Evidence from surveys of migrating households, the existing economic literature, and new analysis using data from the Internal Revenue Service all suggest that taxes do not play any notable role in causing people to leave a state. The most important factors in influencing household migration are employment and family-related reasons.
Good Jobs First examines the subsidy disclosure practices of the 50 states (and D.C.). See which states do a good job of reporting on where the money is going and which keep taxpayers in the dark.
The recession has put many Vermonters out of work. So policymakers are looking for an economic boost that will get Vermonters working again and give their families ongoing stability.
What’s the best way to do that? Vermont has used tax credits and other incentives for companies to do business here. At the same time, Montpelier has cut investment in public infrastructure and services, calling it “unaffordable.”
But this strategy is backward according to an in-depth analysis by economist Jeffrey Thompson who studied the best research on how to build and sustain healthy economies. Indeed, rebuilding Vermont’s neglected roads, bridges, and water systems and robustly funding education, from preschool to adult worker education, will benefit the state’s economy far more than tax credits and other business incentives.
“The available evidence suggests that the most effective options for creating jobs, in the short and long term, are the same options that support public services: investing in infrastructure and building the skills of the current and future workforce,” says the report.
“The tax cuts and business subsidies approach to economic development, on the other hand, does little to create jobs in the short run, and is not the most effective approach to generating growth over the long term.”
Investing in Vermont’s public structures is the best way to give the economy a needed boost and create lasting prosperity for all Vermonters.
As legislators gather on Thursday to hear the eighth and final State of the State address from Gov. James Douglas, they ought to be alert to signs that Douglas plans to solve state budget problems by shifting them onto the shoulders of local property tax payers.
All signs point to the likelihood that Douglas plans to end his tenure as governor by carrying forward his ill-advised war on education. So far, he has not succeeded in gutting state support for education, but as the state’s budget situation worsens, the temptation will always be there.
The budget situation is bad indeed. Douglas and the Democratic legislative leadership agree that the state faces a budget shortfall of about $150 million. Legislators say they have been able to work cooperatively with members of the Douglas administration to find ways to streamline state programs or to pinpoint potential cuts.
The shock to state programs is likely to be extreme, and few areas are likely to be spared. And yet even a wide range of draconian cuts will not quickly reach $150 million. One example: A reorganization of the state judiciary is likely to generate significant controversy, and it would save only $1 million. That’s not nothing, but it is only a small step toward solving the budget problem.
Because balancing the state budget is hard without raising taxes, Douglas is likely to propose ways of siphoning money away from local school budgets, forcing school districts to increase property taxes. This is what he attempted last year, with partial success. He has also made a habit of decrying high property taxes at the same time as he is forcing them higher.
Certainly, school boards have a responsibility to taxpayers to keep a tight rein on school expenses. As former school superintendent William Mathis points out on the opposite page, school boards have done a good job of holding the line in recent years, keeping average increases to about 2 percent, which is below inflation, and below the level of increases of state government under Gov. Douglas.
So what is the state’s responsibility toward local education? One of its responsibilities is to collect education revenues so as to distribute them equitably from town to town. This was the great innovation under Acts 60 and 68. Students in poorer towns, such as Rutland, Barre, Springfield and Bennington, have a far better chance of getting a good education than they did before Act 60, and they are on a more equal footing than before with students in Woodstock, Stowe and other wealthy towns.
But the state also has a responsibility as a source of revenue. Before the advent of Act 60, the state sought to ease the property tax burden by handing out state aid to education, which was drawn from broad-based taxes, mainly sales and income taxes. Doing so spread the tax burden more broadly and restrained property tax increases.
When the state remade its education finance system, legislators realized that unless the state maintained its contribution to education from the General Fund, property tax payers would face a huge new burden. So each year the state contributes millions of dollars from the General Fund to the Education Fund.
How easy it would be to solve the state’s General Fund problem by cutting back the transfer to the Education Fund. And yet doing so would be a historic abdication of responsibility by the state.
