MONTPELIER — The head of a top money committee in the Vermont House of Representatives has dismissed as “scare tactics” claims by a conservative super PAC that Montpelier is on the verge of expanding the sales tax.
House Speaker Shap Smith earlier this year said he supports the expansion of the sales tax to include services as well as goods. A legislative committee has spent portions of the summer and fall discussing the proposal, which would lower the sales tax rate, but broaden it to include services provided by auto mechanics, hair stylists, carpenters and other professionals.
The debate has spawned a series of television advertisements and statewide mailings in which the Republican super PAC Vermonters First warns voters that Montpelier Democrats are on the verge of enacting the expansion.
“Some Democrats are pushing new taxes on barbers, mechanics, carpenters and more,” reads a mailing being sent to thousands of Vermonters. “Expanding the Vermont sales tax will kill jobs in the service economy.”
But Rep. Janet Ancel, chairwoman of the House Committee on Ways and Means, says the ads, which encourage votes for or against specific House and Senate candidates, depending on the zip code to which they’re sent, don’t paint an accurate portrait of the debate.
“My reaction was that this was sort of typical political scare tactics,” Ancel said last week. “I didn’t think it served anyone particularly well, and it doesn’t reflect the reality of the work that I’ve been involved in.”
Supporters of the idea, the most powerful Democrat in the House among them, say the economy has evolved since the sales tax came into being in 1971, and that the sales tax needs to reflect those changes in order to remain a sustainable source of revenue. In 1971, Vermont consumers spent equally on goods and services. Today, about 70 cents of every consumer dollar is spent on services.
Critics, meanwhile, say the move would quicken the pace of consumer migration to New Hampshire, a state that levies no sales tax. For service industries on the border especially, according to opponents, a sales tax on landscaping, carpentry, realty and other common services would be devastating.
Whatever the merits of the plan — endorsed in early 2011 by the Blue Ribbon Tax Commission, a three-person panel appointed to examine Vermont’s tax code — Ancel said it doesn’t look to have legs in Montpelier.
“It’s not a real issue that’s on the table at the moment,” Ancel said.
Ancel said her committee discussed the sales tax expansion concept when the Blue Ribbon Tax Commission recommended it in 2009.
“And there really was not any appetite in the committee for expanding the sales tax to include services,” Ancel said.
Three years later, she said, not much has changed. She said she was intrigued by the possibility of expanding the sales tax when some believed it would allow Vermont to cut its sales tax rate from 6 percent all the way down to 1.5 percent. A fiscal analysis by the BRTC, however, indicated lawmakers would only be able to lower the rate to 4.5 percent, if they wanted to raise an equivalent amount of money.
“And I don’t think that’s low enough to make that kind of change,” Ancel said.
Earlier this month, in the wake of the Vermonters First mailings, Smith walked back from the idea.
“My sense is that it’s not the kind of thing we’d want to do if there isn’t broad agreement, and I don’t see broad agreement at this point in time,” Smith said.
As Senate President, Peter Shumlin was largely responsible for creating the BRTC, and appointed one of its members, Smith. (Then-Gov. James Douglas appointed the other two members).
But Shumlin gave the sales tax expansion a cool reception when it came out, and says he opposes the plan now.
While he does have concerns about the slow erosion of sales tax revenue, Smith said he also is “sensitive to issues that have been raised about expanding the sales tax to services, and they are legitimate concerns.”
While he doesn’t anticipate movement on the sales tax next year, Smith said he does hope to move ahead with changes to the state’s income tax code. Right now, Vermont is one of only nine states nationwide that taxes residents based on their “taxable income,” as opposed to “adjusted gross income.”
This system requires Vermont to levy much higher tax rates in order to raise the same amount of money as states that use AGI. By simply switching to AGI, Smith and others have said, Vermont could lower income tax rates overnight without negatively affecting revenues.
“My preferable focus would be to look at the question of whether we could lower income tax rates and make the income tax system simpler,” Smith said.
And as to the issue of sales taxes: “I think there are going to be a lot of different issues the Legislature is going to be facing next year, and I wouldn’t put this in the top five,” Smith said.
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