Make no mistake: Governor Shumlin is proposing a broad-based tax increase on low-income working people. Substantial cuts to the Earned Income Tax Credit are a tax increase by anyone’s measure. And a tax increase on the most vulnerable Vermonters, those who are working and raising children.
One example: A single mother of two small children who is self-employed and earns $27,000 a year. She pays no income tax, but because she is self-employed, she pays $3,200 toward Social Security and Medicare (known as Self-Employment Tax on the Federal income tax return (1040), where it is collected from those who don't receive a W-2 from someone else). Her Federal Earned Income Tax Credit is $3,200, which effectively pays that Self-Employment Tax. Her Vermont Earned Income Tax credit is about $1,000. That Vermont Earned Income Tax Credit effectively boosts her income for the year by $1,000 as an incentive because she is earning income and supporting her two children.
Obviously that $1000 makes a big difference in a household of 3 people, the difference between living on $27,000 or $28,000. It is 3.5% of their income, so taking it away is essentially a 3.5% tax, which is really a 100% increase in their tax rate as the Vermont income tax rate on people of her filing status (head of household) making less than $46,000 is 3.5 percent.
Even Republican Lt. Governor Phil Scott said on the Mark Johnson show that he thought taking away people's Earned Income Credit was a bad idea because "this is money people use to buy groceries".
Governor Shumlin has said that he doesn’t want to raise taxes on the wealthy for fear they will leave the state. I guess he figures low-income working Vermonters won’t leave, or does not care if they do. Shumlin claims he is trying to incentivize people on welfare to get jobs, yet proposing now to penalize those who have jobs. He claims he is trying to persuade young people to stay here and raise a family. Someone should tell him that many young people are low-income earners when they first start a family.
This is the most regressive tax proposal to come out of any Governor’s office, Republican or Democrat, in recent memory.