Officials from Vermont’s largest banks are speaking out against a Shumlin Administration tax proposal.
The bankers warn that a proposed hike in the bank franchise tax could slow down lending or lead to possible lay-offs.
The tax plan was put on the table by Gov. Peter Shumlin as he tries to strike a compromise with the Legislature to fund state government without raising broad-based taxes. Administration officials last week proposed a hike in the franchise tax paid by the state’s five largest banks.
The increase would raise about $2.4 million a year. Chris D’Elia, the president of the Vermont Bankers Association, told the Senate Finance Committee that bankers feel targeted.
“These are not the folks on Wall Street that so many have come to hate,” he said. “These are small, medium and large institutions that are woven into the fabric of Vermont. We need them to be healthy, financially strong and committed to the state.”
The franchise tax is levied on bank’s deposits, and is only a fraction of one percent. The administration’s plan would apply to the five banks doing business in the state with deposits of $750 million or more.
Merchants Bank is the only Vermont-based bank in the group. President and CEO Mike Tuttle predicted there will be consequences if the tax is raised.
“So what will net impact of this be? Some combination of fewer loans, higher costs to customers, decreased services or reduced community support,” Tuttle said. “None of us want to see this happen. We have a vital role to play in Vermont and we want to continue to help Vermont grow and prosper.”
Banks in Vermont don’t pay a corporate income tax. Instead, the state imposes a franchise tax based on total deposits.
Michael Seaver, the Vermont president of People’s United Bank, said the franchise tax has held steady even as his corporate income has declined 8 percent.
“You know, any other company, if their costs were increasing at a rate beyond what they’re revenues are increasing, they’re going to pay less,” he said. “Mine aren’t going to go down. So I’m going to have to find other things. Just as we have in the past few years, we’re going to have to look at what branches with this new cost structure are no longer profitable for us, what positions we can eliminate.”
Chris D’Elia of the banker’s association questioned why credit unions don’t pay the tax on deposits, even though they provide many of the same services as banks. A credit union lobbyist said credit unions don’t earn profits for shareholders. Instead, he said they return earnings to depositors in the form of lower fees and reduced interest rates on loans.