hard to protect the 40,000 working Vermonters who benefit from the program.
He said the earned-income tax credit was designed to offset the financial impact of more regressive taxes, the sales tax among them, on lower-wage workers.
“And we have maintained in this tax bill the commitment to offsetting some of those very regressive taxes that would otherwise cause those problems,” Ashe said.
Sen. Peter Galbraith, a Windham County Democrat who serves on the Senate Finance Committee, said the tax bill does attack the growing wealth gap, but does so by reducing some of the tax exemptions that offer disproportionate benefits to high-income earners.
“The problem is not in the ... rates, it is in the tax expenditures — the deductions available to those in the highest brackets,” Galbraith said.
The tax bill would cap the home-mortgage interest deduction at $12,000, a provision that, in tandem with a “minimum tax” of 3 percent on people making in excess of $125,000, generates more than $7 million annually. That money, Galbraith said, will come largely out of the pockets of the wealthy Vermonters that Pollina’s amendment would target.
“This bill makes some effort toward greater fairness,” Galbraith said.
Pollina’s amendment wasn’t the only failed effort to alter the bill. A proposal from Sen. Dick Sears that would have eliminated a new sales tax on bottled water also was defeated on the floor.
But while the keystones of the tax bill remained intact after the Senate’s final vote on the measure Wednesday, a last-minute change orchestrated by Sen. Richard Westman means the legislation will now raise only $9.5 million — a half-million dollars short of what the appropriations committee had budgeted for.
Sen. Jane Kitchel, a Caledonia County Democrat and chairwoman of the Senate Committee on Appropriations, said the loss of revenue would cut by more than onethird the already small reserve lawmakers had set aside for unanticipated fiscal emergencies.
But Westman, a Lamoille County Republican, said that the manner by which the Senate Committee on Finance had sought to raise the funds — the elimination of the higher-education tax credit for households earning in excess of $200,000 — would exact an undue toll on the middle-class families of college-bound children.
That’s because the tax credit, according to Westman, is one of the few attractions Vermont has to lure well-heeled families into a college savings account program. The “529” program establishes a tax-free haven for college savings. But the return on those investments — pooled by the state and overseen by a private manager — depends on the amount of money in the fund.
Without the tax credits, Westman said, wealthy Vermonters will simply invest in “529” funds in other states that do offer tax credits to wealthier residents. The loss of revenue into the investment fund, he said, would drive up management fees, and prevent middle-class families from realizing maximum returns.