Shumlin, Lawmakers Unable To Agree On Tax Package To Balance Budget

May 13, 2015

In the final days of the session, a major fight is developing between the Shumlin administration and Legislative leaders over a tax package to help balance the state budget. And the issue must be resolved before lawmakers adjourn for the year.

The disagreement between the governor and the Legislature started when lawmakers rejected Shumlin's plan to impose a 0.7-percent payroll tax because he planned to use part of the new revenue to help balance the budget.

Instead, both the House and Senate supported plans to limit income tax deductions for people who itemize on their tax returns. The most common deductions are for charitable contributions, mortgage interest and unusually high medical expenses.

But Shumlin doesn't want these deductions restricted in any way.

"Removing charitable deductions, the ability of Vermonters to deduct home interest from their mortgages, which promotes home buying, and removing the health care deduction when you've had catastrophic health care costs is a big mistake,” Shumlin says.

Shumlin says he's willing to consider other parts of the House and Senate tax package if the income tax deduction plan is dropped. These could include imposing the sales tax on soda and candy and raising the cigarette tax.

"Removing charitable deductions, the ability of Vermonters to deduct home interest from their mortgages ... and removing the health care deduction when you've had catastrophic health care costs is a big mistake." - Gov. Peter Shumlin

"This is going to take a two-pronged approach. I believe that we should be cutting more before we ask Vermonters to pay more. I also am willing to work together with the Legislature to come up with a revenue package that's sensible,” the governor says.

The House bill caps overall deductions at roughly $15,000 for an individual and $31,000 for a couple. Rep. Janet Ancel, the chairwoman of the House Ways and Means committee, says there's a good reason why the cap was chosen.

"The interest in using the income tax as a source of revenue is that it's our most progressive tax,” Ancel says. “And so to the extent we can raise revenue using a progressive system, we should do that."

"I think people need to remember that the federal deduction is much more valuable than the state deduction. That's still available." - Rep. Janet Ancel, House Ways and Means committee chairwoman

The leaders of several Vermont non-profit groups said the House cap could have a very negative impact on their future fundraising. Ancel isn't sure that's the case.

"I think people need to remember that the federal deduction is much more valuable than the state deduction. That's still available. The construct of the House is a cap, so most contributions will probably fit under that cap anyway,” she says.

Shumlin doesn't typically signal in advance that he plans to veto a bill, but he's making it very clear that he will not support a tax package that includes any limits on income tax deductions.