Our schools are one segment of the public sector that is working well. Test scores show the achievement of Vermont students to be ranked high nationally. Thus, the state must not succumb to the siren call of cultivated mediocrity.
This is the call that entices taxpayers to degrade their public institutions to a level of demonstrated mediocrity so they are comforted by the notion that they are not spending too much money. Now is not the time to degrade our schools. At a time of profound economic challenges and broadening social need, Vermont must support its most crucial and most successful institutions.
As budget analyst Jack Hoffman of the Public Assets Institute has written, none of us is a taxpayer only. We are also, all of us, users of public services: schools, roads, police, environmental protection, health care. Legislators must remember that they are there not just to curb taxes but to ensure that the state meets its responsibilities to the people of Vermont.
Vermont finished eighth among the states in the latest ranking by the Annie E. Casey Foundation of children’s health and welfare.
The study looked at data from 2006 and 2007 in a variety of categories, such as children living in poverty, teen births, cigarette smoking, child mortality, and low birth-weight babies. With Vermont’s small population, results may fluctuate more widely than in larger states, but year by year, Vermont has finished high in the foundation’s rankings.
The other top finishers, from first to seventh, were New Hampshire, Minnesota, Utah, Connecticut, Massachusetts, Iowa and North Dakota.
The bottom eight finishers, from 43th to 50th, were New Mexico, Oklahoma, South Carolina, Tennessee, Arkansas, Alabama, Louisiana, and Mississippi.
Vermont officials are reluctant to crow about Vermont’s ranking because they are only too aware of the continuing problems of rural poverty in the state. And yet Vermont’s commitment to services for children, including education, has to be an important factor in the state’s continuing success in discouraging harmful trends such as teenage pregnancy and smoking. Vermont’s commitment to children’s health is evidenced by the fact that 43 percent of Vermont children are covered by Medicaid or Dr. Dynasaur.
The poverty afflicting the Southern states in the bottom tier of the foundation’s ranking impinges on the welfare of children in two ways. Poverty itself creates health problems and social pathologies that hurt children. And the low levels of taxation and spending on education and social services in the low-ranking states fails to lift children out of the poverty in which they are mired.
In other words, the relative health of Vermont children is no accident. It reflects the commitment of Vermonters who are willing to pay for essential services.
It is important to keep these realities in mind during the ongoing discussions about taxation and budget priorities. The Legislature and the Douglas administration face daunting challenges in keeping the state budget and tax rates under control. But it’s important to recognize the value of the services that, over the years, we have chosen to support, the beneficial effects of which have shown up in the foundation’s rankings.
In a recent interview, Gov. James Douglas emphasized his dislike for higher taxes passed by the Legislature this year over his veto and the need to avoid additional tax hikes in the future. He said he continues to encounter wealthy Vermonters who say escalating tax rates in Vermont have persuaded them to move their residences to Florida (ranked 36th by the foundation) or Alabama (ranked 48th).
Vermont’s economy would suffer from a significant exodus of wealthy taxpayers, in part because of the prosperity created by successful businesses and their well-compensated executives and in part because income tax revenue from wealthy taxpayers constitutes a high percentage of the overall take in taxes.
So far, however, census information suggests that the out-migration of wealthy Vermonters is at least matched by a comparable in-migration. What is significant is that the anecdotes that seem to strike a chord with Douglas involve the travails of millionaires. At least, those are the ones he is fond of repeating. In contrast, it is ordinary working Vermonters who choose year after year to support their schools through their support of school budgets and whose representatives in Montpelier have struggled to preserve services for children.
When asked where in the budget he would cut to save money, Douglas mentions first education. This answer is problematic for several reasons. First, education spending is the province of local voters, not the governor, so in pointing the finger at education he is evading responsibility. Second, by attacking education in Vermont he potentially undermines an institution that is one of the keys to the welfare of Vermont’s children.
