May 1 Legislative Tax Summary

(Top Story From the May EAI Newsletter)

Did Vermonters Vote for No New Taxes, or a Boatload of New Taxes in the Last Election? I (and the legislature) am confused….

Last November legislators claimed to have heard the cries of Vermonters who are taxed too much. The number one issue on the campaign trail was high property taxes. Yet here we are, less than six month away from the day Peter Shumlin woke up to find himself nearly taken out by an underfunded, neophyte to politics, and….

THE BIG HITS

Property Taxes: Rather than lower property taxes, the House voted to hold level the homestead rate and raise the non-homestead rate by a penny for a total $16 million increase. However, in order to keep the rates at this level, the House had to use $11.5 million in reserve funds that will at some point need to be replaced. Adding insult to injury, the “reform” efforts pursued by the legislature center on providing financial incentives to communities to consolidate into larger, ostensibly more efficient school districts. Where will the money for those incentives come from? Property taxes! And will consolidated districts lower costs? The evidence points to No!

Income Taxes: The House is looking to raise roughly $33.2 million in new income tax revenue by capping itemized deductions on the state income tax at $15,000 for individuals and $31,000 for couples, and disallowing deductions for state and local taxes from the previous year. The senate really wants to make things complicated by changing the state’s taxable income system to adjusted gross income, replacing itemized state income tax charitable deductions with a charitable tax credit for donations made within the state of Vermont, and disallowing the deduction of out-of-state deductions. The mortgage interest deduction for homeowners would be capped at $12,000. We’ll see what happens.

Payroll Taxes. As part of his budget address Governor Shumlin proposed a 0.7% payroll tax that would take roughly $90 million. This idea was not popular in the legislature, was first cut down to a 0.3% payroll tax increase before being tossed out completely. It has appeared dead for some weeks now, but in the waning weeks of the session, the governor is trying to breathe life back into it.

DEATH BY A THOUSAND INCREASES

Sugar Sweetened Beverage Tax. Adopting a 2¢ per ounce (total of over $30 million) excise tax on sugar-sweetened beverages (for our health and, of course, the children) was a popular notion at the beginning of the session, but strong opposition has morphed and changed it considerably, but not enough to make it disappear. It went from 2¢ to ½ a cent per ounce on ALL sweetened beverages (sugar or no sugar), and now it looks like legislators are just talking about extending the state sales tax of 6% to cover sweetened beverages, including bottled water (which we all know is responsible for the obesity epidemic and the moral justification for this tax, right?)

Candy &Vitamin Tax. In addition to sweetened beverages, and bottled water, the plan calls for candy to be subject to the 6% sales tax (unless made with flour, so go for those exempt Twix and Kit Kat bars!), as well as dietary supplements. This, along with the sales tax on soda, would take $12 -$14 million out of Vermonters’ pockets.

Vending Machine Taxes: They want to apply the state’s 9% rooms and meals tax to the snacks you get out of a vending machine. Talk about nickeled and dimed!

Satellite TV Tax. Back by popular demand (not!) the senate has resurrected at the eleventh hour the idea of a $5 million tax increase on Vermont’s roughly 100,000 satellite television users. This died a quick death when discussed two years ago. Hopefully the same fate awaits it now.

Cigarette/Tobacco Tax. In what has become an annual tax raising ritual, the House wants to raise cigarette and other tobacco taxes by 23¢, and the Senate wants to raise them another $1.00. This gives you a good idea about how a similar sin tax on soda and/or candy would grow over time.

Insurance Claims Tax. Weren’t we trying to lower the cost of insurance? Anyway… some senators are now pushing for a 0.9% tax on health insurance claims. In addition, they would increase the “employer assessment” on businesses that do not offer health insurance by $10 million.

Property Transfer Tax. To pay for lake clean up the House approved 0.2% surcharge to the property transfer tax, as well as adding a number of additional fees. The total take for the government is about $8 million.

Mandatory Paid Sick Leave. Though technically not a tax, this unfunded mandate passed by the House forcing businesses to provide paid sick leave to employees will cost mostly small, marginally profitable enterprises up to $14 million a year.

NOT READY FOR PRIME TIME, BUT….

Two ideas appear dead for this year, but the groundwork is being laid for passage in 2016. They are…

Carbon Tax. A coalition led by VPIRG is calling for an eventual $700 million Carbon Tax which would lead to a surcharge of $1.35 on each gallon of gasoline, with similar charges attached to home heating fuel, etc.Rep. Mike Hebert (R-Vernon) of the House Energy & Natural Resources Committee explained, “What we’re doing right now is laying the groundwork for next year. I think we will see a Carbon Tax bill next year.” (VIDEO)

According to Hebert, proponents of the tax who testified before the committee did not look into the impact of such a tax on employment in Vermont. “We asked basic questions, like how many gallons of diesel [fuel] are used on farms,” said Hebert. “They had no clue.” Hebert looked up the data for himself and found that the number is about 7 million gallons per year. “So, that would mean somewhere between $6.3 million and $7 million on our farmers.” That number was just for farm work, and did not include transportation or other uses.

Rep. Tom Burditt (R-Rutland) described what this tax would mean for his small landscaping business. According to Burditt, he uses roughly 2500 gallons of gasoline per year. The tax would mean $2500 coming directly out of his pocket. In addition, Burditt said that he used 700-800 gallons of fuel oil for heat. The total carbon tax hit on his income would be well over $3000. (VIDEO).

Sales Tax on Services. Senator Tim Ashe (D/P-Chittenden) is leading the charge to expand Vermont’s 6% sales tax to services, lowering the overall rate to 4.75% (at least initially). The concept of expanding the sales tax to services was championed by Speaker of the House Shap Smith (D-Morristown) in 2012, so Ashe may have a powerful ally in the House.

Though the idea is dead for now, Ashe has promised to bring it back next year. For more, read John McClaughry’s excellent commentary…. http://ethanallen.org/commentary-the-latest-big-idea-in-montpelier-taxing-services/

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