(Host) The Vermont Senate last night voted 18 to 11 to approve legislation that makes changes to the state’s income tax system. As part of the debate, the Senate also supported a plan to raise the state cigarette tax by 67 cents a pack, after rejecting a proposal to increase it by $1.06.
VPR’s Bob Kinzel reports.
(Kinzel) The Legislature is considering a new tax bill because Vermont is one of only two states in the country that still links its state tax burden to an individual’s federal tax liability. This has become an important issue in Vermont because Congress last year gave its approval to legislation that cut various federal taxes over a ten-year period.
Because Vermont is linked to the federal system, cuts at the federal level would automatically go into effect at the state level unless lawmakers blocked them. It’s estimated that Vermont could lose more than $350 million in revenue over the next ten years if the federal tax cuts are passed through at the state level.
The main fight in the Senate is how to determine an individual’s state tax liability in the future. The Senate Finance Committee is backing a plan that uses federal taxable income as the way to determine Vermont tax burdens. Windsor Senator Peter Welch says this system allows the state to set its own tax policy:
(Welch) “What happens with taxable income is that we set our own tax rates and policy and we’re not having them imposed on us by Washington. So if you have a Washington tax cut that favors the wealthy or if you have a tax increase that hits the middle class, those don’t automatically become Vermont law. Under a taxable income system, we can protect Vermont from actions in Washington that are detrimental to Vermont.”
(Kinzel) But Rutland Senator John Bloomer thinks the old piggyback system should be maintained. It’s a system that determines tax burden by taking a straight percentage of your federal tax liability. Bloomer says it may be appropriate at some time in the future to pass through some federal tax cuts at the state level:
(Bloomer) “Actually it will make us review our tax policy every couple of years and that may be good, rather than just sitting at a rate. What we would have to be looking at is what both our revenue lines are and our expenditures lines. And what it will allow us to do is say, well should we be readjusting for any revenue neutrality from the federal government. If we don’t need the money then we shouldn’t be in effect raising taxes, and if we can work through with these tax cuts, pass [them] through to Vermonters then maybe that’s the most efficient and appropriate thing to do.”
(Kinzel) The Senate is also raising the state cigarette tax beyond the 36-cent level adopted by the House in order to restore funds for several Medicaid programs which were cut by the House.
For Vermont Public Radio, I’m Bob Kinzel I’m Montpelier.