New taxes and spending cuts explained
By Anne Galloway, VTDigger.org
“It’s finally over,” said Rep. Brian Savage, R-Swanton, summing up the way many lawmakers felt about the legislative session, which adjourned a little after 11 p.m. Saturday, May 16.
Legislators couldn’t leave the House chamber fast enough. By the time the House Speaker and the governor made final remarks, about a third of the seats were empty.
The 73rd biennium began with an unprecedented (in modern times) legislative vote for governor and ended with the first arrest of a lawmaker on Statehouse grounds for alleged sexual assaults.
In the Senate and the House, lawmakers forged a compromise education reform plan that will force small school districts to join forces and share resources. Property tax relief could take several years.
Lawmakers passed child protection measures, a same day voter registration bill, controversial childhood vaccine requirements, minor restrictions on gun ownership and renewable energy targets.
They took on funding for a water cleanup bill, and at the governor’s behest they attempted to address the health care premium cost shift before they realized they couldn’t raise the money to pay for it.
Shumlin and the Legislature were faced with a structural budget and tax problem that has resulted in a spending and revenue gap that has widened over a seven-year period.
Lawmakers made $53 million worth of cuts in state spending growth (part of an effort to close a total $113 million gap between projected spending and revenue) and raised $30 million in new taxes. At the end of the session, legislators learned that they will face yet another $50 million to $70 million budget gap.
$30 million tax package
After two weeks of intense back and forth, Gov. Peter Shumlin and lawmakers agreed to a $29.6 million tax package.
Shumlin had insisted that lawmakers find more budget cuts, and he used his bully pulpit to push back on the elimination of income tax deductions proposed by the Legislature.
The game of chicken ended Saturday as adjournment loomed. In the end, the Legislature got its way, and the governor agreed to $15 million in new revenues. (The remaining $15 million in revenue increases comes from the elimination of state and local income tax deductions that were not in dispute.)
Shumlin said he was pleased that he was able to reach a compromise with legislative leaders on the budget and “raise the revenue for the budget in a way that is not only fiscally responsible but ensures that we continue to grow this economy for every single Vermonter.”
“So everyone has given a little to get to this plan,” Shumlin said. “Most importantly, we’re meeting our commitment … of closing the budget gap by making smart choices for Vermonters.”
The legislative package includes $7.9 million in income tax changes, namely a cap on itemized deductions and a 3 percent alternative minimum tax on income-earners who make $150,000 or more.
The cap on deductions will be 2.5 times the standard deduction, or about $30,000 for a household. The legislation exempts charitable deductions and medical expenses. Schedule A itemizations can include mortgage interest, property taxes and moving expenses.
House Speaker Shap Smith said he and the governor and John Campbell, the Senate president pro tem, all Democrats, settled on the tax plan after an impasse that lasted several days.
“We know how to get to an agreement in the end,” Smith said. “It’s like any political process, there are bumps along the road.”
Sen. Tim Ashe, D/P-Chittenden said, even though the tax package looks “substantially” like the bill that passed out of the Senate, the negotiations were difficult. “Overall I would say that this has been a particularly painful journey,” Ashe said.
The Senate conceded to a House increase in penalties for the current use program, and the decision set off a firestorm. The current use program gives farmers and forestland owners property tax breaks in exchange for keeping land open.
Sen. Richard Westman, R-Lamoille, opposed the plan and refused to sign the conference committee report. Saturday evening much of the Senate debate on the tax bill revolved around the impact of the new penalties on farmers who use the program.
Other details of the tax plan:
- • The program raises $700,000 from court fees to support the hire of three judges;
- • The Tax Department will garnish the wages of Vermonters who have skirted tax payments ($2.1 million);
- • Medicaid reimbursements to doctors who owe taxes will be blocked ($100,000);
- • Vending machines will be assessed the 9 percent meals tax ($1 million);
- • The 6 percent sales tax will be extended to soda ($5.1 million for the general fund and $2.8 million for the education fund).
The legislation also raises $10.4 million in fees for the state’s water quality enforcement program and other environmental programs.
Lawmakers dropped a number of tax proposals that generated an outcry from the public and businesses, such as taxing monthly satellite TV bills, candy and soda (more than the normal sales tax which will now be assessed on the latter.)