Legislative leaders back modification to income tax

by Anne Galloway May 10, 2013 vtdigger.org The legislative Democratic leadership has given the two tax-writing committees the go ahead to pursue a change to the income tax code in the waning days of the session.
Shap Smith and John Campbell, right. vtdigger photos.
In evening negotiations on Thursday, Senate President Pro Tem John Campbell and House Speaker Shap Smith endorsed an adjusted gross income policy proposal.
Details of the plan were being worked out by the chairs of Senate Finance and House Ways and Means last night, and the Senate and House tax conferees are meeting first thing Friday morning to work out the details of the plan, which will likely include the 3 percent minimum tax proposal favored by Sen. Tim Ashe, chair of Senate Finance, and an itemized deduction cap, based on plans developed by Rep. Janet Ancel, chair of House Ways and Means.
Most states tax residents based on adjusted gross income. Vermont is one of eight that taxes individuals on taxable income, or the income thats left after itemized deductions. Both the House and Senate have considered a variety of modified AGI policy changes over the last several years, based on information from the Vermont Blue Ribbon Tax Structure Commission research released in 2011.
The plan is revenue neutral, Campbell and Smith said, that is to say, it would not result in a tax increase, though roughly 15,000 Vermonters would pay a little more in taxes and more than 200,000 residents would pay less. Both leaders say the modified adjusted gross income plan will benefit middle class taxpayers.
If we can put in a plan that gives 200,000 Vermonters a tax cut, I dont think we have the right to dismiss that out of hand, Smith said. If its done in a revenue neutral way its incumbent on us to take this opportunity to give middle class Vermonters a tax cut.
Smith and Campbell said the plan would not violate the agreement with the governor they made on Monday, in which legislative leaders said they would not increase taxes to fill a $10 million budget gap. Instead, they agreed to find that amount in budget reductions.
When we talked with the governor, we talked about what we had to have to balance the General Fund budget and what money we needed to close the gap, Smith said. Hes made it clear he doesnt want to raise broad-based taxes.
Sue Allen, spokeswoman for the governor, has said Shumlin views the policy change as a tax increase.
Lawmakers, however, have a veto-proof provision in the miscellaneous tax bill. The Legislature must pass a mechanism to fund the health care exchange this session in order to meet federal requirements. That language, which uses $14.4 million from the employer assessment and a 1 percent tax on premiums to pay for the exchange, is in the current tax bill. If the governor vetoes the tax bill, he would have to reject the exchange funding plan and risk losing federal approval.