Douglas announces tax cuts in State of State Address

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(Host) Governor Jim Douglas unveiled a tax reform package on Tuesday that’s designed to reduce income tax burdens for most Vermonters. The plan also increases tax burdens for many multi-state corporations that operate businesses in Vermont.

VPR’s Bob Kinzel reports.

(Kinzel) Douglas surprised a lot of lawmakers with his tax reform initiative – a plan the governor says is an effort to implement tax equity in the state. Although the overall plan is revenue neutral, it clearly has winners and losers.

The proposal reduces tax burdens for many individual income tax payers by roughly 3 to 7 percent depending on their tax bracket. To pay for this change, the governor wants to eliminate what’s known as the 40 percent exemption for long term capital gains. Vermont is currently one of only five states that passes this federal benefit through at the state level.

Douglas says his proposal is the result of a comprehensive study of the Vermont tax system:

(Douglas) “A system such as the one we have today discourages economic growth create cynicism and breeds resentment among our people so today I’m proposing reforms to Vermont’s tax policy that will make our system of taxation more fair and equitable for all my plans reduces personal income taxes across the board while most significantly reducing the tax burden on low and middle income Vermonters they are the people who need it the most.” (Sound of crowd applause.)

(Kinzel) The governor also wants to lower the state’s corporate tax rate across the board. To pay for this plan, Douglas wants implement a system that requires large multi-state companies that have stores in the state to pay taxes on their Vermont profits. Currently, many of these companies are able to avoid state taxes by allocating their profits to their out of state corporate headquarters:

(Douglas) “As a result these huge companies pay only a minimum $250 tax while our home grown Vermont businesses – particularly our small businesses – pick up the rest of the tab. These few multi-state corporations utilizing income shifting strategies to avoid paying their fair share will see their taxes rise, while the typical Vermont employer will see its taxes drop significantly.”

(Kinzel) Douglas said it’s also critical for lawmakers to take steps to lower the cost of health care and he pledged to address this issue with specific proposals in the coming weeks. And he made it clear that he has strong philosophical differences with many of the health care reforms that were adopted by the Democrats during the 1990s.

The governor also called for full public school choice in Vermont. It’s a proposal that would allow students from kindergarten through high school to attend any public school in the state. Under this plan, a student’s block grant would follow the student to their new school.

Unlike last year, Douglas didn’t make permit reform a priority during his speech. That’s because the governor thinks a compromise will be reached with Senate Democrats on this issue in the early weeks of the session.

For Vermont Public Radio, I’m Bob Kinzel in Montpelier.

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