Vermont’s millionaires may continue to move to Florida or Alabama. It is nothing new. The weather is warmer there. In doing so, they also get out of the citizen’s responsibility for adequate support of children. By contrast, those Vermonters who stay, including the rich ones, have the satisfaction of knowing they are fulfilling their civic responsibilities to the next generation
There’s little point in opening government records to the public if the information is too difficult to find, sort through or taxes the everyday understanding of the average Vermonter. Too often that’s the case with what we get from Montpelier, especially when it comes to the budget.
In keeping track of our government, the budget is always a good place to start. There’s little Montpelier can do without spending our money. That means the spending plan often speaks more clearly and loudly about how state government affects our lives than all the public pronouncements of our elected officials and bureaucrats combined.
With billions of dollars at stake, Vermont’s state budget is difficult to navigate for all but the true policy wonk or professional Montpelier watcher. Access to information that tells us what our government is up to is indispensable in a democracy. Yet the complexity of policy debates today means that access is only the first step.
This is even more true as open records move onto the serve-yourself world of Web sites and online databases. In cyberspace, there’s no clerk at the front desk to find the file you need. You have to master the art of the search engine, then sort through the results for the right document. And that’s just the start.
In our busy lives, time often is the deciding factor in what we choose to do. If tracking down government documents takes too long, that might be disincentive enough for too many people.
That’s why we applaud liberal Paul Cillo and conservative John McClaughry for recognizing their common interest and working to create a Web site that aims to make it easier to see where state government gets its money and where that money is spent. This is a work in progress, and we’ve yet to see the results.
Much of the information Cillo and McClaughry seek to sort out is available now, much of it on state Web sites, but what’s there isn’t always easy to find or to decipher. Most people lack the time to track down the raw information and dig through to find what they’re looking for.
Vermonters would be happier if this were state government putting in the kind of effort to increase its transparency. Too often, what stands out is efforts by all branches and levels of government to limit access. In our democracy, government has an obligation to be accessible to the people.
Making it easier to understand the whys and whats of the budget can only help Vermonters be better informed about and more engaged in what happens in their state capital. When the voices extend and reach into the community, the message becomes heard just a little more.
To: Steve Klein, Legislative Joint Fiscal Office From: Tom Kavet CC: Senate Finance Committee Date: April 8, 2009 Re: Requested Review of Proposed “Vermont Recovery and Reinvestment Act of 2009,” S.137
OVERVIEW
Per your request, I have summarized perspectives on the: 1) Costs, 2) Near-Term Economic Stimulus Effects and 3) Policy Considerations, associated with the 121 relevant sections proposed in S.137, the “Vermont Recovery and Reinvestment Act of 2009.”
While the bleak economic conditions that were originally cited as the rationale for this legislation are real and present, the efficacy of many of the 121 measures contained within them to address these conditions can only be described as minor, and in some cases, misguided. Many of the measures are revised versions of programs that have either had little or no beneficial impact as previously enacted or proposed measures that have been rejected in prior legislative sessions.
Many of the measures represent substantial State expenditures of revenues – whether as tax expenditures that reduce revenues, loan loss guarantees that may reduce revenues, or direct expenditures – at a time of severe revenue stress. Virtually none of the proposed programs that reduce revenues or increase spending represent any net economic stimulus benefit to the State. This is because they must be funded with offsetting tax increases or spending cuts (see page 2 insert for more a more detailed discussion). Few of the proposed measures provide clear goals stating expected public benefits for these public expenditures, and fewer still provide transparent public oversight to insure that these benefits are achieved.
Most importantly, the larger policy framework and supporting analysis within which these measures fit, is absent. As noted in comparable pending House legislation, “Vermont lacks a shared statewide vision of its economic future…[and] lacks a single, holistic, integrated state plan for economic development.”1
EXECUTIVE SUMMARY
At present, nine states – Arkansas, Hawaii, Montana, New Mexico, North Dakota,
Rhode Island, South Carolina, Vermont, and Wisconsin – offer substantial tax breaks for
income derived from capital gains. In tax year 2008, these nine states are expected to
lose a total of $663 million due to such misguided policies, with losses ranging from
$10 million to $285 million per state. Consequently, repealing capital gains tax breaks
could be an important response to projected state budget deficits.
