MONTPELIER — As legislative support for Gov. Peter Shumlin’s new revenue proposals continues to deteriorate, lawmakers have begun developing their own plans to raise money.
In the coming days and weeks, Montpelier will see bills that would raise tax rates on top earners, eliminate tax exemptions that benefit the wealthy, add a 1-cent-per-ounce tax on sugared drinks, and double the gross receipts tax on heating oil.
Shumlin, for his part, has recommended nearly $70 million in tax increases to support new government spending on renewable energy, thermal efficiency, heating assistance and road maintenance.
That figure doesn’t include his plan to raise $17 million by reducing a tax expenditure that now benefits the 45,000 lowest-wage workers in the state. He wants to use that money for new childcare subsidies.
Leaders in the House and Senate have begun calling into question both the wisdom and viability of Shumlin’s new revenue streams. And legislators eager to retain the governor’s array of new state programs say they’ll come up with their own ways to support the spending.
“We’re buying the administration’s argument that we need new revenue to do all the proposals the governor wants us to do. We have no problem with that,” says Rep. Paul Poirier, a Barre City Independent. “But many of us do have a problem with his plan to raise the money he needs to pay for it.”
Most controversially, Shumlin would raise $17 million by cutting a tax expenditure used to reduce the income tax obligations of the working poor. The “earned-income tax credit” in most instances gives recipients more in a refund than they would have owed in taxes, but many lawmakers still characterize it as a tax increase.
It’s one of several revenue proposals unveiled in a spending plan last month that also included: $17 million in revenue from a 10-percent surcharge on “break-open” tickets; $16 million annually from a 1-percent tax on health insurance claims; and $36 million from a 4-percent tax on the retail price of gasoline.
While not technically a new tax, Shumlin also wants to keep in place an assessment on employers who fail to offer health insurance to employees. The so-called “Catamount assessment” was created in 2006 as a means of funding health insurance subsidies for low-and middle-income Vermonters. But now that Catamount is disbanding, many lawmakers say the assessment, too, needs to go away.
From a policy perspective at least, the proposed tax on break-open tickets may be the least controversial of Shumlin’s proposals. But fiscal analysts for the Legislature say it won’t raise anywhere near the $17 million Shumlin has built into his fiscal year 2014 budget plan.
The new projections have left many lawmakers concerned about the fate of the programs for which Shumlin had earmarked the funding. The $17 million was to pay for heating assistance for the poor, low-income weatherization programs, and renewable energy subsidies.
Rep. Margaret Cheney, a Norwich Democrat and vice-chairwoman of the House Committee on Natural Resources and Energy, is working on legislation that would raise the gross receipts tax on heating fuels. She wants to use the approximately $8 million in new revenue to bolster low-income weatherization and statewide thermal efficiency projects.
“We’re all concerned about the unreliability of the break-open tickets,” Cheney said. “The governor had three uses for that money, and this plan takes care of one of them.”
Poirier is putting the finishing touches on a bill that raises $30 million in new revenue by increasing income taxes on the top two income brackets, a plan that would affect the approximately 5,000 filers making more than $171,500 annually.
Rep. Chris Pearson, leader of the House Progressive Caucus, said he plans to reintroduce a bill that would generate $17 million by altering tax code in a way that assesses the top income tax rate on the entirety of top earners’ wages (currently, the first $373,000 of annual income is subject to rates established for lower tax brackets).
“Instead of raising taxes on poor people by cutting the earned-income tax credit, or dealing with fuzzy numbers in the break-open tickets, let’s just use a simple mechanism that affects the people who can best afford it,” Poirier said. “And then we have money for childcare and heating assistance and all these other things the governor wants.”
Pearson said Shumlin’s longstanding opposition to rate increases in the income tax will make it tough to find sufficient support in the Legislature for those bills. He said that’s why he’s working on a separate revenue proposal that generates revenue by eliminating exemptions instead of raising rates.
Pearson said instead of reducing a tax expenditure that benefits poor people — the earned income tax credit — lawmakers should instead consider exemptions that tend to enrich the wealthy. The bill remains a work in progress, but Pearson said Vermont, for example, exempts from the estate tax the first $2.5 million worth of property.
“There are a number of giveaways, I would call them, that overwhelmingly benefit wealthy taxpayers,” Pearson says. “It’s my goal to within the next week present a laundry list of options for the Legislature to consider.”
Rep. David Sharpe, a Bristol Democrat, will be the lead sponsor of legislation that would impose a 1-cent per-ounce tax on every bottle of sugar-added beverages sold in Vermont. Shumlin is a staunch opponent of the proposal, which he has said would exacerbate the competitive disadvantage already suffered by many Vermont retailers (New Hampshire has no sales tax).
But Sharpe says the proposal — it would raise an estimated $27 million per year — stems in part from a desire to insulate low- and middle-income Vermonters from the higher insurance costs awaiting them next year in the new “health benefits exchange.”
Shumlin’s plan to aid those residents relies in part on the Catamount assessment, something lawmakers may well decide to jettison. If they do, they’ll lose the $11.8 million it would have generated in fiscal year 2014. Sharpe and others say there needs to be an alternative way to raise that money.
“We’re looking at some serious fiscal problems in state government,” said Sharpe, the ranking Democrat on the House Committee on Ways and Means. “Vermonters are in need ... and we have a responsibility to meet the needs of the state.”
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