Tax Evasion: Vermont Legislators Dodge Final Fight With Shumlin
Who knew Gov. Peter Shumlin was so scared of cutting taxes for 73 percent of Vermonters?
Who knew the legislature’s Democratic super-majority was so scared of Shumlin that it wouldn’t dare challenge him to veto such a tax cut?
And who knew it would take just one blustery, fact-free press conference by the governor to scare House Speaker Shap Smith and Senate President Pro Tem John Campbell into submission?
We learned these things last week as the Vermont legislature slouched toward adjournment and away from one final tax fight with their Democratic standard-bearer.
It all began after Shumlin, Smith and Campbell came together in the governor’s ceremonial Statehouse office last Tuesday to announce that — lo and behold — they’d defused a long-standing budget standoff. Since they couldn’t agree on which taxes they should raise to fill a $10 million budget gap, they’d decided to cut that amount instead.
You know, by increasing government efficiency and, uh, enhancing tax collection.
But before the ink was dry on the deal, the chairs of the House and Senate tax-writing committees — Rep. Janet Ancel (D-Calais) and Sen. Tim Ashe (D/P-Chittenden) — were already scheming to work their way around it. Having spent the session seeking consensus on how to bring more equity to the tax code, they were reluctant to abandon their tax bill — even if the state needed no new revenue.
So they pitched a radical idea: Why not enact those same tax reforms in a revenue-neutral manner? Doing so, they said, could actually cut taxes for 220,000 people, while raising them for just 14,000 mostly wealthy Vermonters. And if they did it all without raising any new revenue, how could the governor object?
But object he did.
Asked last Wednesday whether he’d support such a plan, Shumlin said, “I have made very clear that the consensus that has been built in this building, which I have urged, is to not take action on tax policy, but to finish up the work that we have, balance the budget and get home.”
Shumlin’s protestations notwithstanding, Ancel and Ashe had an ace in the hole. Attached to their tax bill was a funding mechanism for Vermont’s health care exchange, a prerequisite for accessing federal dollars. If lawmakers had decided to hold it hostage, Shummy would have had a hard time nuking the Ancel-Ashe tax plan.
But to play that game of chicken with the governor, Ancel and Ashe needed the full-throated support of Smith and Campbell, who would ultimately be charged with selling the concept to rank-and-file legislators and the public — and rounding up the votes for a potential veto override.
After meeting with Ancel and Ashe on Thursday evening in the Speaker’s office, Smith and Campbell emerged sounding amenable to their idea.
“If we can actually put forward a plan that gives 200,000 or more Vermonters a tax cut — many of them middle-class Vermonters — I don’t think it’s right for us to dismiss that out-of-hand,” Smith told reporters lurking outside his office.
That set off Shumlin administration officials, who spent Friday scrambling to put the kibosh on the plan. And with a self-imposed Saturday adjournment deadline looming — and budget and tax bills in need of finalizing — Smith and Campbell had to decide whether to shit or get off the pot.
As the afternoon faded away, Smith and Campbell holed up in the Speaker’s office again with Ashe and Ancel, emerging an hour later to give reporters their answer: definitely maybe.
Their message muddled, the dynamic duo alternately sounded like they were ready to fight and ready to cave. One thing was certain: They were extending the session through Monday; within an hour, they’d pushed it off ’til Tuesday.
“Any option is still on the table,” Smith summarized.
While legislators dallied about, Shumlin sharpened his knives.
Minutes after Smith and Campbell concluded their remarks, the governor’s staff summoned reporters to his ceremonial office for a response.
“Welcome,” Shumlin said as he sauntered into the office, pointing to an array of candy. “We have M&Ms — tax free, so far.”
Then the governor lit into the tax proposal, saying half a dozen times that lawmakers were raising income taxes “on the fly” when they’d be better off giving up and going home.
“I’ve only heard about proposals. I haven’t seen ’em. But the last thing we should be doing is raising income taxes, changing our income tax system on the fly, at the last minute, when we don’t need the money,” Shummy said. “I’ve made very clear we should not raise income taxes. We will not raise income taxes. We must not raise income taxes.”
A reasonable point. Except that the very foundation of the tax plan from Ancel and Ashe is that it’s revenue-neutral and actually cuts taxes for most Vermonters.
Indeed, estimates provided by legislative economists show that by capping income-tax deductions at two and a half times the standard deduction and setting a minimum tax rate of 3 percent — as Ancel and Ashe suggested — 72 percent of taxpayers pay less, while 5 percent pay more.
For instance, 300 filers earning between $500,000 and $1 million a year would pay $5350 more in taxes, while 56,250 Vermonters earning between $25,000 and $50,000 a year would pay $25 less in taxes. Not every working-class Vermonter would pay less and not every 1-percenter would pay more. But, by and large, the plan shakes out to be pretty progressive.
Shumlin wasn’t about to let the facts get in the way of a solid scare tactic. He kept saying the plan would raise “millions and millions” in new taxes, thereby violating the agreement he struck earlier in the week with Smith and Campbell.
