Tax to Grind: Will Speaker Smith Stand Up to Gov. Shumlin?
So who’s gonna blink first: House Speaker Shap Smith or Gov. Peter Shumlin?
That’s the question this week as the Vermont House considers $23 million in new taxes cobbled together by Smith’s leadership team and vehemently opposed by the governor.
While the speaker’s plan will almost surely pass the Democrat-dominated chamber he controls, it faces an uncertain future in the Senate. And though the gov likes to say he doesn’t issue veto threats, that’s essentially what he did last Friday in a tough-talking statement making clear he “strongly disagree[s]” with Smith’s proposal.
The House plan eviscerates the centerpiece of his “Path to Prosperity” agenda by investing just $3 million in childcare subsidies instead of the $17 million he requested.
Worse, Smith and his cronies go after the most holy of Shumlin’s sacred cows: the broad-based tax. Defined by governors past and present as the income, sales, rooms and meals taxes, these are not to be increased by anyone ever, Shumlin has long argued.
Smith’s plan would raise three of the four.
In next year’s budget, the speaker would raise a few million dollars here and there by nixing sales-tax exemptions currently enjoyed by candy, soda, bottled water, dietary supplements and expensive clothing. He’d add another 50 cents to the cost of a pack of cigarettes — and increase the meals tax by half a percent for a year.
But that’s all chump change compared with the $27 million Smith and co. hope to raise the following year by hiking income taxes on the wealthiest Vermonters. They’d accomplish that by capping itemized deductions, collapsing a tax bracket and subjecting the richest to a higher bottom tax rate.
All of which is totally bummin’ Shummy out.
“I have repeatedly opposed increases to income, meals and sales taxes, and yet this proposal hits all three,” the self-styled fiscal conservative said in Friday’s statement, adding that the plan “increases Vermont’s already high tax burden.”
On the face of it, Shumlin would seem to hold the rhetorical higher ground. After all, taxes bad, childcare funding good. And sure enough, the business community hates the House tax plan, which — to borrow one of the more popular expressions uttered in the Statehouse last week — gores many of its bulls.
“There’s not much in the tax package we like,” says Betsy Bishop, president of the Vermont Chamber of Commerce. “We supported the governor’s stance on not raising broad-based taxes and this proposal definitely goes against that.”
So what on Earth is House leadership thinking?
To understand that, first you have to take a look at the only other alternative on the table: the budget Shumlin himself rolled out in January.
In that proposal, the governor suggested two sources to fund his childcare and energy priorities: The first would raise $17 million by taxing break-open tickets — those lottery-like doohickeys allegedly sold at American Legion halls and elsewhere. The second would lop $17 million off the state’s match to the federal Earned Income Tax Credit, which currently provides 44,000 working Vermonters with a tax break or lump-sum payment.
Both ideas landed with a thud in the legislature.
Few believed that taxing the heretofore unknown break-open tickets would bring in $17 million — least of all legislative economists, who pegged their value at closer to $6 million. Fewer still were jonesing to pay for childcare subsidies by sticking it to poor, working Vermonters.
“The governor’s call to take a serious chunk out of low-income programs was just a nonstarter in the legislature — and to my great relief,” says Rep. Chris Pearson (P-Burlington), who chairs the Progressive caucus.
Smith himself says, “I appreciate that [Shumlin] wanted to put more money into childcare, but I’m not sure you do that by reallocating money from the working poor.”
Perhaps the weirdest thing about the governor’s plan is that he never seemed to put in the grunt work to actually sell it. Legislators uniformly say they were taken by surprise when he rolled out its components during his inaugural and budget addresses in January. And his public pitch amounted to a smattering of press conferences during which he defensively argued his plan was an inviolable “package,” the constituent elements of which should not be considered separately.
Anyway, after Shumlin’s funding sources appeared to disintegrate, House leadership went back to the drawing board to figure out how much they could invest in new priorities.
The answer? $20 million. That’s how much Smith told the House Ways & Means committee to raise and the House Appropriations committee to spend.
If that sounds like an arbitrary number to you, well, it kind of is.
Here’s Smith’s explanation: “It was a ballpark figure based on conversations I had with the chair of the Appropriations committee, the chair of the Ways & Means committee and other people in the building after looking at all the numbers we had in front of us.”
Got it? Didn’t think so.
“It’s not clear to me and it was not clear to other members how much money we need to raise,” says Rep. Adam Greshin (I-Warren), who serves on the tax-writing committee. “We heard vague calls for $20 million, but we didn’t know what those $20 million would be put to.”
