Tax Surcharge Plan Stirs Policy Debate

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(Host) According to a new report, Vermont could eliminate a sizeable chunk of its projected $140 million budget deficit by imposing a temporary income tax surcharge on very wealthy people.

Some lawmakers think the plan makes a lot of sense but it faces strong opposition from Governor Peter Shumlin.

VPR’s Bob Kinzel reports:

(Kinzel) The report is expected to fuel a vigorous debate at the Statehouse over how lawmakers should deal with next year’s projected budget deficit of roughly $140 million.

Jack Hoffman is a senior policy analyst at the Public Assets Institute – a liberal think tank that focuses on fiscal issues.

He says the extension of federal income tax cuts means that the top 1% of Vermont taxpayers will save a total of $100 million in 2011.  These are taxpayers who have an average income of almost a million dollars.

Hoffman says imposing a temporary income tax surcharge on this group could help the state avoid making painful budget cuts.

(Hoffman) "We really need to look at the critical services and make sure that we’re maintaining services that Vermonters need and that we don’t make cuts that are going to make it in many ways harder for us to come out of this recession. So we do think that the Legislature needs to look at revenue while they’re looking at the cuts and take those into account."

(Kinzel) Washington County senator Anthony Pollina says new tax revenues definitely need to be part of the Legislature’s discussion over the budget.

(Pollina) "So we’re facing a choice. One is to allow the wealthiest among us to receive a big windfall in the form of large tax cuts that they will use to take a vacation, or finding a way to shift some of that money back into the state’s coffers and into the local communities."

(Kinzel) The effort to raise new revenue will face some strong opposition at the Statehouse including that of Governor Peter Shumlin.

(Shumlin) "I feel strongly that Vermont‘s biggest problem is not that our tax burden is not high enough. It really is that it is too high…I’m saying that we will solve our budget problems the good old fashioned way. It won’t make me popular but we’re going to make the cuts that we need to make this year so that we’re not back here balancing the budget next year or the year after."

(Kinzel) Economist Dick Heaps says raising new tax revenue might have some short term benefits but he says it also has some very negative long term consequences.

(Heaps) "But it’s more of the message that’s being sent over time about Vermont. We’re already a high tax state depending on how you want to measure it – we’re coming out near the top and then if we add these tiers to the top level we’re sending messages to people who start businesses, entrepreneurs that we’re going to tax you not only high already but we’re going to tax you in difficult times even higher than that. And most states are going the other direction although not all."

(Kinzel) The debate at the Statehouse will begin in earnest once Governor Shumlin unveils the details of his budget plan on Tuesday afternoon.

For VPR News, I’m Bob Kinzel in Montpelier.

Governor Shumlin’s budget address will begin at 2 p.m. Listen live.

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