How could a revenue-neutral tax bill raise taxes, you ask? Shumlin’s secretary of administration, Jeb Spaulding, stepped in to explain: When you apply the plan to 2007 tax year data — rather than the most recent data available, from 2010 — it wouldn’t be revenue neutral. It would bring in $7 to $10 million.
That approach ain’t kosher, says Ancel, a former state tax commissioner.
“We don’t pick and choose the year that gives us the result that we want,” she says. “I think once you start choosing what year you’re going to run things on, to me that’s really a risky place to go.”
While we’re at it, why don’t we apply it to 1929 tax year data?
After the press conference, neither Spaulding nor other administration officials would provide documentation backing up their claims.
So why’s Shummy so scared to lower taxes on the vast majority of Vermonters?
“His opposition suggests an unwillingness to let the legislature take credit for a reform that might have been his initiative,” opined the Rutland Herald/Barre-Montpelier Times Argus on Sunday. “The only other reason for his intransigence is that he believes that protection of the prerogatives of Vermont’s wealthy taxpayers is a higher priority than lowering taxes on the great majority of taxpayers.”
Lending credence to that theory was the horde of reliable capitalists in Shummy’s stable who hit the phone lines over the weekend to pressure lawmakers to oppose the plan.
“When they talk about fairness, I really question whether they’ve looked at it appropriately, because I think fairness is in the eye of the beholder,” says David Coates, a member of the influential pro-business clique known as the “Burlington Bishops.”
After speaking with Shumlin and a staffer last week, Coates says he called “five or six” lawmakers to raise concerns, though he says he would’ve done so without hearing from the gov.
“[Shumlin] just said, ‘I’ve taken the position that I won’t support it,’ and I absolutely agreed with him,” Coates says. “I called a couple people and said, ‘You better get a hold of your senators.’”
By Monday, the fix was in.
At lunchtime, Smith gathered House Democrats at a secret caucus meeting next door to the Statehouse to brief them on his decision to abandon ship. Later that day, he and Campbell held yet another press conference saying they’d decided to shelve the bill until January.
Would the governor be any more inclined to tango next year — particularly without that health-care-exchange funding mechanism being held out as a bargaining chip? “I think he shares [our] goal and in 2014, in November, the voters are going to be happy that we’ve moved forward with [the plan],” Smith said.
Got it. So as Shummy’s heading into a reelection year and dialing for dollars, he’ll be rushing to subject his deep-pocketed donors to a higher share of the state’s tax burden?
Campbell added that he and Smith were reluctant to engage in “what you call ‘the political fight’ with the administration” because Vermonters are sick of “the constant fighting in Washington.”
“To me it sends a terrible message to our country — especially to our kids that are out there and hopefully one day will have our positions,” Campbell said, somewhat bizarrely.
Perhaps the children would prefer their parents pay higher taxes because a couple of Democratic leaders were afraid to go toe-to-toe with a Democratic governor opposed to cutting taxes for most Vermonters?
Fact is, Smith and Campbell never came close to fighting the good fight. They spent half a week backing slowly off the plank and then — after delaying adjournment by a couple days — scurried back aboard the ship.
Was there wisdom in beating a tactical retreat? After all, a veto battle between fellow Democrats would be an ugly affair — and neither Smith nor Campbell were assured of victory. If the Republicans sided with their gubernatorial comrade-in-arms, Shumlin would need just a few stray Dems to sustain his veto.
Then again, that’s assuming Shumlin really had the cojones to veto a bill cutting taxes on 220,000 Vermonters and imperiling federal funding for the health exchange.
Why not test him and see what he’s made of?
When Smith and Campbell finished their press conference, Spaulding, who was listening intently nearby, said he was pleased to see the dynamic duo come around.
“I wouldn’t be surprised if the legislature and the Shumlin administration do reach common ground for some tax reform next year that lowers tax rates for all Vermonters,” he predicted.
Asked repeatedly by reporters whether the administration was ready to provide its analysis showing that the plan would’ve raised taxes across the board, Spaulding said his team would be happy to.
“It is a reasonable question to ask,” he said. “I just think it’s basically old news by now.”
Right. As soon as the governor won the fight using a garbage-in-garbage-out analysis, those numbers were “old news.”
After plenty of prodding, Spaulding reached into his pocket and pulled out an email from tax-department consultant Deb Brighton, who wrote that, indeed, applying the plan to 2007 tax year data would raise $7.7 to $9.7 million in new revenue. Helpfully, Spaulding suggested reporters call Brighton directly to discuss the numbers.
Reached later, Brighton confirmed her analysis but said she’d been “reluctant” to provide those numbers, questioning whether it was the right approach to gauge the plan’s impact.
“I think the problem is we can’t just look at 2007 and say that’s the way it’s going to be,” she said. “It’s a reasonable start, but we shouldn’t assume it’s representative.”
But surely Brighton agrees with the conclusions the governor drew from her analysis, right? That it would increase revenues and raise income taxes?
“I see it as something that is basically revenue neutral and basically would lower taxes for most people,” she said.
Old news, my friend. Old news.
Disclosure: Tim Ashe is the domestic partner of Seven Days publisher and coeditor Paula Routly.