• Tax choices
    April 03,2013
     

    Now that the House’s tax package has moved to the Senate, senators will have to weigh a variety of choices, and they may be looking for some principles to guide their actions.

    Senate Majority Leader John Campbell could serve as a sort of bellwether of Senate sentiment inasmuch as it will be his job to marshal together a majority among the majority Democrats. That is not always an easy job, and in his public comments he appears to have adopted a tone of realism.

    The House adopted a tax plan that would raise $27 million in new taxes the first year and $32 million the next year. Campbell said he was not sure the Senate would be willing to match that figure, but he said: “I would have to be either very insincere or unknowledgeable of the challenges we face to say no right now to new taxes.”

    Gov. Peter Shumlin presents himself as an opponent of new taxes, but his package depends in a big way on raising the tax obligation of many low-income workers, an idea rejected by the House and viewed dimly in the Senate. Campbell recognizes that the state’s budget challenges will require some new revenue, and he had some ideas about which ones he would support.

    There are two principles that may help senators as they consider the choices sent to them by the House. First, senators should not widen the income gap between rich and poor.

    The widening inequality bedeviling the U.S. economy is seen by many economists not merely as a problem for low-income Americans but for the economy as a whole. A prosperous economy requires a prosperous middle class in order to foster the demand needed to animate American business. Stagnating wages and a system designed for the benefit of the upper classes have created a drag on the economy as a whole, which is one reason that unemployment has been slow to decline in the wake of the Great Recession.

    Sen. Tim Ashe, chairman of the Senate Finance Committee, appears to recognize this dilemma. He has no interest in reducing the benefit to low-income workers from the earned-income tax credit. Instead, he intends to look at the possibility of limiting deductions that allow tax breaks for high-income taxpayers. Those are the kinds of steps that are likely both to redress economic injustice and stimulate the economy.

    The House plan also includes a variety of sales tax increases on retail items, including some beverages, dietary supplements, some candies, and clothes above $110. There is concern that this tax will have a regressive effect, falling mainly on low-income residents. Campbell is not sure he favors the entire slate of taxes sent over from the House, though he appears open to the tax on soda.

    And that would touch on principle number two. The tax on sugar-sweetened beverages was originally presented as a public health measure, and that is a good way to view it. That is why it is favored by low-income advocates. It may hit the wallets of low-income Vermonters, but its larger importance is the way it would discourage consumption of unhealthy sugary drinks (thus saving people money). It is a tax with a purpose. The other retail taxes may be a harder sell.

    Campbell and Ashe may be willing to give a closer look than the House did at the possibility of taxing break-open tickets, the privately administered lottery tickets sold in bars and fraternal organizations. There is a major gap between what Shumlin estimates the tax would bring in and what legislative analysts have estimated. A clearer understanding of how widespread the tickets are and how the business operates would be useful. Like the taxing of sugar-sweetened beverages, the taxing of break-open tickets would add to the cost of an optional purchase that has little redeeming value. As long as something must be taxed, they seem like reasonable choices.

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