Tax commission releases its recommendations

Posted
Saturday January 15, 2011

BRATTLEBORO -- The three-member Blue Ribbon Tax Structure Commission released its long-awaited report at the Statehouse on Thursday with recommendations for improving Vermont's tax system.

In its 175-page document, the commission developed a core set of guiding principles, conducted a systemic review of the tax system (which included multiple public hearings) and deliberated throughout an 18-month process before announcing its reform recommendations this week.

Michael Costa, director of the tax commission, said the goal was to help educate policy makers and the general public about Vermont's tax system and display how it works through an accessible report across the state.

Within its findings, the commission stated its work led them to the realization that much of the conventional wisdom regarding Vermont's tax system is poorly misconstrued. "The misperceptions created by the gap between tax fact and fiction negatively impact the public discourse on taxes," according to the report.

They also found the tax system has a "remarkably even distribution" when considering the income, sales and property taxes, reporting "claims that some Vermonters do not pay their fair share are typically based on personal income tax distribution and ignore other taxes and rising income inequality."

Commissioners also found insufficient data to claim Vermonters are migrating out of the state because of the high taxes, noting the available information suggests incoming residents earn more than those leaving.

To better represent the clear policy choices to address Vermont's tax system challenges, the commission recommends the following:

-- Restructure the personal income tax by shifting the base from federal taxable income to federal adjusted gross income. The commission also called for eliminating standardized/itemized deductions and implementing a lower, flatter rate and bracket structure.

-- Broaden the sales tax base by cutting the sales tax rate from 6 percent to 4.5 percent and eliminating all consumer-based sales tax expenditures and retain only the exemptions for food and prescription drugs. Commissioners also suggested a tax on soda by removing its exemption status as a food product.

-- Enhance the scrutiny of tax expenditures by developing a legislative intent for each and report the foregone revenue value of every expenditure biennially.

-- Invest in tax policy resources or use an incidence study so the Legislature may understand the full ramifications of its tax policy choices.

The commission's counsel was not unanimous at times -- in fact, the majority affirmed the report's findings and recommendations.

Gov. Peter Shumlin thanked the commission for developing the report, saying it provides an excellent foundation for an ongoing conversation on improving the tax system. He supported moving the state toward a simpler income tax system as advised by the commission.

"That makes good sense, although we would want to be sure that any rate structure maintains progressivity and that adequate consideration is given to any unintended consequences of such a change," he said.

House Ways & Means Committee member Oliver Olsen, R-Jamaica, said he was thoroughly impressed with the quality of the commission's work and the process through which they studied the issues.

"So while I do have concerns with some of the recommendations the commission has made, I have tremendous respect for the work they have done and feel that their report should be fully considered with an open mind."

His concerns included expanding the sales tax even if it means reducing the rate and excluding the Vermont portion of the home mortgage interest deduction. Additionally as part of the commission's recommendations, the sales tax would be applied to heating fuels such as oil, propane and firewood, he added.

Shumlin also expressed skepticism about any increased reliance on the sales tax, which could have a negative effect on low-income Vermonters and businesses along the Connecticut River near sales tax-free New Hampshire.

Instead, he asked to look for room to broaden the base to lower rates in some limited instances and capture sales tax on purchases made online. "This administration will work with the Legislature to examine the specific principles, findings and recommendations," he added.

Many Democrats who briefly reviewed the recommendations worried about keeping the reform process revenue neutral and spoke in favor of keeping taxes low for working Vermonters.

Sen. Jeanette White, D-Windham, also said there is an ability among the wealthiest Vermonters to pay more in taxes to relieve pressure off small business owners and working families. Rep. Mike Mrowicki, D-Putney, agreed, saying he is concerned about some of the regressive taxes hurting low-income Vermonters.

"I think this is one way we can adjust that," he said, referring to the recommendations.

The commission, established by the Legislature in May 2009 to recommend improvements to the tax system, is made up of Kathy Hoyt, William Sayre and William Schubart. Their job was initially to take a broad look at the code and find ways to streamline the process if possible while remaining mindful of the state's higher tax ranking.

Olsen encourages all interested Vermonters to review the material and provide feedback to their lawmakers. The commission report is available at www.vermonttaxreform.org.

In the Committees

-- Rep. Ann Manwaring, D-Wilmington, said the House Appropriations Committee hit the ground running this session with a presentation on the Budget Adjustment Act from Jim Reardon, the commissioner of Finance and Management.

The adjustment act captures changes made during the first several months of the current fiscal year that may require modifications in spending.

