Lawmakers search for $25 million in new revenue

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(Host) To balance the state budget, lawmakers are looking for about $25 million in new revenue.

The House proposed getting the money by raising the personal income tax. But Senate leaders have a different idea. They want to lower the tax on income and raise a variety of other taxes.

VPR’s John Dillon reports:

(Dillon) The money bills are often the thorniest issues tackled by the Legislature. Last week it was the House’s turn to come up with a $1 billion  budget. That included about $25 million in new revenues.

This week, the Senate is doing a bit of re-write.

The centerpiece of the House bill was an income tax surcharge that would raise about $16 million.

Senate leaders have concerns about that, related to both the policy and the politics.

(Cummings)  "Well, one of the concerns is that the governor said he’ll veto it."

(Dillon) Washington Senator Anne Cummings chairs the Finance Committee, which is looking at the House tax bill.

Another concern is that the House-passed income tax surcharge only lasts for three years.

(Cummings) "We need a sustainable revenue source that will not go, because we do have some crisis issues, definitely our personal; income taxes are down. But we do have some long term issues in the budget that will be there when this crisis goes away."

(Dillon) Cummings and Senate President Peter Shumlin have drafted an alternative proposal. They would raise $6 million by boosting the tax on sales of hard liquor. They’d get another $4 and a half million from an increase in the cigarette tax, and they get $4 million through a gross receipts tax on satellite TV providers.

But they also want to lower the personal income tax. Shumlin testified before the Finance Committee.

(Shumlin) "The proposal here is to raise $25 million in revenue but to reduce the income taxes for all Vermonters, so that we become the fifth highest instead of the number one income tax rate in the country at the top marginal rate."

(Dillon) The Senate proposal instead goes after capital gains – that’s the money made from sales of property or investments.

Governor Jim Douglas has in the past favored eliminating a partial exemption on capital gains income. And Shumlin quoted the governor as he outlined the plan to the Finance Committee.

(Shumlin) "The governor said in his state of the state address, Madame Chair, and I quote: `A working man or woman in Vermont making $50,000 a year pays nearly 50 percent more tax than someone who does not work but simply lives on investment or trust fund capital gains income of the same amount.’"

(Dillon) But Administration Secretary Neale Lunderville says the governor’s position on the capital gains issue has one big caveat.

(Lunderville) "The governor has supported this change, but not in order to spend the money. He said let’s close the loophole and lower taxes for all Vermonters."

(Dillon) Lunderville says the first question lawmakers need to ask is not which taxes to raise — but whether to raise taxes at all. He says the budget passed by the House increases state spending by almost 7 percent.

For VPR News, I’m John Dillon in Montpelier.

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