(Host) It’s likely that there are going to be more
cuts to this year’s state budget.
That’s because economists will recommend another downgrade to the state’s revenue forecast at a special meeting tomorrow afternoon.
And the capital gains investments of a very small number of Vermont taxpayers could spell even more trouble for the budget in the years ahead.
VPRs Bob Kinzel reports:
(Kinzel) To give you a sense of the size of this issue consider this fact – in 2006 – Vermont taxpayers listed nearly $1.6 billion in capital gains income.
This money comes from a variety of sources including the sale of stocks and bonds, certain business and real estate investments, the sale of timber by individuals who own forestland and the sale of some agricultural products by Vermont farmers.
Economist Tom Kavet says the enormous decline in the stock market in 2008 means that the state of Vermont will get less capital gains revenue this year – it’s a shortfall that could amount to tens of millions of dollars:
(Kavet) "So as losses occur we’ll probably see that as refunding activity in April and as lower paid returns in April there will be much less in the way of capital gains in 2008."
What many people don’t know is that a very small number of Vermont taxpayers account for the vast majority of reported capital gains.
In 2006, just 396 taxpayers were responsible for almost $750 million in capital gains – that’s roughly half of the entire state total.
Kavet says the investment experience of this small number of Vermonters could have a huge impact on the state budget:
(Kavet) "Our reliance on high end income is substantial… those taxpayers tend to get more of capital gains income for the most part it’s distributed towards the high end of that kind of income which is what makes that income quite volatile so in a year like this we’ll see a significant decline in that."
It’s likely that state revenues will be affected for several years because the federal government limits how much an individual can declare as a capital loss in any one year but it does allow taxpayers to roll their losses forward into future years.
Susan Messner is a policy analyst at the Vermont Department of Taxes. She says this situation means that state revenue from future capital gains will be dampened by these "carry forward losses":
(Messner) "Because they have losses from prior years it would offset that so it could mean that the growth rate coming out of the bottom of the recession could be a little slower."
Messner says it will be difficult to estimate the impact that these investment losses will have on state revenues until next winter when most Vermonters file their income taxes but even then she says the picture won’t be clear because many higher income people file tax extensions:
(Messner) "We’ll get to see on a small scale the people that file their actual returns by April 15th but we see a lot of the really big money in the fall with the extension returns and if there are large refunds that go with that that’s not going to hit until the fall which will be the following fiscal year."
The Joint Fiscal Committee, working with the Douglas Administration, has already cut roughly $25 million from this year’s budget.
Senate Appropriations chairwoman Susan Bartlett says that if the state’s revenue forecast is downgraded again, there’s no question that more cuts will be needed.
For VPR News I’m Bob Kinzel in Montpelier.