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Follow VPR's statehouse coverage, featuring Pete Hirschfeld and Bob Kinzel in our Statehouse Bureau in Montpelier.

Senate Finance Committee Tweaks Tax Deduction Bill

Vermont Statehouse dome on a cloudy day.
Kirk Carapezza
/
VPR/file
The Senate Finance committee is looking at a House bill that would raise $30 million by eliminating taxpayers' deductions for state and local taxes paid in the previous year and capping overall deductions.

One of the key “must-pass” bills of this session is legislation that raises roughly $30 million to help reduce the state's $112 million budget gap. And now the Senate Finance committee is tweaking a proposal passed by the House.

The plan, developed by the House Ways and Means committee and passed by the full House last month, affects only those people who itemize their deductions. This represents about 27 percent of all taxpayers.

The House bill essentially does two things: It eliminates the deduction for state and local taxes paid in the previous year and it caps overall deductions. The most common deductions are for charitable contributions, mortgage interest, unusually high medical expenses and property taxes.

The new limit would be roughly $15,000 for individuals and $31,000 for couples.

“Senate Finance is looking a little bit more surgically, I think, with the same goals in mind that House Ways and Means had of creating a simpler, fairer code,” says Chittenden senator Tim Ashe, the chairman of the Senate Finance committee. “But rather than an across-the-board cap, are looking at each of the deductions and seeing if they're really doing what they set out to do."

As part of that review, Ashe sees no reason to limit the deductibility of high health care expenses.

"Because it's not like they’re spending the money on medical expenses and then it allows them to get on jet planes and fly around the world and go on vacations. It's to make them healthier,” Ashe says.

"Senate Finance is looking a little bit more surgically ... Rather than an across-the-board cap, are looking at each of the deductions and seeing if they're really doing what they set out to do." - Tim Ashe, Senate Finance committee chairman

Ashe says he wants to encourage people to make charitable contributions to Vermont organizations, but he questions if contributions made to out of state groups should be treated the same way.

"If someone gives a $100,000 donation to a law school in another state that perhaps they graduated from, it's not clear necessarily why the Vermont tax code provides a subsidy to support that giving out of state,” he says.

And Ashe doesn't think it makes sense to allow someone to deduct all of the mortgage interest on a million-dollar home.

"So, really what we're doing is saying, ‘We will continue to subsidize home purchases up to a very generous level, but above that threshold that's the point where it's not clear we're serving a public policy anymore,” Ashe says.

Ashe also wants to include a provision in the bill that would impose a minimum 3-percent tax rate for all upper income individuals.

Ashe says there are about 100 wealthy people in Vermont who currently pay less than the 3-percent rate, and he believes it's fair to establish this new minimum tax. He says the plan would raise roughly $1 million a year.

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