State Senate votes to raise 'sin' taxes, lower income tax


Thursday, April 23
MONTPELIER -- Want to sip a cocktail in front of your satellite-connected TV? Soon, it could cost Vermont residents more.

The state Senate gave preliminary approval Wednesday to a bill that would raise the state liquor tax from 25 percent to 35 percent of state liquor stores' gross revenues, which would raise an estimated $5.5 million a year.

It also would set a new 5 percent tax on satellite TV service, worth about $4 million a year.

And it would raise taxes on cigarettes and other tobacco products.

But the centerpiece of the miscellaneous tax bill, in the view of its backers, is a reduction in state income taxes withheld from wages, offset by raising taxes on capital gains income.

"Vermont currently has a working tax penalty for Vermonters that this package rightly eliminates," Senate President Pro Tem Peter Shumlin said in a statement. "It is time for wealthy Vermonters who live off their investments to pay their fair share."

Gov. Jim Douglas made a similar proposal last year, but it didn't pass. Current law exempts 40 percent of capital gains income from the state income tax. The Senate measure would exempt the first $5,000 of capital gains income, but tax income higher than that at regular tax rates.

Shumlin said the state's top marginal income tax rate -- the percentage charged on income above $350,000 -- would drop from first to fifth-highest in the country.

Later in the day, the Senate gave preliminary approval to a $1.1 billion general fund budget for the fiscal year beginning July 1, part of an overall spending plan, including transportation, education, federal matching and other funds, totaling nearly $4.6 billion.

Douglas, a Republican, had been sharply critical of the budget deliberations of a Legislature in which Democrats hold large majorities in both chambers. But his administration's criticisms Wednesday of the Senate budget were more muted than those of an earlier version passed by the House.

Dennise Casey, deputy chief of staff to Gov. Jim Douglas, said the governor likes the idea of lowering income tax rates. "It's exactly the kind of discussion we should have had from the start" of the legislative session, Casey said.

She took a dimmer view of the liquor, cigarette and other tax increases.

"Legislators are certainly looking at every possible tax to raise. The governor continues to be concerned with that approach to budgeting," she said.

More than a dozen small-business owners from around Vermont held a midday news conference Wednesday to make the same point.

"Instead of doing what needs to be done to keep our state on a responsible fiscal course, the Legislature has decided to raise taxes and increase spending," independent insurance executive Peter Hood told reporters at an event organized by the Vermont chapter of the National Federation of Independent Business.

"These taxes will be paid by the working men and women of Vermont, as well as by employers and small business owners -- adding to our challenges in these difficult times," Hood added.

Another group, Vermont Businesses for Social Responsibility, replied a short time later with a statement of its own.

"Business people aren't wild about taxes," it said. "But ... it is the government's job to provide for businesses and citizens what we can't provide for ourselves: roads and bridges, broadband networks, education, health care, safe and affordable energy."

"If you're not building and maintaining these physical, digital and human infrastructures that our economy runs on, you are not being fiscally responsible."

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