Reps. Ancel & Kornheiser: Leaving money on the table for whom?

This commentary is by Rep. Janet Ancel, D-Calais, and Rep. Emilie Kornheiser, D-Brattleboro, chair and vice chair of the House Ways and Means Committee.

According to a recent story, the Legislature inexplicably decided to leave money on the table, even though the money was federal money and the supposed beneficiaries of that money were Vermont small businesses. 

When we think of a small business, we think of a family-owned market, a book press, or a greenhouse. We don’t think of CPAs or law firms, real estate developers or tech firms. But it’s these latter businesses — all worthwhile, but hardly small in terms of income — that are typical of those that would have benefited from the so-called SALT workaround. 

The workaround is designed to benefit what’s called pass-through entities. These are partnerships and LLCs, and subchapter S corporations. Some of the owners of these pass-through entities have very high incomes, in excess of $1 million a year. 

America is a nation that is increasingly divided. Even before the disruptions of the pandemic, the rich were getting richer and the poor getting poorer. This gap in wealth isn’t just wrong; it also increases the cost of government services while shrinking state revenues. 

Dating back to 2001 and the Bush tax cuts, Vermont has slowly but surely moved to separate our tax code from the feds. We knew that if we were to protect the revenues of the state and stay true to our values, we needed to be strategic about how to structure our own tax system and not pass laws in reaction to decisions made in Washington. 

There were several reasons not to pass the SALT workaround this session. First and foremost, it’s a significant restructuring of our tax code that never went through the relevant tax committees, but was tacked onto an economic development bill in the final days of the session. There were a number of choices to be made and there was no time at the end of the session to make those choices strategically with an eye to fairness and sustainability. 

We asked our nonpartisan Joint Fiscal staff to tell us who would benefit from the projected tax cut estimated at $20 million. Their analysis suggested that 200 to 250 taxpayers — all with incomes in excess of $1 million — would get 70% of the benefit. That means that $14 million would be shared by 250 taxpayers. By any standards, that’s a big tax cut. 

These are the same taxpayers who benefited substantially when the Trump tax cuts were adopted. The Trump tax cuts included a substantial deduction for the same pass-through entities that the SALT workaround would help. That’s a benefit on top of a benefit — maybe a fine thing to do, but not without analyzing whether the structure that was offered by the Lake Champlain Chamber of Commerce was the best way to do it, and not without understanding the consequences. 

That, as Rep. Marcotte put so well, simply increases the gap between rich and poor. 

If you would Iike to read more on this topic, or other issues of state revenues, our Joint Fiscal Office maintains a regular set of briefs and reports available and accessible to the public.

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Tags: Emilie Kornheiser, Janet Ancel, money on the table, pass-through entities, Rich and poor, SALT workaround

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