Republicans Say Businesses Can't Afford New Payroll Tax

Jan 15, 2015

St. Albans Rep. Corey Parent arrived at the Statehouse two short weeks ago, full of enthusiasm for the session ahead. After Gov. Peter Shumlin’s budget address on Thursday, however, this first-term Republican says he’s coming to terms with the reality of political life under Democratic rule.

“I think for many of my freshmen (colleagues), we learned how pretty quickly in less than two weeks how far the Statehouse tends to be from the rest of Vermonters,” Parent said during a news conference after Shumlin’s fiscal year 2016 budget address. “And we really need to focus on making sure … that we bring state government back in line with what we can afford, and not continue to put the pressure on taxpayers and businesses.”

Parent’s sentiments pretty well sum up GOP reaction to a budget plan that features two controversial tax increases. The new 0.7-percent payroll tax would result in an across-the-board assessment on Vermont businesses, and raise about $90 million per year. A change in the income tax code would net another $15 million by not allowing people to deduct from this year’s tax bill the amount they paid in state taxes last year.

"We're very concerned about (Shumlin) telling Vermonters he understands that the cost of living is increasing at an unsustainable rate, yet propose tax increases to help offset his budget." - House Minority Leader Don Turner

  “We’re very concerned about (Shumlin) telling Vermonters he understands that the cost of living is increasing at an unsustainable rate, yet propose tax increases to help offset his budget,” House Minority Leader Don Turner said. “The budget needs to be reined in.”

Republican Rep. Corey Parent said Thursday that Shumlin and other Montpelier Democrats are out of touch with the issues facing everyday Vermonters.
Credit Taylor Dobbs / VPR

  The governor has said in recent weeks that he’d use new revenues for next year’s budget only as a last resort. So it came as a surprise Thursday when the third-term Democrat unveiled a spending plan that would raise more than $100 million per year in new taxes.

Shumlin says the payroll tax could actually lower costs for businesses that already provide insurance benefits, since the increase in Medicaid rates should lower the cost for commercial insurance. And Shumlin says the income tax changes will help avert painful cuts to human services.

But Republicans say the plan imposes new costs on businesses that can ill-afford another expense. And Bill Driscoll, vice-president of Associated Industries of Vermont, says the plan could leave some important employers reeling, especially ones that don’t provide health insurance now, or pay very little for it.

“Well, obviously for companies that don’t have health plans right now, that’s just a straight up increase in costs of almost 1 percent of payroll, which under the margins that businesses operate on is a significant amount of money,” Driscoll said.

Driscoll said he also worries about the 0.7-percent payroll tax expanding in the future, or that lawmakers will begin diverting for budget purposes other than the ones Shumlin outlined Thursday.

Shumlin’s willingness to raise new revenues is winning praise in other corners, particularly among advocates who were worried about what a $93 million budget gap would mean for human services.

"I think it's really refreshing to hear a Vermont governor talking about new revenue, and I hope that opens up a new conversation about revenue in the state of Vermont to adequately fund essential programs and services." - Christopher Curtis, Vermont Legal Aid

  “I think it’s really refreshing to hear a Vermont governor talking about new revenue, and I hope that opens up a new conversation about revenue in the state of Vermont to adequately fund essential programs and services,” Curtis said.

Despite the new revenues, Shumlin’s proposal still relies on more than $40 million in cuts, about half of which will come at the Agency of Human Services. Burlington Rep. Chris Pearson, head of the Progressive Caucus in the House, said he was happy to see the governor propose doing away with an income tax deduction that tends to benefit wealthier tax filers.

But he says he’s worried about how the $6 million cut in the Low Income Home Energy Assistance Program (LIHEAP) in Shumlin’s budget will affect poor Vermont families.

“I would say LIHEAP is always kind of mystery about how we’re going to fund it. And this is making it really clear that it will remain a mystery,” Pearson said. “And it’s an essentially a program for low-income seniors and other in Vermont who struggle to pay for heat.”            

Shumlin’s plan for curbing the cost of public education, meanwhile, seemed to fall short not just in the eyes of Republicans, but with some Democratic lawmakers as well.

Shumlin called for closer examination of high-spending districts, with an eye toward using that data to shape policy reforms in the future. He also proposed the elimination of grants that help keep small schools afloat financially.

But Republicans, like Bristol Rep. Fred Baser, say Shumlin’s proposals fall well short of what is needed to address the issue of rapidly rising property taxes.                                

“I was very disappointed that it seemed like the governor’s main proposal for education was we’re going to study it some more,” Baser said. “And I really don’t think we need to study it anymore. I think folks out there want some action, and they want it now.”

House Speaker Shap Smith also suggested more action might be needed on the education front, and indicated that House lawmakers will add to the reform agenda.

“There will be other items that I think will develop over the session that may supplement what (the governor) is talking about,” Smith said.

Smith defended the use of a payroll tax to increase Medicaid reimbursement rates, to help mitigate the “cost shift” that results when hospitals have to jack up rates on private insurers to cover government reimbursement rates that don’t cover the cost to treat patients on Medicaid.

The system means that employers who do provide health benefits, according to Smith, are effectively subsidizing those that do not.

“To the extent that we can draw down as much money as the governor suggested, and drive it right into a reduction in insurance premiums I think is one of the fairer ways that we can go about this issue,” Smith said.

Lt. Gov. Phil Scott said in a statement that while he agrees Vermont has “a structural problem with the Medicaid cost shift, I’m hesitant to fund the ‘fix’ through a payroll tax.”

“Opening the door to even a small increase will, in my opinion, lead us to further tax growth,” Scott said. “Once that seed is planted, we have a tendency in this building to over-fertilize, and I fear there will be further proposals to increase taxes on Vermonters and small Vermont businesses, who are already struggling to make ends meet.”

But hospitals say an increase in Medicaid rates is long overdue, and that left unaddressed, the cost of commercial insurance could soon rise beyond the financial reach of businesses and individuals.

“As I think the governor outlined today, when Medicaid is not fully funded, those shortfalls are made up by those who purchase commercial insurance,” Olson said. “So it’s a longstanding problem that has really gotten worse in recent years.”

Peter Sterling, with the Vermont Campaign for Health Care Security, said the governor’s plan does not go far enough to address the cost of health care for people who formerly got insurance through Catamount Health, but now must buy in the exchange.

Shumlin proposed a $2 million increase in “premium assistance” for lower-income residents getting benefits through the exchange, a figure that will double the amount of state government help they’re eligible for now. But even with the increase, Sterling says individuals making as little as $23,000 a year could still see out-of-pocket increases of $1,000 over what they were paying in Catamount.

“So we’re going to need the governor and the Legislature to find additional revenue to make sure health care is affordable for a population that quite frankly doesn’t have a lot of extra money floating around,” Sterling said.