New State Revenue for Smart Investments

MONTPELIER—The state has sensible options to pay for childcare expansion and other smart investments while making Vermont’s tax system more equitable. That’s the focus of a new report released by Public Assets Institute.

Most agree that expanding childcare is a good idea: good for children, workers, and the economy. The report identifies five options that could pay for this expansion or other state investments by increasing revenue from the state income tax without raising rates and without hurting low-wage workers.

“We need to make public investments in order to prosper,” said Public Assets Institute President Paul Cillo. “Vermont can make smart investments in people, programs, and infrastructure that provide opportunity and ensure the wellbeing of all Vermonters.  And we can do it in a way that makes Vermont’s tax system more equitable.”

One option discussed in the report is elimination of the state income tax deduction for state income taxes paid. The vast majority of states that allow itemized deductions do not include state and local income taxes. Vermont currently caps the deduction at $5,000. Eliminating it would generate about $16 million in new revenue. Another option, eliminating itemized deductions in favor of a higher standard deduction for all filers, could raise $25 million. The revenue estimates were prepared by the Institute on Taxation and Economic Policy in Washington, D.C.

The governor’s proposal to cut the state’s Earned Income Tax Credit (EITC) increases income tax revenue by about $17 million without raising rates.  However, that revenue comes from the poorest working Vermonters, making the state’s tax system more regressive.

The report, “Vermont Has Options to Raise Revenue for Smart Investments,” is available at publicassets.org.

Public Assets Institute is a nonprofit, nonpartisan organization that promotes sound budget and tax policies to benefit all Vermonters. Additional information is available at www.publicassets.org

The Institute on Taxation and Economic Policy is a 501(c)(3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. Additional information is available at www.itep.org

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