by Paul Cillo Public Assets Institute While state leaders work on neutralizing a $30 million state income tax increase that would result from federal tax reform, there has been not a word about the much bigger state impact of that reform: the $500 million tax cut mostly for those at the top and the likely cuts in federal support for state services.
Last month Governor Scott proposed a state income tax reform plan to prevent an “accidental $30 million tax increase” on Vermonters as a result of the federal tax reform passed in Washington. The Vermont House endorsed the governor’s plan with a few changes last week.
Since Vermont’s income tax is tied to the federal tax, some Vermonters could in fact find themselves paying more at the state level as a result of the recent federal income tax changes. The most significant driver of that increase is the elimination of personal income tax exemptions. This change will hurt larger families, many of whom are low-income working families. The governor and Legislature are right to correct that problem and others to avoid an unintended state income tax hike especially for families who can’t afford it.
But addressing the $30 million increase does not address the half-a-billion dollar federal tax reduction Vermonters will also see this year. Two-thirds of that tax cut—$375 million—will go to Vermont’s highest-income households.
Why is a tax cut a problem?
Last December Congress enacted cuts to federal taxes that created a huge increase in the projected federal deficit. Consequently, Congress is expected to make budget cuts to reduce that deficit. And since Vermont depends on federal funds to cover 35 percent of the annual state budget, this is big concern for the future of state services.
This federal tax reform is a giveaway to corporations and the wealthy. And federal programs, especially those serving vulnerable Vermonters, like food stamps, home heating assistance, and health care, are likely to be cut. Unless lawmakers intervene, Washington, in effect, will be deciding for Vermont that tax cuts for those who need them the least are more important than services for those who need them the most.
By focusing on the $30 million state impact and ignoring the $500 million dollar federal cut, lawmakers and the governor are missing the big picture. The $500 million dollar question is: Will Vermont simply stand by while the federal government takes from Vermont’s poor and gives to the rich?
Source: Public Assets Institute 3.30.2018