(Host) A special panel looking at Vermont’s tax system recommends lowering Vermont’s income taxes but also eliminating many deductions.
The panel wants to reduce the sales tax rate. But it suggests broadening the tax to cover clothes and services.
VPR’s John Dillon has more:
(Dillon) The Blue Ribbon Tax Commission has been working for more than a year on ways to overhaul the state’s tax system. The goal was not to raise more taxes – but to make the system simpler and more competitive with other states.
One big change would be in how state income taxes are calculated. On your Vermont tax form now, you’re able to claim a series of deductions – such as for a home mortgage – and then you pay taxes based on a figure called "taxable income."
The new proposal calls for state income taxes to be calculated on what the federal government calls "adjusted gross income." That figure is much higher than what your state income tax is assessed on now. So the commission says calculating the tax on a persons adjusted gross income actually will lower tax rates.
Commission member Kathy Hoyt says deductions would also be eliminated, including those for home mortgages.
(Hoyt) "And what this will do, it brings us into the mainstream in terms of what most other states will do. It provides an ‘apples to apples’ comparison of tax rates. It promotes local control and transparency and it lowers income tax rates."
(Dillon) Under the commission’s plan, the state would raise about $13 million less in income taxes.
The difference would be made up by broadening the sales tax to services, soft drinks and clothing. Food, prescription drugs and some medical services would still be exempt from the sales tax.
Commission member Bill Schubart says the change would allow the state to cut the sales tax rate overall.
(Schubart) "On a revenue neutral modeling basis, it would enable us if we so choose to lower the state sales tax to 4.5 percent, which then makes us one of the most competitive in New England, except for New Hampshire.’
(Dillon) But broadening the state’s sales taxes to services would be a huge change. If you hire a lawyer to prepare a will or a property deed, for example, you’d pay a sales tax on that service. The panel says these new sales tax on services would apply to individuals but not on business to business transactions.
A lobbyist for Vermont’s fuel dealers says customers would pay about $108 a year more to heat their homes if fuel oil is subjected to the sales tax. Matt Cota is with the Vermont Fuel Dealers Association.
(Cota) "The Legislature has previously deemed that heating is an essential commodity. We need it to stay warm for health and safety and that it shouldn’t be assessed the sales tax. This would be a reversal of that policy."
(Dillon) Cota’s concern is one sign that the tax commission’s proposals will face resistance at the Statehouse.
But commission chairman William Sayre urged lawmakers and the public to view the reform proposals as a whole, and not to pick them apart. And he said the panel’s recommendations should not be seen as a way to obtain more revenue for the state.
(Sayre) We’re trying to make a better tax structure, a fairer, simpler more competitive tax structure, and it would defeat the purpose if it were simply used to create more capacity to raise taxes.
(Dillon) Governor Peter Shumlin said he supports the idea of a simpler income tax system. But in a statement, Shumlin said he was skeptical about increasing the state’s reliance on the sales tax.
For VPR News, I’m John Dillon in Montpelier.