The battle over taxes that pitted Gov. Peter Shumlin against fellow Democrats in the Legislature last year will likely begin a new chapter during the coming legislative session.
Shumlin stood firm against a plan by Democrats to limit income tax deductions for upper-income taxpayers in order to lower the tax bills of middle-income taxpayers. Democratic leaders abandoned the proposal at the end of the session this spring but promised to renew the battle in the session to come.
That wasn’t the only battle over taxes waged in the Legislature in the past session. Shumlin also proposed lowering the earned-income tax credit for Vermont workers and using the money to expand child care. But Democratic legislators wanted no part of raising taxes on working Vermonters, and Shumlin’s plan fell on its face.
Now leaders of the Legislature’s tax-writing committees are taking another look at the proposal to shift the tax burden away from middle-class taxpayers by removing some of the benefits enjoyed by the wealthy. House Speaker Shap Smith, who supported the tax reform measure last winter, has not said whether he will support a new version. He wants to be sure that benefits to middle-class taxpayers are significant enough to warrant the extra burden at the upper end.
Meanwhile, there are indications that Shumlin may renew his plan to raise taxes on the working poor by cutting back on the earned-income tax credit. All of these proposals are circling around a larger reality that seems to have eluded Shumlin: the widening gap between rich and poor and the steady impoverishment of America. Shumlin’s failure to appreciate the importance of these trends has caused him to continue to push tax proposals that will only exacerbate the problem.
The slowness of the economic recovery following the Great Recession has had dire consequences, especially for young people. A new study cited by columnist Charles Blow in The New York Times found that one in seven people of ages 16 to 24 is unemployed and not in school — disconnected from society and “adrift” at the margins. That is a huge number. The burgeoning and corrosive problem of drug abuse in Vermont and elsewhere must be seen as a consequence of the failure to offer opportunity for young people.
Further, median household income was continued to decline: It was 8.3 percent lower in 2012 than in 2007. Meanwhile, the mean net worth of households in the top 7 percent of earners rose by about 28 percent during the first two years of the economic recovery, according to the Pew Research Center. The mean net worth of those in the lower 93 percent dropped by 4 percent in that period.
And yet it is the tax breaks of the top earners that Shumlin has shown himself determined to protect while cutting back on tax benefits that help working taxpayers stay out of poverty.
It is assumed that Shumlin is determined to avoid tax hikes on wealthy taxpayers because he wants to keep the ground clear for the tax increases that will be needed to pay for the single-payer health care system that is supposed to go into operation in 2017. There is sense to that position. It will be harder to pass a tax hike if he has already loaded the taxpayers with tax hikes.
Speaker Smith is not buying that argument, however. If tax reform makes sense in 2014, he said, then it ought to be pursued in 2014, regardless of what is expected to happen later.
Low-income Vermonters are already bearing the consequences of the mean-spirited budget measures pushed by Republicans in Congress that have caused food and housing assistance to be reduced. Cutting back on a program that gives them a break on income from low-wage jobs would add insult to injury.
Meanwhile, wealthy taxpayers often complain that they already fork over a high percentage of tax revenues collected. The claim is true. But governments have to go where the money is, and if the wealthy are going to monopolize an ever larger share of the national income, they will have to bear an ever larger share of the tax burden. That is a lesson Shumlin has been slow in learning.
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