By the end of next week, the House Appropriations bill is due to be voted out of committee and sent to the House floor. At the same time, we will take up the “miscellaneous tax bill” – a harmless sounding bill, which actually carries new proposals that can have significant tax impact.
If the Appropriations Committee cannot find the money to fill holes in the budget, it is the miscellaneous tax bill from the Ways and Means Committee that will make up the difference.
Although the governor proposed a balanced budget, it included both new revenue sources and budget cuts that many in the legislature are objecting to. If we reject a budget cut or a tax source, there is a hole left to fill.
The two biggest tax proposals from the governor were a new 10 percent tax on the “tear-off” tickets sold by many non-profit organizations as fundraisers for local charities, and a near elimination of the Vermont portion of the earned income tax credit.
Both of these were earmarked for specific new initiatives, the first for expansion of child care subsidies, and the second for energy programs. If both the new taxes and the new initiatives are thrown out, the budget remains balanced.
The earned income credit assists working, low income families, most of them with earnings between $10,000 and $35,000 per year. For those paying taxes on income of less than $20,000 per year, the “credit” is actually higher than the tax due, so there is a small payment returned (an average of $25 to $150).
For families with incomes of $20,000 to $35,000, it lowers the effective income tax rate to a range of .4 to 1.8 percent. In contrast, the effective rate increases from 2 to 6.2 percent as annual income increases from $40,000 to $1 million.
Paying more as one earns more is called a progressive tax rate, in comparison to a flat rate, under which incomes are all taxed at the same rate, no matter how high or low.
The Secretary of the Agency of Human Services testified to my committee before the break that Vermont’s tax rates have become progressive enough that the earned income credit is no longer as important. This would bring in $17 million to the state budget.
Based upon our discussions thus far, I expect that my committee [the Human Services policy committee] will be recommending to Ways and Means this week that the earned income tax credit remain in place the way it is.
Sugar, Fuel and Gas Taxes
Since budget and tax bills always start in the House, other tax recommendations are moving from House committees to the Ways and Means committee for consideration.
The Health Care committee has sent it a proposed new tax on high sugar beverages. Similar to the cigarette tax, it has a dual purpose: discourage the unhealthy over-consumption of the drinks, and raise money for the shortfall in the Medicaid budget.
As low income Vermonters are shifted from the state’s Catamount Health plan to the new insurance exchange next January, their health plan costs will go way up, even with the support of the federal tax credit.
Vermont’s budget proposed filling in some of the difference, but some added federal matching money fell through, so the cost to the state budget increased by an additional $4 million. This created another hole from where the governor’s proposed budget started out.
There is also a home energy efficiency program that is being proposed in the Natural Resources committee. It would potentially be paid for by a heating fuel tax surcharge. The committee is expected to vote this week on whether to send that tax proposal to Ways and Means.
The other major consumer tax increase under review is the gas tax. This one is a real dilemma, because it is not an increase in spending that is being considered. It is a question of how to stay close to even.
We are the victims of our own success in reducing gas use. High gas prices are contributing to conservation, and high mileage cars are helping as well. Since the gas tax is flat, if less gas is sold – no matter what the gas price is – less in tax is raised.
Since 2005, 39 million fewer gallons have been sold. In 2003, sales were close to 360 million gallons. In 2011, it was down to almost 320 million. The result this year is a $36.5 million shortfall in the Transportation Fund [25% of the Transportation Fund comes from the gas tax], and lack of state matching funds put an additional $56 million in federal transportation funds at risk.
The plan being worked on currently is a combination of bonding, about a 6.7 cent increase in the gas tax (at the current price of gas), and an $800,000 decrease in the budget.
Slipping Health Taxes In
Finally, there is an expansion of a hidden health care tax, called the “health care claims tax.” It is a tax on private insurance companies based upon the number of claims they process. The current assessment would double (from one to two percent of all claims) over the next two years to invest in health care technology and the health care exchange.
This tax is passed on by insurers into the rates they charge, so the public eventually pays for it, although by appearance it is just another increase in health insurance costs.
The governor’s budget proposal adds another element to it.
It would increase Medicaid provider fees (the amounts paid to doctors and hospitals) by 3 percent, bringing Medicaid payments slightly closer to paying the actual cost of a service. When the state pays less than cost, private insurers get billed for the rest, which is called the cost shift. We, in our insurance rates, end up paying for the state’s shortfall in Medicaid payments.
Increasing the rates won’t increase earnings for most providers. The purpose is to reduce the cost shift by paying closer to the actual costs and reducing what gets passed on to purchasers of private insurance.
But where will we get the money in this very tight budget year to increase Medicaid rates by 3 percent? The plan is to fund this by an increase in the health care claims tax. Go figure.
My committee will be working evenings this week to make the crossover deadline to send the Senate a bill that would confront opiate and other addictions on comprehensive levels.
It includes improvements to the prescription drug monitoring system that we passed last year in a bill that ultimately failed in a stalemate with the Senate on allowing police access to the database without a warrant.
It would authorize a new tool in the fight against the production of the very dangerous and highly addictive street drug, meth, by having computerized logs tracking sales of the precursor drugs – the ordinary cold medications that can be used to make meth.
State and federal law already bar the purchase of more than 3.6 mg at a time, and 9 mg per month. Several years ago, stores were required to start keeping these medications behind counters, and all sales are logged.
This has not stopped addicts from making multiple purchases at different stores.
Now a unique pharmaceutical company initiative has entered the scene. They became worried that the meth crisis could lead to their products being banned, or being made into prescriptiononly drugs that would greatly reduce sales.
They have developed a national electronic log that registers all sales in a single data base, and alerts a store if a customer attempts to purchase more than his or her legal limit, even if the other purchases were made in another state.
Every part of the system is free to participating states: the logs for stores and training and support for them, future upgrades, monitoring costs – the works.
If our bill, which is being developed jointly with House Judiciary, makes it through the legislative process, Vermont will soon become a participating state.
Please stay in touch with your input. Bills will move more quickly and more will be happening in the second half of the session, so feel free to ask questions about snippets you see in the news. You can leave messages for me with the Sergeant-at-Arms at 828-2228, at home at 485-6431, or via email@example.com Drop me a note by email if you would like to be added to my blind list for sending these updates directly.