Left to right: Bill Sayre, Congressman Peter Welch and tax commissioner Kaj Samsom
On Friday, Congressman Peter Welch (D-Vt.) talked federal tax reform with representatives of Vermont’s business and nonprofit communities and government officials.
The meeting, at the Burlington headquarters of the Lake Champlain Regional Chamber of Commerce, brought together a politically diverse group. But common themes quickly emerged: All acknowledged the need for tax reform, and all were dismayed at the breakneck pace and lack of transparency in the Republican majority’s process.
“What I’m hearing is a lot of confusion,” said Betsy Bishop, president of the Vermont Chamber of Commerce. “Is it good or bad? No one knows.”
“I want opportunities for my customers to have a more simple, efficient tax system,” said Michael Seaver, Vermont president of People’s United Bank. “There is no confidence that this process will lead to that. There’s been no visibility in the process.”
The discussion mainly focused on process because, participants agreed, there’s no way to tell what Congress might actually do.
“It’s literally changing by the day,” said state tax commissioner Kaj Samsom. “By the time we analyze a bill, three things have changed.”
“So, you need clarity?” Welch asked.
“Yeah,” replied Samsom. “Can you tell me when we’ll get it?”
Nervous laughter briefly filled the room.
The Republican tax plans are aimed at simplifying the system and encouraging business growth. The corporate tax rate would be cut significantly, but many loopholes would be closed. Individual taxpayers would see larger standard deductions and child tax credits, but would see deductions for mortgage interest, state and local tax payments, and medical expenses shrink or disappear. The House plan would also eliminate the deduction for student loan interest.
Bill Sayre, board chair of Associated Industries of Vermont, is a proponent of the Republican approach and the trickle-down theory that informs it — although his endorsement was muted, and didn’t specify any current Republican proposal.
“We want a simpler system, more efficient, less distortion,” he said. “We want flatter rates and fewer deductions. Any movement in that direction is positive.”
Congressional Republicans intend to boost economic growth, but Vermont business leaders say taxation is far from their biggest concern.
“Our businesses are not saying ‘We need lower corporate taxes.’ They’re saying ‘We need more qualified workers!’” said Bill Colvin of the Bennington County Regional Commission. If congressional Republicans kill the student loan interest deduction, young people would have a harder time learning skills and earning degrees.
Several panelists pointed out other ways that Republican tax reform would hit Vermont especially hard. The various plans would eliminate the deduction for property, sales and income taxes. And as a rural state, Vermont is more dependent than some states on investment incentives in the current tax code.
Colvin is involved in the Putnam Block project, a major restoration effort in downtown Bennington. “If this tax bill passes, the Putnam Block is D.O.A.,” he said flatly. That’s because tax credits cover “up to 46 percent of the project’s cost. These downtown projects don’t work in rural Vermont without tax credits.”
In a larger city, he explained, restorations can generate enough rental income to be profitable on their own. In a small community like Bennington, rental rates are too low to pay back the cost of a project. But once completed, these projects spin off a lot of economic activity; Colvin says the tax credit programs being used in Bennington “are revenue-positive for the federal government.”
“Since 2002, almost $300 million in rehabilitation work in Vermont has been made possible by historic preservation tax credits, much of it in housing,” said Paul Bruhn, executive director of the Preservation Trust of Vermont. “The tax credit is crucial to making it work.”
Seaver noted that many of his bank’s deep-pocketed clients are already holding back from investing in incentive-laden projects because the incentives might not exist by the time a development is built.
Sarah Carpenter, executive director of the Vermont Housing Finance Agency, pointed out that the tax-incentive system was a product of president Ronald Reagan’s massive tax reform of 1986. “Congress at the time wanted to move away from government appropriations to tax incentives for housing,” she said. “It’s drawn a tremendous amount of private capital into real estate investment.”
“The investment credit is working as designed,” added Janet Spitler of Housing Vermont. “We’re very concerned about losing it.”
Sayre, the devout free-marketeer, offered a compromise between his camp and those who benefit from tax incentives.
“Those who want to see lower rates and fewer deductions are getting bound up in each deduction having a constituency with good arguments,” he said. Instead of trying to kill certain incentives and deductions, he offered a suggestion: “Put a ceiling on all deductions — mortgage, interest, tax, charitable giving, all the others.” That way, taxpayers could take advantage of incentives that fit their situation without using loopholes to evade paying their fair share.
Welch expressed interest in the idea, and closed the meeting with praise for an open discussion in which party lines were often invisible.
“The conversation here is totally different than the one in D.C.,” he said. Problem is, now he has to head back to Washington, where congressional leadership has closed the door to mere discussion, much less bipartisanship.