Legislature should be debating all expenditures
When the Vermont House takes up the fiscal 2013 budget this week, the focus will be on the money appropriated for all of the functions of state government—operating the courts, educating our children, protecting the environment, promoting tourism, maintaining the transportation network, and more. If the debate follows the usual pattern, there will be no discussion of the money Vermont “spends” each year in the form of tax breaks. This is money the state doesn’t collect because of deductions, exemptions, or preferential treatment of certain types of income. It has the same effect as an appropriation, but it isn’t scutinized in the same way. The Legislature will debate how much to allocate for the state police or education. But there will be no such examination of the cost of charitable contributions or mortgage interest deductions.
The Blue Ribbon Tax Structure Commission estimated that personal income tax breaks will cost more than $350 million in fiscal 2012. To put that in perspective, the total of personal income taxes Vermont expects to collect this year is a little under $600 million. (In addition, Vermont gives away about $400 million in business tax breaks each year.)1
With all the demands these days for greater accountability in government spending, tax expenditures also have to be part of the discussion. A recent New York Times analysis divided the population into five equal groups and compared the distribution of federal benefits to the distribution of federal tax breaks. As might be expected, the largest share of direct benefits, such as unemployment, Medicaid, Social Security, or food stamps, went to the poorest families. But an even bigger share of the tax breaks went to the richest 20 percent of families. In fact, the average tax benefit for richest families ($24,693) was greater than the average direct benefit going to the poorest families ($23,402).
Vermont’s Blue Ribbon Tax Structure Commission collected some information on the distribution of tax breaks, but it wasn’t the same as the New York Times analysis. What the commission learned was that a disproportion of state income tax breaks go to the wealthiest Vermonters.
The study by the Blue Ribbon Tax Structure Commission, which was delivered to the Legislature more than a year ago, is gathering dust on a computer hard drive in the State House. Legislative leaders have said they will take up some of the recommendations next year. They should, because the report contains plenty of thoughtful ideas. Between now and when the next Legislature convenes in January, the Tax Department and the Legislature’s Joint Fiscal Office should work on an addendum that includes the kind of analysis done by the New York Times. Policy makers and the public need to have a clearer picture of exactly how much Vermont is spending on tax breaks, who is getting these benefits, and whether these expenditures are achieving a worthwhile purpose.
- Jeffrey Thompson, “Prioritizing Approaches To Economic Development In New England: Skills, Infrastructure, And Tax Incentives,” July 2010, “Findings in Brief,” p. 3. [↩]
Point very well made.
Bill Schubart, former Member Blue Ribbon Legislative Tax Commission
It is appropriate to consider tax breaks as expenses in that they detract from potential tax revenue. For exapmple, such breaks greatly detract from and complicate Vermont’s education tax system. It would be enlightening to understand just how much money is involved and whom it benefits. Keep up your efforts to make these costs visible.
Right on!