Much of the coverage from Vermont Public’s capital bureau this year has focused on tensions between Republican Gov. Phil Scott and Democratic leaders in the Legislature. But as lawmakers head into the final days of the 2024 legislative session, it’s disagreements between the House and Senate that are taking center stage.
That’s because Senate lawmakers have largely rejected the proposed tax increases that House lawmakers approved last month.
In this week’s edition of the Capitol Recap, Vermont Public’s Mitch Wertlieb spoke with reporter Peter Hirschfeld to learn more about why Democrats are at odds with each other over the issue of new spending. Their conversation below has been edited and condensed for clarity.
Mitch Wertlieb: A few weeks ago, the House approved more than $130 million in tax hikes. And they wanted to use that revenue to fund new spending on housing, health care and public safety. What has the Senate done with those proposals?
Peter Hirschfeld: The Senate carries a sharp axe sometimes when it comes to budget proposals that are sent to them by the House. And they definitely broke that tool out this year.
You mentioned that $130 million revenue package that was passed by the House. It consisted largely of two separate proposals. One of them would have created a new income tax bracket for high earners — we’re talking about people that make more than $500,000 a year.
The other would have increased taxes on corporations, in part by boosting the top marginal corporate income tax rate to what would have been the highest in the country.
House lawmakers say working-class Vermonters have enormous needs right now. And they said government can address those needs by deriving more revenue from the people and corporations that can easily afford it.
But Caledonia County Sen. Jane Kitchel, the incredibly powerful chair of the Senate Appropriations Committee, said the approach favored by the House could carry some unintended consequences:
Jane Kitchel: It’s very easy to say, ‘Oh my gosh, those people have wealth, and they should be paying more.’ But oftentimes there’s a lot more underneath it that has to be carefully examined.
Peter Hirschfeld: Kitchel says it’s unclear what sort of knock-on effects the House proposal would have. Would rich folks flee the state in ways that erode the tax base over time? Would Vermont’s economic environment become less hospitable to the sorts of businesses that lawmakers are hoping to grow and attract?
Kitchel and other senators say Vermont needs solid answers to these kinds of questions before it moves forward with what they view as a significant change to tax policy in this state.
Mitch Wertlieb: If Senate lawmakers aren’t willing to go along with those tax increases, then what happens to the programs those revenues were going to fund?
Peter Hirschfeld: A lot of them go by the wayside. And there are some initiatives that won’t be happening, or have been scaled back, because revenue from those tax increases won’t be available to fund them.
For example, the House had a plan that would have expanded health care subsidies for low-income seniors on Medicare. Under that plan, the state and federal governments would have covered Part B premiums for seniors who are struggling to afford them now.
Because the Senate rejected the revenue package needed to fund that proposal, that plan has been scaled back. And it means that about 8,000 low-income Vermonters who would have received about $2,000 a month in new subsidies under the House plan will now have to continue paying those premiums out of pocket.
Perhaps the most stark difference between the House and Senate budgets, though, comes in the area of affordable housing. House lawmakers used that tax increase on high earners we talked about to fund a 10-year plan for housing. And it would have plowed $50 million next year alone into the construction and rehabilitation of much needed housing units.
Waterbury Rep. Tom Stevens is the chair of the House committee that oversees housing issues. And he says that Vermont’s housing future is tied to funding decisions made by the Legislature:
Tom Stevens: We take the housing crisis seriously. We think that the first thing you need to do is to provide funds for building. That’s the been the chorus, if you will, in my committee for the 15 years that I’ve been here, which is more money will build more housing.
Peter Hirschfeld: There’s real concern in the House that in rejecting the proposed tax increases that would have funded those housing initiatives, the Legislature is abrogating its responsibility to address what is, for a lot of Vermonters, the single biggest economic issue in their lives here.
Mitch Wertlieb: We're hearing lawmakers are hoping to adjourn by May 10. How will House and Senate leaders reconcile what seem like some pretty big disagreements between now and then?
Peter Hirschfeld: The Senate isn’t rejecting the idea of new revenues out of hand. And they’re raising about $19 million for budget needs by implementing some fee increases at the Department of Financial Regulation. But that’s as far as the Senate is willing to go. And while Senate President Pro Tem Phil Baruth says he understands the thinking of House lawmakers like Tom Stevens, he says the Senate cannot follow them on that journey.
Phil Baruth: And our philosophy is different about trying to balance the needs of Vermonters on a fixed income, Vermonters who feel that they are taxed at the maximum capacity now, and responding to these emergencies.
Peter Hirschfeld: Baruth says his chamber is also mindful of the fact that education taxes will be going up by more than $200 million next year, due to budget increases approved by school boards. And, a 0.44% payroll tax enacted by lawmakers last year to fund their childcare bill will go into effect on July 1. And Baruth says those increases are already at the upper limits of what the Senate believes the tax base here can bear.
This means the revenue box that budget writers in both chambers have to live within is going to be a lot tighter than it was when it left the House. And the budget that the House and Senate lawmakers finalize is going to reflect that reality.
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