Shumlin's Payroll Tax Increase Faces Strong Scrutiny

Feb 18, 2015

Gov. Peter Shumlin's plan to impose a small payroll tax to help reduce the cost of private health insurance premiums is facing some strong scrutiny at the Statehouse.

But the governor says if lawmakers don't like his plan, then they need to come up with an alternative proposal.

Under the governor's plan, a 0.7 percent payroll tax would be imposed on all businesses in the state. It's estimated that the tax will raise roughly $90 million annually and this new revenue would be matched with $100 million in federal funds.

A good chunk of this money would be used to increase the state's Medicaid reimbursement rate. Right now health care providers are reimbursed between 40 and 60 percent of the cost of their services and the remaining costs are shifted over to private health insurance policies.

The governor says his plan will reduce future premium increases by 5 percent a year, and he believes the  Legislature will act on this proposal this year.

"The Green Mountain Health Care Board will audit this annually. And if we don't get the money back to the people who paid it, it sunsets." - Gov. Peter Shumlin

"I can't believe lawmakers are going to go home and say, ‘Being politically timid, not being willing to have the courage to change a system that's broken, that's a recipe for a bright future in Vermont,’” Shumlin says.

The House Ways and Means committee took testimony on Wednesday that businesses that spend a higher amount of their payroll for health care would be winners under the governor's plan, and companies that allocate a lower percentage of their payroll would be losers.

"But there is also this question about saying you have to be really confident that the kinds of savings that the Green Mountain Care Board and the governor have talked about are achievable,” says Calais Rep. Janet Ancel, the committee chairwoman.

Shumlin says he's willing to put a provision in the bill that sunsets the payroll tax if the savings don't match his projections.

"I wouldn't pass a major broad-based tax with a sunset in it without having a pretty good idea that it was going to work. I think we need to believe that it's going to work before we do it." - Rep. Janet Ancel, House Ways and Means committee chairwoman

“The Green Mountain Health Care Board will audit this annually. And if we don't get the money back to the people who paid it, it sunsets,” says Shumlin. “Now, when was the last time government said that to you? You know, you pay a tax, if we don't get it back to you, it's gone." 

But Ancel doesn't think that this is good approach.

"No, I wouldn't pass a major broad-based tax with a sunset in it without having a pretty good idea that it was going to work,” says Ancel. “I think we need to believe that it's going to work before we do it."

One business group has announced its support for the governor's plan: Vermont Businesses for Social Responsibility says the proposal is an important way to provide sustainable health care to all Vermonters.