Gov’s capital gains plan has merit
In his State of the State speech, Gov. James Douglas announced two ways to generate additional revenue. The first was to lease the state’s lottery for a one-time gain of $380 million. The second was to eliminate a loophole in the state’s tax laws that benefited Vermonters with unearned income and capital gains. Closing the loophole would generate approximately $21.4 million annually.
As Rep. David Sharpe, D-Bristol, notes in his legislative column on Page 5, the Legislature has so far been opposed to leasing the lottery for fiscal and values-related reasons. We wholeheartedly agree. The one-time benefit means little in the long-term scheme of things, and the trade-off would turn the lottery into an enterprise that preys on Vermonters who don’t have the money to lose. It’s an unseemly proposition.
Both sides of the legislative aisle agree that closing the capital gains loophole is a good idea, and that’s to the governor’s credit. It’s not only a substantial amount of money into the state’s coffers each year, but it is an effective tax increase on the state’s wealthiest residents. Kudos, then, to the governor for going against his pledge not to increase taxes and taking action on this oversight that needed correcting.
And contrary to the Democrats’ suggestion to use that money for expenditures they suggest would lower property taxes, the governor’s plan to use the $21.4 million to lower income taxes for Vermonters has considerable merit.
Here’s why:
• First, under House Speaker Gaye Symington’s plan the promised property tax relief is questionable. What she proposed was adding $8 million to the transportation fund to pay for road and bridge repair; plus $7 million to the school construction fund; plus $5.4 million to the income sensitivity program (taking it from the current $90,000 cap to $125,000.) By allocating the capital gains tax windfall to fund and expand these programs, Symington says, the average Vermonter’s property tax bills would decline.
That’s not necessarily true. It’s quite possible that adding $8 million to the transportation fund and $7 million to the school construction fund will simply mean more projects will move through the system faster and schools and towns will find other ways to spend their allocated budgets, but without a reduction of anyone’s property taxes. And while expanding the income sensitivity limits will benefit those families with incomes between $90,000 and $125,000, it won’t help many others.
Certainly, Symington’s plan would help complete $15 million (annually) in road and bridge and school projects — and that’s not a bad goal — but it probably won’t give that money back to Vermonters in the form of reduced property taxes as many Democrats are claiming.
• Secondly, there is benefit to not being the state with the highest (or close to it) income tax. Douglas’ plan would rebalance the income tax brackets so that those Vermonters in the second bracket now paying 7.2 percent would pay only 6.5 percent; and those in the third bracket paying 8.5 percent would pay 7.75 percent. The top bracket of 9.5 percent would be eliminated. The move would knock Vermont down a peg or two — from having the second highest state income tax in the nation to the seventh highest, for example.
Not that Vermont’s new tax rates would be anything to brag about, but then we wouldn’t have to be so defensive when trying to attract new businesses and higher-paying jobs to the state — and that’s a significant advantage.
Would some of Vermont’s wealthiest residents benefit from reducing those rates? Sure, but then they are also paying much more by closing the capital gains loophole — so it is hardly a giveaway to the state’s wealthiest residents.
But the question is not, as Rep. Sharpe asks in the best progressive tradition, why are the rich benefiting when poorer Vermonters are struggling?
The question is whether the average Vermonter will benefit to any noticeable degree when that $21 million is swallowed by road and school projects, or whether the state might have an opportunity to attract better paying jobs with an image that’s slightly more tolerable to emerging industries and businesses?
Angelo S. Lynn