Capital gains are the profits one realizes from the sale of an asset, such as stocks,
bonds, investment or vacation real estate, art, or antiques.
In practice, very few low- and moderate-income taxpayers report income from capital
gains. Federal data from 2006 indicate that, for the country as a whole, taxpayers with
adjusted gross income (AGI) of less than $50,000 comprised 67 percent of all federal
tax returns filed, but constituted just 3 percent of all returns with income from capital
gains. Similarly, taxpayers in this income group held 23 percent of nationwide AGI in
2006, but received just 4 percent of reported capital gains income.
As a result, the impact of repealing capital gains tax breaks would fall almost
exclusively on the most affluent state residents. In fact, in the nine states highlighted
in this report, 94 to 97 percent of the additional tax revenue generated by repeal
would be paid by the richest 20 percent of taxpayers in those states.
Claims that capital gains tax breaks help to promote economic growth – and that the
repeal of such breaks would impede an economic recovery – are without merit.
Extensive economic research demonstrates that there is little connection between
lower taxes on capital gains and higher levels of economic growth, in either the shortrun or the long-run.
Concerns about the volatility of capital gains income – and, by extension, the revenue
derived from such income – are understandable, but are no reason to preserve such
inefficient and inequitable tax breaks. Rather, concerns about the predictability of
state revenue streams can best be addressed outside the income tax – either by
reforming state budget processes or by expanding the bases of the other taxes that
states typically levy.
Capital gains tax preferences are costly, inequitable, and ineffective. They deprive
states of millions of dollars in needed funds, benefit almost exclusively the very
wealthiest members of society, and fail to promote economic growth in the manner
their proponents claim. In the current fiscal and economic climate, state policymakers
can not afford to maintain these tax breaks any longer.
A contradiction lies at the heart of the plan of Gov. James Douglas to impose state controls on local education spending. An understanding of that contradiction unmasks the true nature of Douglas’s deceptive attack on public education in Vermont.
Douglas argues that education spending is spiraling out of control in Vermont. He produces numbers showing large percentage increases in education spending, noting that these increases are taking place even as the overall student body has begun to shrink. These rising costs, he concludes, are heaping an unbearable burden on Vermont’s property tax payers.
But what is the cause of these rising costs?
Certainly, schools face numerous extra burdens that they did not face in past years, including rising health care and energy costs and greater demands for special education services. Educators say they are seeing an increasing number of students with special needs, including autism and a variety of other learning disabilities. Serving these children is becoming increasingly expensive, but serving them is a mission that no one proposes to abandon.
Douglas adds another cause to the list of causes for the rising costs. He says the present education funding system established through Acts 60 and 68 makes it too easy for taxpayers to increase their budgets. Because the system equalizes education costs among school districts, taxpayers don’t face the inordinate cost burdens that they faced in previous decades.
That is the contradiction. Douglas is saying that property taxes are too high and that they are not high enough. He proposes to solve the problem by driving them even higher, to make property taxes hurt so badly that voters will be forced to hold school spending down.
He would drive property taxes higher by robbing the Education Fund of about $63 million. He does not call it robbing. In his role as governor, he is trying to balance the General Fund by diverting money now going to the Education Fund back to the General Fund. With less money in the Education Fund, property tax payers will have to make up the difference.
State government has been undermined by plummeting revenues from the broad-based taxes on which it depends. The income and sales taxes are volatile sources of revenue, responding to the ups and downs of the economy, and now the economy is down.
One of the advantages enjoyed by schools is that they depend largely on property taxes, which are less volatile. Property tax payers have to pay their bills even through the fluctuations in the economy. Fortunately, the income-sensitivity provisions of the bill provide a degree of protection if their incomes fall.
Douglas is following a demagogic path blazed by other Republicans in previous eras, using education as a whipping boy in hard times, imposing corrosive controls on education spending that ultimately undermine our schools.
