The Progressive revenue package: a closer look

On Thursday, Progressive lawmakers (plus at least one Independent, Barre’s Paul Poirier) unveiled their own plan to raise about $50 million in new revenue by targeting Vermonters with high incomes.  One after another, speakers praised Governor Shumlin’s plans for child care, education, clean energy, energy efficiency and more; but at the same time, they slammed his revenue ideas as “unfair.”

“We’re asking the poor to pay more,” said Poirier, “And we allow the people at the top to just keep earning their income. We need to take a stand, and make people pay their fair share.”

To illustrate their case, the lawmakers presented a chart prepared by the state tax department. It shows the rise (or fall) in gross income across the entire spectrum of earners — from lowest to highest — between 2001 and 2011. And the striking fact is, Vermonters who earn less than the median income level have lost ground, while those above the median have seen their incomes grow.

And generally, the higher you sit on the income ladder, the better you’ve done. Those at the very top,with incomes over $1 million a year, have enjoyed the strongest growth: an astounding 136.4%. The chart makes a compelling argument that Vermont’s top earners are doing very well in spite of the recession, and that Governor Shumlin’s argument that we shouldn’t tax “struggling Vermonters” is, well, in reality a talking point for the Progs. After all, it’s Shumlin who wants to raise the burden on “struggling Vermonters” by cutting the Earned Income Tax Credit, failing to hold VHAP/Catamount clients harmless in the transition to the new health care exchange, and imposing a lifetime cap on Reach Up benefits. The Progs want to shift the burden to those who are prospering, not struggling.

Vermont’s median household income is $53,000 — exactly where the trend changes from strongly positive to neutral or negative. “Half of Vermonters live in this world,” said Rep. Chris Pearson, pointing to the bottom of the chart. “And half of Vermonters live in this world,” pointing to the top. “I don’t think reasonable people look at this data and suggest that all of the new revenue ought to come from down there. And yet that’s exactly what the Governor’s proposal would do.”

After the jump: Details of the Progressive plan, and a cold shower from Democratic leaders.

The Progs offered nine proposals for raising new revenue:

1. $5 million from a shift in bank taxation. Currently, banks pay a tax on their average monthly deposits. However, in recent years, most banks have diversified into other financial services, so a deposit tax no longer reflects their business model. Instead, the Progs want banks to pay a Franchise Tax or the regular corporate tax, whichever is greater.

2. $11 million from taxing capital gains as ordinary income. Currently, the first $5,000 of capital gains is exempt.

3. $1.5 million from adding a third “luxury home” tier to the Property Transfer Tax. Currently there are two tiers; this plan would add a third tier for properties worth more than $500,000.

4. $1.9 million from lowering the exemption in the Estate Tax. Currrently, the first $2.75 million of an estate is exempt. Pearson noted that most of our neighboring states have a $1 million exemption; he’d like to bring Vermont in line with that.

5. The big one, $20 million from collapsing the top two income tax brackets. Currently, a top earner walks through all the lower brackets before the top rate kicks in. Example: If you’re a single person earning $500,000, you pay the lowest rate (3.55%) on your first $34,500 in income, the second lowest rate (6.80%)on income between $34,500 and $83,600. Only your income above $379,150 is actually taxed at the top rate of 8.95%.

The Progs’ plan: those in the top two brackets (above $174,400 and $379,150 respectively) would pay their bracket’s tax rate on their entire income.

6. $1 million from establishing a state Alternative Minimum Tax. This would force people who claim lots of deductions to pay a certain amount of tax, no matter how many deductions they claim.

7. $1-2 million from taking unclaimed bottle deposits. Currently, the unclaimed nickels go to bottlers and distributors.

8. $4.5 million from establishing Natural Resources Extraction Taxes. Vermont is one of only eleven states without such a tax. The Progs would tax groundwater extraction at 28 cents per gallon, and “earth resources extraction” at two cents per cubic yard. Pearson argued that if corporations are profiting from Vermont’s natural resources, they should pay a share of their profits back to the state.

9. $3.2 million by ending the sales tax exemptions for two types of merchandise: bottled water, and items of clothing that cost more than $100.

Even as he introduced the Progressives’ plan, Rep. Pearson acknowledged that he doesn’t expect it to succeed. “We hope it will spark discussion,” he said, “and help legislative leaders find ways to advance Governor Shumlin’s priorities without hurting those who can least afford it.”

The Governor, as I reported earlier, repeated his constant refrain that The Tax Is Too Damn High. House Speaker Shap Smith was also ready with a bucket of icewater, telling VTDigger that many of the Progs’ ideas had failed in past years, and “don’t have broad support.”

State Rep. Janet Ancel, chair of the House Ways and Means Committee, isn’t keen on either plan — Shumlin’s or the Progs’. She noted that the Legislature hasn’t decided whether to fund Shumlin’s spending plans at all. “We’re working in a very tight budget situation,” she told VTDigger. “I think it’s a legitimate question whether we’re going to spend additional money even on really important programs this year.”

State Democratic Party chair Jake Perkinson was conspicuously available for comment after the Progressive presser. (Lately, he’s been assuming a high-profile role, often speaking to policy questions on behalf of his party.) A reporter asked him if Shumlin’s plan was “consistent with Democratic values.” His reply:

The Governor’s plan is more of a long-term systemic approach to the problem, and the criticisms focus on the short-term effects. Not that those criticism aren’t valid. The Governor isn’t saying that these people aren’t important; he’s saying this is the best way to help them. There’s no difference on the goals, it’s a matter of debating how we’re going to reach those goals.

Which isn’t a bad point, really. It goes to Shumlin’s point, which he delivered much less artfully and more condescendingly: The current system is broken, and he’d like to fix it. But Perkinson’s statement assumes two things: that the goals will actually be achieved, and that they will be achieved quickly enough that no one in the working poor will suffer too much. That’s kind of a big gamble, no?

2 thoughts on “The Progressive revenue package: a closer look

  1. benefit people of financial means. The old “Haves” vs “Have Nots” argument.  The Republicans have been arguing for years that our tax and regulatory structure harms business and causes the Job-Makers to flee the state.  This chart proves that tenant false.  Yet, Governor Shumlin appears to have embraced this tenant, facts be damned.

    The Governor has correctly identified that the cost of child care is a major impediment to economic growth for the Have Nots.  But his solution is to pull subsidies from child-less Have Nots.  Make their lot in life worse rather than find revenue from the Haves.  That kind of reasoning is black is white thinking, and the Governor’s response to the questions asked during the press conference show that the Queen of Hearts is digging in her heels.

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