"Many changes are technical, some are substantive. Our job on House Appropriations is to dig under the hood and understand each change," Manwaring said. "Blessedly this year, the changes are not controversial, and the net of the increases and decreases puts no additional pressure on the state's looming shortfall projected for the 2012 budget. We expect to vote the bill out of our committee early next week in order for it to come up for a vote of the full House by the end of next week."

-- Putney Democrat David Deen, chairman of the House Committee on Fish, Wildlife & Water Resources, said they are working on a bill to help Vermont's forestry industry by permitting more landowners to assist in controlling the deer population.

"In some areas there is an over abundance of deer, most of them specific and most in the Connecticut River valley. The deer browse down all of the regenerating trees with a special liking for ash, maple and oak -- the high quality and priced lumber available from our lands," Deen said. "We are working toward setting up a depredation permit for use by landowners to get the number of deer under control."

House Bill No. 13, sponsored by Deen and two other Democrats, hopefully will prevent deer from causing damage to forest resources. There are only certain areas where this is a problem, according to Deen, so a local forester, game warden or other wildlife officer could issue permits on an individual basis.

-- The House Judiciary Committee is reviewing all of the state's drunken drinking laws, according to Rep. Richard Marek, D-Newfane.

While law enforcement officials and legislators have made progress in the last decade, Marek said more needs to be done to reduce the threat on Vermont's roads.

"Next week we will receive a report on a plan being developed under a law we passed last year for use of ignition interlocks. Other states have seen significant decreases in reoffenses while interlocks are in place," he added.

-- Sen. Peter Galbraith, D-Windham, asked the Economic Development Committee this week to focus on how the state could assist the county in dealing with the potential economic disruption following the closing of the Vermont Yankee nuclear power plant.

"I pointed out that it was the state that made the decision not to extend the plant's operation and therefore the state had an obligation to help Windham County with the transition," he said. "I am pleased to report that Chairman Vince Illuzzi was very sympathetic and this will be an important part of the committee's agenda this year."

Illuzzi, R-Orleans, proposed holding hearings with a similar forum in the county, which Galbraith enthusiastically supported. This is not a return of the Yankee relicensing issue, but an opportunity for the committee to move forward for the economic future of the county, he said.

-- The Natural Resources & Energy Committee has spent this week meeting with administrators in the environmental and energy communities, including Deb Markowitz, the new secretary of the Agency of Natural Resources.

Committee members also met with top ranking officials of Central Vermont Public Service and Green Mountain Power to hear of their plans for finding energy generators to address future needs if Vermont Yankee shuts down.

"This would create a great deal of uncertainty for the suppliers of electricity, as well as serious financial implications to ratepayers," said Rep. Michael Hebert, R-Vernon, a member of the committee.

Fellow committee member Sarah Edwards, P/D-Brattleboro, said a highlight of the many meet-and-greet sessions was the introduction to Elizabeth Miller, the new Department of Public Service commissioner, who has vowed to work with lawmakers on expanding Vermont's energy portfolio.

"While the state has lacked an energy plan over the past eight years, the Legislature has done its best to move forward. The commissioner has indicated her determination to move us forward with a comprehensive, integrated energy plan that includes diversification of our current portfolio, including efficiency and renewables," Edwards said.

Happenings in the Statehouse

-- Friday morning the House passed resolutions honoring Vermont National Guard members who lost their lives in the line of duty, according to Wardsboro Democrat John Moran, vice-chairman of the General, Housing & Military Affairs committee.

Sgt. Steven J. DeLuzio of South Glastonbury, Conn., Lance Corp. Anthony James Rosa of Swanton, Sgt. Tristan Southworth of Walden and Guard Specialist Ryan Grady of West Burke were honored in a special service. Family members were present to receive copies of the resolutions.

"I was humbled to be in the presence of people who have given so much to our state," Hebert said.

-- Former Administration Secretary Neale Lunderville will join Green Mountain Power in February as the "leader of Enterprise Innovation," according to the company's CEO Mary Powell.

Lunderville, 36, will provide leadership in the company's implementation of its new SmartGrid program over the next few years. In a press statement released Monday, he said GMP is on the cutting edge of new technology in the utility sector.

"The SmartGrid and the plans to push statewide broadband availability will be an integral part of the new economy in our state and I look forward to helping the company improve value for its customers," he said.

Prior to his August 2008 appointment in the administration department, Lunderville served as transportation secretary for two years and as civil & military affairs secretary for three years.

-- A briefing on Vermont's fiscal outlook by the Joint Fiscal Office and economist Tom Kavet will take place on Tuesday in the House chamber. Harvard Doctor William Hsiao will provide an update on the health care system design in the House chamber on Tuesday as well.

Chris Garofolo is the political reporter at the Reformer. He can be reached at cgarofolo@reformer.com or 802-254-2311 ext. 275.


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