It is what happened when a property tax cap in California transformed one of the nation’s best school systems into one of the worst.
It is ironic that Douglas is resorting to this tactic now, at a time when the nation is coming to realize that the American people suffer when the government retreats from its public responsibilities. The incoming Obama administration plans to make up for years of neglect in health care, infrastructure, education and other areas. Douglas is proposing changes that would undermine local control of schools, hinder improvements in education and undermine the equity so dearly achieved through the passage of Acts 60 and 68.
The Democrats must not allow Douglas to frighten them into ill-considered legislation designed to protect them from the charge that they are not doing enough to curb property taxes. It is Douglas who proposes to drive up property taxes and destroy equity among schools. Acts 60 and 68 may well require some modification to make it work more effectively, but Democrats ought to be willing to stand up and defend the bill that was one of their proudest achievements.
Douglas deploys a red herring when he says the bill is too complicated. Its principle is simple: A penny raised on the tax rate raises the same amount of money per-pupil in all of Vermont’s towns. That is equity. Douglas has proposed changes that would reconstitute the advantages once enjoyed by Stowe, Killington and other property-rich towns.
It is easier to pay for education now than it used to be. That was the point of the reforms that took place in recent years. That’s not a bad thing; it’s a good thing. At the same time, local school boards, which still have responsibility for crafting their own budgets, are now chopping their budgets as they respond to the poor economy.
The Legislature needs to stand up Douglas’s demagoguery about education. Education is our future, and our present.
Gov. Douglas is looking for ways to cut spending on social services to cover the state budget shortfall. Meanwhile, state Treasurer Jeb Spaulding calls for a gas tax to pay for road and bridge repairs. In normal times, these efforts are typical of Vermont’s tradition of fiscal responsibility. Vermonters know the wisdom of frugality: If we don’t have the money, we don’t spend it. We balance out state’s budget, and as a result of our fiscal restraint we have the highest bond rating in New England.
Unfortunately, we are no longer living in normal times. The economy is at the beginning of what will be a severe and prolonged recession. According to the Vermont Department of Labor, unemployment has jumped from 3.9 percent to 5.2 percent and will go substantially higher before the economy turns around. The economy took a huge hit in the last quarter, and economists are predicting growth may not return until 2010.
During these tough times, Spaulding is right to call for spending on roads and bridges. These investments are long overdue and the upgrades will keep many Vermonters working and putting food on their families’ tables in difficult economic times. However, Spaulding is wrong to propose paying for these costs through a tax increase. A gas tax will hit rural poor Vermonters, who must drive to work, the hardest.
Gov. Douglas’ proposal for cutting social services in the midst of the worst economic crisis of our lifetime is as foolhardy as Herbert Hoover’s spending cuts after the 1929 stock market crash. Spending cuts exacerbated the Great Depression, and we know that government spending is critically important during economic recessions. Cuts in social service spending will hit the poorest the hardest and inhibit the ability of Vermont to get the state back on the road to recovery and growth. Vermont businesses will also suffer unnecessary hardship if Gov. Douglas attempts to penny-pinch now.
Rather than cut social services and increase taxes, Vermont’s political leadership needs to consider a radical notion: allowing the state government to use the rainy day fund to cover vital social services and issue bonds to finance public works. The state can run a deficit for a couple of years without creating a huge debt burden for future generations. Just as FDR ran deficits to keep people working during the New Deal, the state government can play a smaller similar role. We can keep people working and help soften the worst effects of the economic downturn.
Fiscal prudence does not mean penny-pinching in every circumstance. In fact, tax hikes and spending cuts in vital services at this moment in our economy would be fiscally imprudent during these difficult times.
We need our leaders to demonstrate political courage by maintaining social services and putting Vermonters to work without burdening families and businesses with more taxes. If we consider Spaulding’s gas tax proposal along with Douglas’ clear direction toward spending cuts, we can anticipate an unnecessarily long, hard road ahead.
Steve Schmida of Essex is the president of SSG Advisors, an international development consulting firm based in Burlington.