The search for the elusive $20 million led to a circuslike atmosphere in Ways & Means last week as committee members sought to pick and choose from a menu of 23 potential taxes. Some would solve the problem in one fell swoop — like a new tax on sugar-sweetened beverages, which would raise $24 million. Others, like taxing vending-machine sales, would bring in a paltry $1.3 million.
Rep. Patti Komline (R-Dorset), who serves on the committee, says she was disheartened by the process, which was dominated by lobbyists trying to save their clients’ hides.
“I was really depressed going home last week,” she says. “I was appalled at how arbitrarily we came to these taxes. It really was spin the wheel and see who it lands on. That’s how we’re going to go for the money.”
But Rep. Janet Ancel (D-Calais), who chairs the Ways & Means committee, sees it differently. Given the task of finding $20 million, she thinks her committee came up with a balanced plan that spreads the pain broadly.
“We could’ve done something that targets just one activity or one group of taxpayers, but we found a way to make sure nobody is hurt a lot,” she says. “The responsibility for higher taxes is really shared across a larger group of taxpayers, and we thought that was a better way to go.”
Of course, that responsibility is shared a lot more by the wealthy, given the House’s proposed changes to the high end of the income-tax scale. And that has supporters of progressive taxation totally jazzed.
“By going to the income tax, they’re going to be raising more money on the basis of ability to pay,” says Jack Hoffman, senior analyst at the Montpelier-based Public Assets Institute. “We think that’s certainly better than hitting people at the bottom.”
“I think on the whole it’s pretty well done,” echoes Pearson, who’s not one to publicly praise his Democratic brethren. “They clearly have heard the call that low-income and middle-income Vermonters can’t afford to pay more, and their package mostly looks to wealthy Vermonters and makes them contribute.”
But as Smith and the rest of House leadership look to sell their plan to their caucus, the Senate and, most importantly, the public, don’t expect to hear a lot of “soak the rich” rhetoric.
Smith’s talking points? The House plan would actually raise less, spend less and put aside more for future fiscal emergencies than the governor’s plan. Furthermore, it would get a head start on next year’s fiscal woes by setting up the income-tax hike now.
In other words, Smith seems to be saying, I’ve got my big boy pants on and I’m gonna be the grown-up in this discussion.
Smith might be right, but it’ll be a tough sell to the average Vermonter if Shumlin demagogues the tax issue. After all, the governor and the legislature alike are already asking the public to swallow a 7-cent-per-gallon gasoline tax hike.
And you can expect a certain conservative super PAC to weigh in with a television commercial script that goes something like this: “Super-majority Democrats in Montpelier are trying to raise taxes on your paycheck, your gas tank, your kid’s winter coat, your Mountain Dew, your Kit Kat bar, your Marlboros and your next meal at Applebee’s.”
And, well, they wouldn’t be wrong.
So where do we go from here?
The budget ball now gets passed to the Senate — the least predictable institution in the state of Vermont. What they’ll do is anybody’s guess.
Senate President pro tempore John Campbell (D-Windsor), who nominally controls the body, appears to be tacking to the fiscally conservative end of the discussion, where he’ll likely be joined by a number of Senate old-timers.
“Vermonters have reached a tax saturation point,” he says. “I’m not opposed to not funding new programs.”
But Campbell will have to contend with a coterie of more progressive members, who make up a sizable portion of his caucus — if not the entire Senate. Among them is Sen. Tim Ashe (D/P-Burlington), who as chairman of the Senate Finance Committee will actually be charged with writing the tax bill.
Ashe won’t say what new funding sources — if any — he prefers, but he sounds far more comfortable with Smith’s approach than Shumlin’s.
“The governor proposed taking cash out of the pockets of low-income working people,” Ashe says, “and the House Ways & Means committee at least considered it might be more appropriate to reduce the tax advantage of second- or third-homeowners, who may or may not live in this state or country.”
In the end, the budget-writing process tends to more closely resemble Kabuki theater than a game of chicken. Don’t expect a Democratic governor to veto a Democratic legislature’s budget — and don’t expect the legislature to force him to do so.
The singing and dancing will continue for some time, but at the end of the day, a handful of people will come to a compromise behind a closed door in the Statehouse. And nobody will be happy.
As Campbell puts it, “This is all part of the dance.”
(Disclosure: Tim Ashe is the domestic partner of Seven Days publisher and coeditor Paula Routly.)