(Host) There’s a fight brewing at the Statehouse over Vermont’s capital gains tax.
Governor Jim Douglas wants lawmakers to repeal changes that they made last year, because he says the changes are hurting job growth.
But Democratic leaders say the Governor’s plan will leave a $10 million hole in the budget and will result in additional cuts to human service programs.
VPR’s Bob Kinzel reports.
(Kinzel) Last year, roughly 10 percent of all Vermont taxpayers filed a capital gain on their income tax form and for many it was a one time occurrence.
A capital gain is generally a one time profit resulting from the sale of stock, a business, some land or an expensive home.
The vast majority had gains of less than $10,000 but there were also 203 individuals who averaged a capital gain of $2 million each.
Before 2009, Vermont allowed individuals to exempt 40 percent of their gain from taxes. For instance, if a person had a capital gain of $100,000, $40,000 was exempted and they paid taxes on the remaining $60,000.
But last year lawmakers replaced the 40 percent exemption with a flat $5,000 exemption so that person who had $100,000 in capital gains would now pay taxes on $95,000 instead of $60,000 dollars under the old system. Revenue from the change was used to lower income tax rates and to balance the state budget.
Administration Secretary Neale Lunderville says the new system is having a negative impact on job growth:
(Lunderville) "These tax rates are forcing folks out of Vermont. They are creating disincentives for businesses to invest right now and to grow jobs at a time when we need them to do that most."
(Kinzel) If the repeal is enacted, it would reduce revenues by $10 million next year and $20 million in 2012. Lunderville says these short term losses will be offset by revenue generated by the creation of new jobs.
Ann Cummings is the chairwoman of the Senate Finance committee. She doesn’t understand how the Governor can support a tax change that will cost the state millions of dollars at a time when severe budget cuts are under consideration:
(Cummings) "So now we’re putting the exemption back, which benefits wealthy people the bulk of that exemption goes to people who make over $300,000 a year and yet the cuts to offset that will have to come out of probably our most vulnerable because there’s no fat left in this budget right now."
(Kinzel) While it appears unlikely that the Democrats will vote to repeal the current law, Cummings says her committee will consider making some adjustments to lower tax burdens on middle income Vermonters who have capital gains.
For VPR News, I’m Bob Kinzel in Montpelier.