Editorial with permission from Times Argus
December 14, 2008
When you close down the courts, you are closing down the government. And yet that was the possibility outlined by Chief Justice Paul Reiber as he described ways the state’s judiciary might meet budget-cutting targets proposed by Gov. James Douglas.
The state is facing a dire revenue shortfall, and agencies and offices throughout state government have undertaken a review of programs or personnel that might be cut to achieve an 8 percent reduction in spending. Vermont is not alone. The total projected deficit for the current budget year is running close to 10 percent, a decline in revenue comparable to the decline many other states are experiencing.
There comes a point, however, when government itself is imperiled by falling revenues. Reiber was proposing cutbacks in the judiciary that could involve either closing courts in several counties or reducing personnel through some combination of layoffs and furloughs.
Yet of all the functions of government, the judiciary is one of the most fundamentally important. Adjudicating disputes between citizens and prosecuting criminals — these activities do not qualify as governmental “fat.”
The state is scrounging for money to perform other essential functions. Voices from across the political spectrum now see the need to raise the gas tax by 5 cents in order to pay for bridge and highway repairs and paving that is lagging way behind. These voices include Treasurer Jeb Spaulding and conservative commentator John McClaughry. Gasoline has recently declined from more than $4 a gallon to about $1.80. A nickel tax would barely be felt and could go a long way toward catching up on maintenance and repair of our deteriorating roads and bridges.
The Douglas administration has been talking about siphoning money out of the Education Fund toward transportation, an action that contradicts Douglas’ continuous harping on the need to lower property taxes. Taking money from the Education Fund would raise property taxes or at least prevent a reduction. And yet it seems that whenever money runs short for the state’s General and Transportation Funds, those responsible for those funds are willing to heap new burdens on property tax payers, despite their anti-property tax rhetoric.
Paul Cillo, former state representative and now executive director of the Public Assets Institute, has pointed out the obvious. The state does not have a spending problem so much as it has a revenue problem. What has changed in the last year is not that the state has suddenly expended a new fountain of money on the courts. What has happened is an economic recession that has cut off money needed to pay for the courts, the roads and other important functions of state government.
After six years in office for Douglas to assert that there is an abundance of fat in the budget is an indictment of his own administration. If the budget is full of fat, why hasn’t he already cut it?
It is growing increasingly apparent that the only way that state government will be able to fulfill its essential obligations — roads, courts, police, health care, education, prisons, the environment, care for the poor — will be with new revenue. Forcing property tax payers to cough it up by shifting money away from the Education Fund ought to be a non-starter.
The federal government is likely to provide money for some projects. But the salary of a court clerk in St. Johnsbury or money for foster parents in Pawlet is not likely to be forthcoming from Washington.
When Gov. Richard Snelling encountered a sizable deficit in 1991, he crafted a temporary deficit reduction plan that included budget cuts and higher taxes that were weighted toward the wealthy. Taxing the wealthy is less burdensome on the economy because a portion of their income is likely to be salted away in savings and would not have been spent at the local hardware store in any event.
When contemplating budget problems, Douglas often says that he means to put everything on the table. But he doesn’t mean it. He generally puts higher taxes or the state’s rainy day funds off the table. As the Legislature convenes in January, legislators may realize that without truly putting everything on the table, it will be impossible for them to address the present budget crisis.
Vermonters, like everyone else, want good roads and safe bridges. At the same time Vermonters, like everyone else, do not want to face higher tax rates, especially in the face of what could be a prolonged recession. Now we have come to the point where these two wants are in serious conflict. First, examine the condition of Vermont’s state highway system. Here are just a few eye openers from data produced by using the objective federal highway condition standards:
* Twelve hundred long (over 20 foot) bridges on the state and interstate systems are past the age at which preventive rehabilitation will reliably extend their useful life.
* Five hundred of these are classified “structurally deficient.”
* Three hundred-sixty-nine of these bridges are over 50 years old.
* The present fraction of bridges rated “very poor” (21 percent) will increase to 49 percent in just four years.
