By Curt Peterson, Standard Correspondent
The United States Senate and House of Representatives are in joint conference this week, trying to iron out differences between two Republican-sponsored and crafted tax reform bills. The politicians are under time pressure, as they need to have a budget passed this month – and the tax reform bill will have significant influence on the budget they will send to President Trump for his signature.
Both versions of the legislation contain wide-ranging changes in the tax code, changes that will affect every American one way, and to one degree, or another.
Most sources say the Senate and House bills are remarkably similar, and that differences should be overcome with some effort. How will a hybrid bill probably affect Vermonters?
Peter Welch, Vermont’s sole Congressman, is known for his attempts to facilitate compromise with his Republican colleagues.
“The bottom line,” Welch said, “is that both the Senate and House proposals are terrible.”
“We need tax reform, that’s a fact,” he said. “The tax code needs to be simplified, which both bills try to accomplish. And the corporate tax rate should be reduced, but the loopholes should be eliminated so the lowered rate is revenue-neutral.”
But, he said, either bill will add at least $1 trillion to the national debt – the result of reducing revenue. Welch said some experts peg the total debt increase at $2.3 trillion.
“This will end up just being a burden on our children and grandchildren,” he said.
He feels a bipartisan approach would have produced better results and a lot less rancor among the Congressmen.
“The 1986 tax reform was accomplished by President Reagan, Democrats and Republicans working together,” he pointed out. “These bills were crafted only by Republicans, in secret. There were virtually no hearings and not one witness was brought in to testify.”
He cited certain parts of the proposed legislation that will have what he called “devastating effects” on Vermont residents. The state’s high personal income tax, sales tax and real estate taxes have previously been deductible expenses on Vermonters’ federal tax returns, but those will go away, other than real estate levies over $10,000, slightly favoring those with high-value properties.
“This affects taxpayers who itemize their returns,” Welch said, “who make up 27 percent of the filers in the state. They are going to see significant increases in taxes.”
Other deduction repeals include $250 deduction allowed for teachers who spend personal money to buy supplies for their classes – Welch agreed teachers shouldn’t have to pay for the supplies out of their pockets in the first place, but that’s the reality with tight school budgets.
Medical expenses won’t be deductible either – and Vermont’s aging population – the Census Bureau says 18.1 percent of Vermonters are 65 or older – means an increasing number of residents will be faced with related medical issues and costs, such as nursing home care.
“This repeal will hit many Vermonters hard,” Welch said.
Education, considered an investment by a society, is another target of the Republican tax reform proposals. Welch said that students will no longer be able to deduct interest paid on student loans, and they will also have to pay income tax on any subsidies or scholarship assistance they receive as if it was income.
“This is a punitive policy attacking higher education,” Welch said.
Colleges and universities will also have to pay tax on interest earned by their endowments, which Welch said will encourage institutions to increase tuition to cover that cost.
Welch said many of his Republican colleagues agree with him that the legislation that’s likely to come out of joint conference will be bad legislation.
If so, how did this happen?
“There is a very powerful ‘donor class’ out there and it’s very active on this issue,” Welch said. “One of my Republican Representative friends told me that he really dislikes the House tax reform bill, but he’s received several telephone calls from major contributors to his campaign, saying that if this tax reform bill doesn’t pass, he shouldn’t bother to call for any future donations. He feels he has to vote for it.”
Kaj Samsom, commissioner of the Department of Taxes in Montpelier, doesn’t share Welch’s level of disdain for the proposed tax reform bill. He said his department has been focusing on the Senate proposal, as they feel the final compromise Senate/House bill will most resemble that version.
“It’s really hard to generalize about the proposal,” Samsom said. “There are so many variables – How many in the household, self-employed or working for others, for example. Each taxpayer will be affected according to the combination of variables.”
He said the $1 trillion decrease in revenue designed in the Senate bill over the next ten years is problematic, that adjustments will have to be made, at least until some of the tax cuts expire at the end of the decade.
“But most Vermonters will see some level of federal tax reduction, at least for that ten year period,” he said.
The Department of Taxes is putting together information so the Vermont Legislature will be informed when they reconvene in January.
“The legislation may have a significant impact on the state budget, which would ultimately affect taxpayers,” Samsom said. “Vermont personal income taxes provide $800 million in revenue for the state – It’s the largest source of revenue we have.”
This article first appeared in the December 7, 2017 edition of the Vermont Standard.