I wanted to write to you about the Blue Ribbon Tax Commission report and the role of the Legislature.
The so-called Blue Ribbon Tax Commission was brought to life by the Legislature during the veto-override special session in 2009. It called for a three-member panel to provide a structural analysis of the state’s revenue system and to offer recommendations for improvements, modernization and a long-term vision for the state tax structure. Governor Douglas appointed Bill Sayre, Senate Pro-tem Shumlin appointed Kathleen Hoyt and House Speaker Smith appointed Bill Schubart. The tax system was to be easier to understand, sustainable, equitable, economically competitive and “revenue neutral.” In other words, revenues added would be in direct proportion to revenues reduced. The desire was to create a 21st century tax system with a big picture perspective rather than picking away piecemeal at incentives and taxes.
On January 12th, the Commission unveiled its 175 page report to the Legislature. The report focuses on core concepts and purposefully does not get into specific detail. The job of the Legislature, beginning with the House Ways and Means committee, will be to go through each concept and flesh out the details. During this time, the committee will take testimony from experts, advocates and citizens and this can include you. . I encourage you to go to the website: http://www.vermonttaxreform.org/library/ and click on “Final Report.” For a quick summary go to page 15 to read the 3-page executive summary.
An interesting part of the report includes a review of our current tax structure. They found that much of the conventional wisdom regarding Vermont’s tax system did not hold up under scrutiny. These misperceptions were felt to have a deleterious effect on public debate resulting in recommendations for change based on misconstrued information. In order to move the debate forward, the Commission needed to demystify these assumptions and focus on real vs. imagined facts. For example, the assumption that ‘some people don’t pay taxes” was not correct. If total tax contribution is considered, lower income earners pay a greater percentage of their income on sales taxes while upper income pays a great percentage on income taxes. Middle and upper-middle income taxpayers pay a greater percentage of their income on property taxes.
Over an 18-month period, the Commission held public hearings, completed careful study and participated in thoughtful deliberations, critically questioning every assumption in the tax system. Though all three members found the process respectful and on the right track, they did not come to full agreement on all of the recommendations. A dissenting view by Bill Sayers is in the report.
Over the coming months, and likely years, the Ways and Means committee will begin to look at the recommended changes to the sales tax and personal income tax. As we move from a goods industry to a service industry, what are the implications of decreasing the sales tax rate from 6% to 4.5% but expanding taxes to services such as lawyers, landscapers, hairstylists? Can we work with other states to change federal law to collect revenue on burgeoning Internet sales competing with our state-taxed merchandisers?
The Commission was in unanimous agreement that we should restructuring the personal income tax to align with surrounding states. By switching from Taxable Income to Adjusted Gross Income, Vermont’s tax rate would compare more competitively to other states, simply by comparing apples to apples. Does it make sense to take away deductions like the home mortgage tax and instead use a “residential tax credit?”
These questions and many more are likely to spur lively debate and certainly trigger anxiety as Vermonters wonder how they will land in the final package. I trust that the tri-partisan committee will do a thorough job in sorting this out.
Please join Joan Lenes and me at Bruegger’s on Tuesday mornings between 7:30-8:30. I am also available by appointment. Contact me at 802 233-7798 or email@example.com