* One third of highway pavement surfaces are rated “poor,” and the fraction will continue to grow if the present level of maintenance spending is not increased.
Reducing this darkening problem requires money. For a while bridge replacement and repaving can be stretched out over more years. But the amount needed to fix the problems increases the longer needed maintenance is stretched out.
The federal highway fund has just run dry. President-elect Obama has promised to replenish it, but given the rate of federal spending in the last three months, it’s not realistic to count on a rescue from Washington. Vermont will have to dig its own way out of its growing highway deterioration problem.
The mainstays of state highway finance – motor fuel taxes – have remained at the present rates since 1997. In 2003 the Legislature diverted one third of the 6 percent motor vehicle purchase and use tax, now running around $20 million a year, from the Transportation Fund into the Education Fund to pay for property tax relief.
Since 2004 the sum of motor fuel taxes and purchase and use receipts have declined every year. Auto sales are dropping precipitously. The high gas prices of last summer spurred reduced driving patterns and switching to more fuel-efficient vehicles. Both reduce motor fuel revenues.
Meanwhile, since 2004 the inflation cost index for highway construction has run – at an annual rate of 10.5 percent, three times the consumer price index.
In 2005 Gov. Douglas proposed to restore the diverted third of the purchase and use tax revenues to the Transportation Fund. That sound proposal succumbed to a wave of opposition. It seems highly unlikely that the incoming Legislature, its majority deeply in debt to the education spending lobby, and its minority sensitive to education property taxpayers, will undo the unfortunate tax diversion of 2003.
What about borrowing to fill the highway revenue shortfall, estimated at $4 billion-plus over the next 20 years, assuming low inflation – or as much as twice that if inflation takes off with new federal money printing?
Long-term borrowing for infrastructure improvements is fiscally responsible – if secured by a dependable revenue stream. Dedicated motor fuel taxes – highway user fees – are our most dependable transportation revenue stream.
Last month, Treasurer Jeb Spaulding, a Democrat, courageously proposed a 5 cents per gallon increase in gasoline and diesel taxes, pledged to retire $150 million in new bonds for bridge replacement. A quick start on such bonding would, Spaulding noted, generate badly needed construction jobs in a time of recession.
The Snelling Center for Government’s recent survey of Vermont business leaders showed 89 percent in favor of increased highway funding even if it meant a motor fuel tax increase. Even 63 percent of the general public surveyed agreed.
So far, Gov. Douglas has been opposed to a motor fuel tax increase. Both he and Spaulding favor restoring the diverted purchase and use tax funds to the Transportation Fund, but both realize that it’s not likely to happen. The governor seems to believe that increasing license, registration and other non-fuel fees can be made to solve this problem. It won’t.
In early July, gasoline prices in Vermont were $4.09 a gallon. Today, they have dropped by half. If there was ever a time to ask motorists to pay another nickel a gallon to improve their likelihood of enjoying a safe and well-maintained highway and bridge system, now is that time.
Gov. Douglas has exhibited a commendable resistance to tax rate increases. This time, however, he ought to join hands with Treasurer Spaulding and jump off the political bridge together – before our real bridges start collapsing.
John McClaughry is President of the Ethan Allen Institute (www.ethanallen.org).
Bennington Banner, December 9, 2008
NEAL P. GOSWAMI, Staff Writer
BENNINGTON — The state’s education fund will have a $20 million surplus next year, according to the Douglas administration, but some lawmakers, think tanks and policy advocates are raising eyebrows at how the administration may spend it.
Home values
Vermont Tax Commissioner Tom Pelham said there are several reasons why he has projected a $20.5 million surplus for the next fiscal year if the property tax rate remains the same. The biggest, however, is the state’s three-year system of determining home values. The housing market in Vermont was still “pretty hot” three years ago, he said, and numbers from then are still influential in the formula.
