New federal tax law expected to boost Vt. state revenue

MONTPELIER — State fiscal officials anticipate Vermont tax revenue will increase as a result of the changes made to the federal tax system last month.
While many Vermonters will likely see their federal tax bill go down as a result of the package Congress passed in December, some could see their state tax bill go up.
Gov. Phil Scott’s administration may propose changes to Vermont laws if some groups of taxpayers see their state tax bills increase significantly as a result of the federal changes, according to Tax Commissioner Kaj Samsom.
Samsom said Thursday that models the department has done, working with fiscal experts for the Legislature as well, indicate the state is likely to collect more revenue under the federal changes.
He wouldn’t give a figure for the expected increase ahead of the release of a revenue forecast next week compiled by economists for the administration and the Legislature. However, he said the amount is “certainly not a game-changer.”
Samsom said if any group of taxpayers sees a particularly big jump in their state taxes as a result of the federal bill, the administration may recommend adjusting state law to avoid those increases.
“The governor does not want to raise taxes on Vermonters,” he said.
Scott vowed not to increase taxes or fees in his State of the State address last week.
Samsom said the state is waiting for more details before making a recommendation.
“Once we know what’s going on fully, in the aggregate, at the individual level, we are going to assess from there,” he said. “And to the extent there are cohorts of folks that are hurting at the Vermont tax level because of this, we’re going to look into what we can do.”
However, Samsom said, if the impact on Vermonters is generally minor, the administration may not suggest changes.
“We’re getting ahead of ourselves a little bit to say that there will be a proposal,” he said.
Samsom spoke in front of the House Ways and Means Committee on Thursday, noting that the department worked closely with legislative fiscal experts when modeling how the federal package will affect state revenues.
The package roughly doubled the standard federal income tax deduction, decreased tax rates, increased the child tax credit, capped the deduction for state and local taxes at $10,000 and made many other changes.
Samsom told the committee that families with similar income levels could end up with very different situations depending on how many children they have and other factors.
Vermont’s revenues were less affected than they might have been because of a change lawmakers made last year, shifting to using adjusted gross income as a base for calculating taxes, rather than federal taxable income.
Because of that move last year, the Tax Department does not anticipate the state will see major changes in revenue resulting from the federal tax reduction for pass-through businesses, according to Samsom.
Under the earlier format using federal taxable income, the pass-through provision would factor into the initial figure used to calculate state tax. Under the new system, the pass-through provision is not a factor, according to Samsom.
Rep. Janet Ancel, D-Calais, chair of the committee, said “it’s way too early to say” if lawmakers will make any changes in light of the federal bill. She’s waiting for the economists’ forecasts at the Emergency Board meeting next week.
Questions remain about the federal tax package, she said, adding the regulations haven’t yet been written. There’s been discussion of Congress taking up a bill with corrections to the initial legislation, she said.
“I don’t want to do anything dramatic until we have a better sense of what’s going on,” Ancel said.
Ancel said her committee would look at a proposal to adjust state taxes if the Scott administration puts one forward.
“We need to know what’s actually happening, and if the governor makes a proposal, we’ll obviously look at it,” Ancel said.
Rep. Cynthia Browning, D-Arlington, said she does not believe the federal tax package was truly tax reform, but instead a tax cut. She said she is not looking to raise taxes on Vermonters but sees a need for change in the state tax code.
“I still like the idea of true tax reform, where you close loopholes, you simplify things. Some people may pay more, some people may pay less, you probably raise about the same amount of revenue, but you have a better tax system,” she said.

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