Governor Peter Shumlin says he’ll oppose any plan to increase a broad based tax during the upcoming session. But the governor is open to restructuring Vermont’s income tax system to make the state more competitive with other states in the region.
Vermont is one of the few states to use a person’s "taxable income" to determine their tax burden. Most other states use what is known as "adjusted gross income."
Here’s why it makes a difference. The "adjusted gross income" number is down at the bottom of page one of your federal tax return.
"Taxable income" is over on page two after you’ve applied either the standard deduction or itemized deductions.
Because the "taxable income" figure is smaller than "adjusted gross", that means the Vermont Tax Department needs to impose a higher rate than if it was using the adjusted gross income number. So while Vermont’s "income tax rates" are usually higher than many other states, a comparison of "income tax burden" would show that Vermont is in the middle of the country.
That’s one of the reasons that Governor Shumlin is willing to look at making this change.
"Of the Blue Ribbon Commission’s Tax Report, the part that makes a lot of sense is to find ways to have our income tax burden better reflect what we actually charge Vermonters."
And Shumlin says the change should help economic development efforts.
"It’s a pretty well kept secret that in fact middle class Vermonters pay lower income taxes than almost everyone of our neighbors that has an income tax in the northeast."
Calais Rep. Janet Ancel is the chair of the House Ways and Means committee. Her panel has spent a lot of time looking at this issue and she says it’s not as easy as simply switching from "taxable income" to "adjusted gross income."
"It was a little hard to design, what you’re doing is the same debate that’s going on in Washington, you’re taking away the deductions, different classes of taxpayers use the deductions differently and so it doesn’t come out perfectly," said Ancel. "So if we can do it in a way that did not increase taxes for middle income and lower income taxpayers I’d be very receptive to look at it again."
And Ancel says she’s pleased that the Governor is on board with these changes.
"If the governor is interested in doing it that would be a new development and that certainly would make it worth spending some time on."
While lawmakers are ready to consider this change, it’s very unlikely that they’ll look at any plans to broaden the base of the state sales tax to include many services.