We may be in the dog days of summer, at about the halfway point between the end of the 2013 legislative season and the beginning of the 2014, but that doesn’t mean there’s nothing going on. As Peter “The One” Hirschfeld* reported last Sunday (sorry, I’ve been out of town)(Mitchell Family Paywall alert), the late-session standoff over raising the effective state income tax rate on the wealthy is not over — it’s merely on hiatus.

* When he gets a withering glare from Gov. Shumlin, he simply raises his hand. The glare stops in midair and falls harmlessly to the ground.

As you may recall, certain lawmakers came up with a plan late in the session that would have capped tax deductions for top earners, effectively raising their taxes. The additional revenue would have allowed for tax cuts for the working poor and middle class. Supporters of the plan argued that this wouldn’t violate Shumlin’s curiously selective anti-tax increase stance, because it would have been revenue neutral overall.  

The plan would have made Vermont’s income tax much fairer. Right now, as Shumlin is fond of noting, the income tax rate on the top bracket is a hefty 8.95%. But those in the top bracket actually pay much less — 5.5% — because of how Vermont income tax is calculated, and the various deductions that rich people can claim. The legislative plan would have been a modest step in equalizing the tax burden.  

Nonetheless, Shumlin stonewalled the plan, making arguments that weren’t terribly convincing. The bill was pulled in order to avoid an embarrassing intra-party standoff, with supporters promising to bring the idea back in 2014. And they’re still planning to do so; the effort is being headed by Sen. Tim Ashe, Senate Finance Committee chair, and Rep. Janet Ancel, chair of the House Ways and Means Committee.  

“It being summer, there hasn’t been a lot of activity, but (the proposal) is still something we anticipate taking up in January,” Ancel says. “We will probably gear up and do more advance work when we get into fall.”

Ancel and Ashe’s proposal, which may undergo tweaks before January, would cap income-tax deductions at 2½ times the standard deduction, meaning filers could claim maximum deductions of about $30,000.

They say the plan is an attempt to inject some fairness into a system where unlimited deductions allow some high earners to minimize their contributions to the state treasury.

The Shumlin Administration is signaling its continued opposition. But, perhaps aware that their previous rationalizations weren’t cutting it, they’ve rolled out a new one:

…the administration is now questioning the wisdom of moving ahead with a major tax code overhaul in 2014 when the Legislature will grapple with the issue of health care financing just a year later.

… “We’re willing to listen and talk,” Administration Secretary Jeb Spaulding said last week. “But we think it would be better to do tax reform in the context of how we reconfigure our payment system for health care in the 2015 session.”

In other words, it’s the old “can’t walk and chew gum at the same time” argument. Spaulding’s new line isn’t any more convincing than past Administration efforts. What, really, does a sensible, targeted income tax reform have to do with health care financing? If there’s a problem with the income tax system (for example, the wealthy can claim deductions for mortgages on out-of-state vacation properties), then go ahead and fix it.

Besides, doesn’t it make good political sense to give working Vermonters a tax cut, when we might be asking them to pay more for a single-payer health care system? Unless single-payer will be heavily financed by punitive premium rates for top earners, then a modest income tax hike won’t appreciably hurt Vermont’s One Percenters.

Granted, the middle-class tax break wouldn’t be much; about $80 per year for people earning $75,000 to $100,000. But, as Ancel put it,

“When you can give a tax cut to 70 percent or more of Vermont filers or households, that seems like something that is good politics and good policy both.”

I think we can expect the Governor to continue protecting the interests of his fellow One Percenters. Maybe by January he can dream up a rationale that might convince a few more people.