income tax increase

At this point we don’t know if Governor Douglas is going to veto the FY2010 budget or not. Here’s one very good reason why he should.

There’s a section of the proposed FY2010 budget bill that will raise over $15 million in new money by increasing income taxes. Taxable income on the Vermont state tax return uses the federal taxable income as a starting point. Vermonters who itemize on their federal income tax form can deduct several kinds of items to reduce taxable income, including the money they have already paid in state tax. This deduction includes withholding, balance due on previous year’s taxes, or estimated taxes paid directly to the state.

The FY2010 budget bill caps the deduction at $5,000 at the state level. For many middle-income earners and for all high-income earners this change will mean higher taxable income on the Vermont state return. Many of these taxpayers already get no benefit from the state tax deduction at the federal level because of the alternative minimum tax. The change suggested in the FY2010 budget bill gives them almost no benefit at the state level either.

The budget for FY2010 will in fact increase income tax for many Vermonters in spite of what has been done with the marginal rates.

Rep. Carolyn Branagan
Fairfax/Georgia
Vermont House of Representatives