Of Ways ‘n Means…

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(A note on this diary: I’m not good with tax policy particulars, and I’m admittedly attempting this on the fly. By all means, feel free to chime in with corrections of fact or interpretation…)

The legislature continues to move at breakneck speed to adjourn this week. Not thrilled about the intense focus on working to a date certain, but it is what it is. Nobody wants to be accused of spending more money than necessary in this environment.

In any event, the package that’s emerging would rejigger the tax structure to close the growing budget hole in a variety of ways. Among them is an actual cut in income tax, including the marginal rates, which amount to a (yep) tax cut for the wealthy. In this environment, no less. Arg.

It seems crazy, but its in the context of a package that will likely make the overall tax system more progressive. In this way, its easier to give the complete picture higher marks than the individual parts. The marginal cut, of course, is to do two things: shore up “fiscal moderate” bragging rights for some lawmakers, and make it more palatable to the governor (not necessarily in that order, depending on who you’re talking to). As I’ve said before, I don’t think any idea that will get credited to anybody but the Governor will move the Governor away from a veto, but we’ll see I guess.

The proposed changes reduce the rates at the middle level most significantly, and upper incomes will be additionally hit by dropping the state tax payment from the deductions, and the so-dubbed cap gains loophole – a 40% exclusion for capital gains would be replaced by a $5,000 a year exemption for capital gains income, which will hit upper incomes hardest (although will have an impact on some middle-income taxpayers as well).

Sin taxes (both alcohol and cigs) are up. There is a a $19.8 million hit to the Education Fund and $26.5 million of further reductions that aren’t entirely clear yet (at least, I haven’t gotten that far, although the media is reporting it includes $600,000 in reduced benefits for low income, elderly, blind and disabled Vermonters).

More bad news is that more revenues will be pulled via the property tax (a tax I personally rather loathe). What’s not being talked about either is a tax on all digital downloads (up to and including ringtones) which is estimated to bring in a scant $1m next fiscal year. Love to see how they’re gonna pull that one off. In any event, its a sales tax which is, again, regressive.

In terms of big picture, there’s an eye towards rearranging the overall tax structure here, rather than targeting specific revenue sources in a case-by-case way. Clearly the desire is to appear balanced (a word repeated in the press release) and pragmatic, while maintaining an overall progressive directionality – if only barely. It’s a gamble, and one that doesn’t pay off:
a) if the Governor vetoes it anyway – where are they going to go for Negotiations Round 2? I shudder to think.
b) when people start demanding a Schindleresque accounting of state jobs lost and workers displaced against individual parts of the plan, such as top-tier income tax reductions.

If the Governor signs this, maybe it will all be worth it. If he doesn’t (and I’m betting he won’t, if for no other reason than just to make mischief), then some of these approaches will have to be seriously called into question in hindsight.

48 thoughts on “Of Ways ‘n Means…”

  1. Right off I’ll admit I haven’t read the budget proposal. Here’s what WCAX reported last night (excerpt, any emphasis is mine):

    The Democrats’ plan includes $26 million in cuts:

    $4 million from scholarship and workforce training

    $3 million from the Vermont Housing and Conservation board

    Half a million by cutting back rest area hours on the interstate

    And $600,000 in reduced benefits for low income, elderly, blind and disabled Vermonters.

    “That the cuts we are making to state government are really going to have a long-term negative, devastating impact on many areas of our state. We have made the cuts anyway understanding we are in an economic crisis of unprecedented proportion,” Shumlin said.

    The plan also calls for raising taxes on cigarettes, liquor and digital downloads.

    Taxes on capital gains will go up, like selling stock or land.

    But Democrats abandoned an income tax hike and instead will use half of the tax money raised– about $25 million– to lower income taxes for everyone, ranging anywhere from a 1.5 to 6 percent break.

    And the final piece includes dipping into the education fund to balance the state budget– an idea some Democrats don’t like. They worry it could raise property taxes. [ya think!?!]

    The cuts mentioned in this report add up to only $8 million, and we can probably assume that most of the rest are nickel-and-diming, although there’s a rumor that Current Use (a program that limits taxes on working landscape – mostly farms, maybe also managed forest land – so that it’s not taxed like potential house lots or commercial property) might be taking a big hit.

    From the same report:

    “We’ve tried to strike a balance between what we hate and what they hate,” said Sen. Peter Shumlin, D-Vt. President Pro Tem.

    Frankly, I don’t see much in here for the Governor to hate.

    Democrats are raising money off the poor and disabled and people looking for training so they can get a different job than the one they were laid off from, and the most regressive taxes there are, then cut the most progressive tax there is: income taxes? Very bad juju.

    From this morning’s Free Press account by Nancy Remsen:

    “I’m going to have a very hard time voting for a budget that increases property taxes this way,” said Rep. George Till, D-Jericho. He objects to the proposed $19.8 million reduction in general tax dollars transferred to support education. […]

    If it were left to him to solve the budget problems, Till said he would postpone the income tax cut rather than reduce general tax support for education retroactively. He would advise school boards to expect a $20 million cut next year, which would give them time to adjust spending.

    Also from Remsen:

    “I, myself, and my caucus are very hesitant and likely a ‘no,'” said Rep. David Zuckerman, P-Burlington. He worried about the total tax impact. Some changes were good – such as reducing the capital gains exclusion from 40 percent to $5,000, he said. Others, such as increasing property taxes and several consumption taxes, were regressive in that they weren’t based on ability to pay, he said.

    “If we are going to cobble together a bunch of taxes, we should do it to preserve services,” Zuckerman said, criticizing some of the belt-tightening. He noted, too, that nothing in the plan stopped the pending layoff of more than 320 state workers.

    That last being one reason (among several, not least that the executive boards are loaded with Progressives) the unions keep endorsing Progressive candidates.

    Dems need to get out there with their reps and the leadership to get this fixed. If they’re going out on their own, they should dump the income tax-cut proposal, use the revenue to save state jobs & services, and skip the regressive sin taxes. And digital downloads??? C’mon Netroots!

    NanuqFC

    To tax and to please, no more than to love and to be wise, is not given to men [and women]. ~ Edmund Burke (1729-1797, Irish philosopher & statesman)

  2. it’s all back on Jim’s turf again almost like last years legislative sessions. That may not be the case in the details but he owns the tax cut sound bits coming and going.  

  3. Is playing Sap & Peterless like fiddles–and they walked right into it no less.

    Leadership is sorely lacking right now for the Democrats, and they best address it soon or suffer the consequences.  

  4. Those tax cuts for the wealthy have trickled down for the last few decades to create untold wealth for the rest of us.

    NOT.

    I’ll shuffle back into the my hovel, now, and wait for some real leadership.

  5. sigh.  I suppose it is the best that they could do.  I am a little curious about the digital downloads, though.  how are they going to do that? I wish these taxes would at least come back to us in some way rather than disappear to balance the budget.  

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