House and Senate leaders drop income-tax overhaul for now
By Peter Hirschfeld
Vermont Press Bureau | May 14,2013
Senate Pro Tem John Campbell, center, listens to discussion between Sen. Mark MacDonald, left, and Lt. Gov. Phil Scott, Monday in Montpelier.
MONTPELIER — A three-day standoff over tax policy ended Monday afternoon when leaders in the House and Senate blinked, dropping their bid to overhaul the income-tax code in the face of a veto threat from Gov. Peter Shumlin.
Confident as they are in the merits of their proposal, House Speaker Shap Smith and Senate President John Campbell said now isn’t the time for a high-profile showdown with their fellow Democrat in the governor’s office.
“I would rather … not take on the issue than go into a pit fight with the governor,” Campbell said Monday. “It’s not the Vermont way. It’s certainly not my way.”
While the concession brings resolution to an issue that had threatened to extend the 2013 legislative session beyond today’s planned adjournment, Smith said it in no way ends the debate over a proposal that would raise income taxes on richer Vermonters, and use the money to buy down the tax bills of the middle class.
“We look forward to working with the governor to adopt a policy that lowers tax rates and is more fair and equitable,” Smith said.
The fifth-year speaker said the House and Senate have reached agreement on a bill that would cap itemized deductions, and use money generated by those new caps to lower tax rates across the board. Smith said that the Legislature has simply decided to wait until next year — the second half of the biennium — to send the bill to the governor’s desk.
“We actually haven’t withdrawn the proposal,” Smith said.
Smith said the one-year deferral will give him and others time to make their case to Vermonters, and to the governor, before he and Campbell attempt to impose their will on Shumlin.
Shumlin in recent days had characterized the proposal as a poorly vetted idea that materialized in the waning days of the session. He said it also violated the no-new-taxes pledge to which he, Smith and Campbell agreed last week
“It’s clear to us that the policy, which we think is good policy, was going to be clouded by policy arguments — ‘it’s too late in the session,’ ‘it breaks a deal,’” Smith said. “And I don’t think when you have good policy you should let process arguments get in the way of it.”
Shumlin kept a lower profile in the Statehouse on Monday than he did last Friday, when he convened an ad hoc press conference to issue thinly veiled veto threats to Smith and Campbell. But Administration Secretary Jeb Spaulding made the case on Shumlin’s behalf, telling reporters that the House and Senate plan would result in unintended consequences for middle-class Vermonters who use deductions to write off large medical bills.
Vermonters of all income levels can deduct everything from home mortgage interest payments to donations to nonprofits to reduce their tax bills.
“It’s about … taking the time to thoroughly vet this out, to see if we can understand what the economic consequences might be,” Spaulding said. “What will the effect on the real estate market be? What will the effect on charitable be?”
The procedural maneuver used by Smith and Campbell — they will keep open the conference committee that authored the reform proposal until the Legislature reconvenes next January — ensures a very public vetting process.
Smith said he’s eager to let the public kick the tires on the proposal, which he touts as a tax cut for the more than 200,000 Vermonters who would see their tax bills reduced under the House plan. Unbound from the end-of-session pressures that have plagued the Legislature’s late-session push for the reform in 2013, Smith said, the benefits won’t be shrouded in a political fog.
“I don’t think that something that lowers tax rates, makes them more fair and more equitable … should get caught up in an argument about process at the end of the session when you can do it (next) January and it has the same effect,” Smith said.
Spaulding said the administration is open to hearing Smith and Campbell out.
“We are totally, totally open and excited to work ... to lower rates for all Vermonters to make the system more fair and more equitable,” Spaulding said.
Asked if that signaled support for the capping of deductions, Spaulding said it’s premature to commit to any particular approach.
“We would rather not get into the specifics of what we would or would not support ...when we’re going to spend the next six months with the Legislature to think about the best way to do it,” Spaulding said.
Asked whether he regrets walking the proposal out as far as he did, only to retract it at the last moment, Campbell said he does not.
“I’ve spent years on bills and seen them defeated and then finally been able to get them through,” Campbell said. “You have to take that knowing there will be another day.”
The resolution of the tax dispute marked the second time in less than a week that Shumlin has emerged victorious from high-stakes negotiations with the Legislature. Last week, the House and Senate, at Shumlin’s urging, dropped their respective attempts to raise new revenues.
Anyone left questioning the Legislature’s ability to check the executive’s power, Smith said, ought to review the record.
“I would just ask you to go back and look at the budget that was proposed and the revenue package that was proposed by the governor, and ask whether what was proposed is reflected in what was finally passed,” Smith said.
Smith was referring to proposals from Shumlin to reduce the earned income tax credit by $17 million, and to use the money to bolster child care subsidies for low-income parents. Lawmakers held firm in their opposition, dismissing the plan as a tax increase on the working class.
Lawmakers also rejected a proposal to generate $17 million next year by taxing “break open” tickets, and to use the money to support low-income heating assistance, home weatherization programs, and renewable energy subsidies.
The House and Senate rejected that plan as well. While lawmakers did appropriate $6 million for LIHEAP, investments in green energy and thermal efficiency will end up being a fraction of what Shumlin had sought.
The breaking of the jam over the tax issue immediately yielded progress on the major issues standing between lawmakers and an expeditious adjournment. Minutes after Smith and Campbell relented, the conference committee ironing out differences over the fiscal year 2014 spending plan shook hands on a $5.3 billion budget.
Budget writers in recent days raced to find the $10 million in reductions necessitated by last week’s decision not to raise new taxes. A $1.1 million reduction in efforts to reduce the Medicaid cost shift helped resolve the gap.