Senate is ready to take up budget
MONTPELIER — After a week of contentious debate over a revenue package that drew the scorn of both Republican lawmakers and the Democratic governor, the House on Friday handed the baton to the Senate, where key players, including president John Campbell, are already hinting at additional changes.
The House has had its way with the budget and tax proposals handed them earlier this year by Gov. Peter Shumlin. Gone is a $17 million reduction in the earned-income tax credit, as well as the bulk of the child care subsidies to which the governor would have allocated those savings.
And Shumlin’s $17 million tax on “break-open” tickets, and $15 million health care assessment on businesses, meanwhile, have been replaced by tax increases on meals, income, and purchases of clothing, soda, candy, cigarettes and bottled water.
Campbell, a Windsor County Democrat, said he doesn’t want to sound like a “Monday morning quarterback” as he assessed the House’s work in an interview Friday.
“I laud them for the work that they did,” he said. “They’re the ones that come out of the gate first... and have to look for some kind of revenue to meet our shortfalls.”
But Campbell said their work is likely to undergo potentially significant revisions prior to reaching the Senate floor.
“My initial reaction is that I do not want to have to raise that much revenue,” Campbell said of a House plan that would generate about $27 million in fiscal year 2014, and $32 million the year after that.
Campbell said raising less revenue will require a reduction in the $5.24 billion budget given final approval by the House on Friday. He won’t yet specify the areas of spending he’ll be targeting for cuts.
“But I think it’s clear we have to triage,” Campbell said. “I think the Senate is going to look at items in the House budget and ask, do we need to fund these things this year? And if we are going to support a new program, is it one that’s going to expand exponentially?”
Campbell said his aversion to new spending doesn’t necessarily mean he’s against the $3.3 million in child care subsidies for low-income parents in the House bill. Shumlin will continue to push for $17 million for that program, though his plan to reduce the earned income tax credit to pay for it looks to be as popular in the Senate as it was in the House, which is not at all.
“But if we’re going to embark on new spending with something like the child care, then I think we need to look at taking our current spending elsewhere and reallocating, instead of just adding to the overall budget,” he said.
Which isn’t to say that Campbell won’t support some level of revenue increases.
“I would have to be either very insincere or unknowledgeable of the challenges we face to say ‘no’ right now to new taxes,” Campbell said.
Though he hails from a border town himself, Campbell said he thinks the House’s proposal to revoke the sales tax exemption on soda merits serious consideration. The move would raise an estimated $2.8 million annually.
“I understand as well as anyone that people in border towns may not be pleased with us,” Campbell said. “But in these hard times I think it’s a place we may have to go.”
As for the House plan to eliminate the sales tax exemption on purchases of items of clothing that cost more than $110, Campbell said that’s “off the table” for him. Also problematic, he said, is the half-a-percentage-point increase on the meals tax, which would raise $4.2 million in fiscal year 2014. The provision would sunset under the House plan in June of 2014.
“I don’t want to do anything that might impede our tourism businesses from emerging from this last recession,” Campbell said. Campbell and Sen. Tim Ashe, first-year chairman of the Senate Committee on Finance, say they’ve taken a brighter view of Shumlin’s proposed tax on break-open tickets than their counterparts in the House. Neither agrees with the $17 million figure Shumlin said the tax would raise. But even if it only generates $6.5 million annually — the estimate arrived at by fiscal analysts for the Legislature — they say it may be a worthwhile policy goal.
“I would rather go to something which some people engage in voluntarily for entertainment purposes,” Campbell said.
Ashe, to whom Campbell said he will show deference on many tax issues, said he’s impressed by the House’s decision to use the elimination of exemptions in the income tax code — as opposed to simply increasing rates — to generate revenue.
“Our committee has been exploring tax policy for equity purposes, without regard to whether it would raise money or cost money, because it’s always the right time to fix inequities in the tax code,” Ashe said.
Ashe said there might be inequities to be found in the income tax. The House plan generates the bulk of the revenue increases in fiscal year 2015 by capping the dollar value of itemized deductions filers can use to lower their tax bills. The proposal would have a disproportionate effect on wealthy Vermonters, who tend to have higher home mortgage interest and other deductions they can use to offset tax obligations.
“The governor in part wants to pay for his new priorities by taking money out of the pockets of low-income workers, through reductions in the earned income tax credit,” Ashe said last week. “Meanwhile, wealthy people receive tax deductions for second or third homes that not only may not be in Vermont, but may not be in this country. When our committee is looking at this, we are thinking, what is the best first dollar to raise for our priorities.”
The other major revenue proposal to come out of the House this year, a gas tax projected to raise per-gallon prices by close to 7 cents this summer, could also come under scrutiny in the Senate. The House plan mirrors the one put forward by Shumlin in January in that it shifts the tax away from a static per-gallon charge, and toward a percentage on the retail price at the pump. The change creates a built-in inflator that proponents say will allow revenues to keep pace with the rising cost of road and bridge maintenance.
Sen. Dick Mazza, longtime chairman of the Senate Committee on Transportation, said he’s not convinced it’s the right way to go.
“I don’t like having automatic tax increases built in now,” Mazza said. “If we need more money in three or four years, then I think we ought to come back in three or four years and deal with it then.”
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