The end result is that the education fund, a collection of several sources, including the statewide property tax, a portion of the Vermont Lottery and parts of the sales tax and the motor vehicles purchase and use tax, has been able to maintain positive revenues at a time when the state’s general and transportation funds are facing major shortfalls.
In fact, the state must cut more than $60 million to balance the budget in light of new revenue forecasts.
But Pelham’s recent actions and words have some concerned about what the administration may have planned for the surplus funds.
Pelham did not recommend a statewide property tax rate last week as required by state law. A lower rate would reduce property taxes for Vermont homeowners. Instead, Pelham, in a letter to legislative leaders, said the “extraordinary fiscal choices” the state is facing requires that the administration and the Legislature have “flexibility” in crafting a fiscal course.
By not setting the tax rate, Pelham, a former finance commissioner under former Gov. Howard Dean, said the governor and lawmakers have more options on how to use the surplus that could include spending it outside of education. The maneuver was not an attempt to open any new doors, Pelham said.
“The door is always open. The Legislature and the governor have the power to do what they agree upon,” he said.
Pelham said his letter to legislative leaders provides the needed information to calculate a tax rate that would return the surplus to taxpayers. He will not recommend it, however.
“I am not formally going to recommend that, and the reason is that we’re entering some extremely stormy waters,” he said. “I fully understand that difficult choices are made, and that the fewer straps you have holding down leaders of the Legislature and the governor the better.”
Pelham said the idea to withhold a tax rate recommendation was his, and he did not face pressure from the governor’s office. “It’s a dialogue between the folks in the governor’s office and me. It’s something that I recommended and that made a lot of sense to them,” he said.
But others are not convinced the administration is doing the right thing. “I would think (a surplus) would go back to the taxpayers,” said Sen. Dick Sears, D-Bennington, a member of the Senate Appropriations and the Joint Fiscal committees. “I don’t think you can move money out of the education fund.”
Rep. Cynthia Browning, D-Arlington, said she has been in touch with Democratic leaders about the surplus and its possible uses. She said the state should be using any education fund surplus to lower the statewide property tax.
“I definitely want to find out what’s going on here,” Browning said. “I’m very, very concerned with the idea that they would be using the money for anything other than reducing the property tax rate.”
Jack Hoffman, senior policy analyst for the Public Assets Institute, said any use of the surplus other than lowering property taxes would amount to a tax increase by the Douglas administration.
“There’s no question that if they choose to use this money — take it out of the Education Fund and use it for something else — they are effectively raising property taxes,” Hoffman said.
Pelham said, however, that there is no actual surplus yet. It will depend on what the Legislature does with the tax rate.
“The Legislature has the power to change tax rates. Should the Legislature leave those tax rates the same, that surplus would be there,” he said
Gov. Jim Douglas and Senate President Pro Tempore Peter Shumlin are taking the prudent course by waiting to commit an unexpected $20 million surplus in the Education Fund in the face of the extraordinary challenges awaiting the architects of the fiscal 2010 budget.
Policymakers must carefully weigh the trade-offs between keeping the money in the Education Fund to lower property tax rates for the coming year and diverting the surplus to shore up deficits in other parts of the state budget.
State budgeteers must make the case as to why money collected from Vermonters to pay for public schools should be used for any purpose other than education or reducing the education tax rate.
The state’s fiscal crisis might make that case on its own. Policymakers can make an immediate case by laying out under what conditions and for what purposes they would use take the surplus from the Education Fund.
Tax Commissioner Tom Pelham said he is holding off on setting the statewide education property tax rate, a calculation that would take into account the surplus, in order to give the Legislature and the administration flexibility in dealing with the budget crisis.
Paul Cillo of the Public Assets Institute estimates applying the surplus to next year would result in a 2-cent reduction in the tax rate. At minimum, the raid on the Education Fund must not result in a heavier tax burden. That means more than keeping the statewide education tax rate stable. That means no increase in the tax bills property owners receive.
State Treasurer Jeb Spaulding sees next year’s budget falling short by as much as $150 million, including a decline in revenues and a projected increase in spending. Shumlin puts the number as high as $250 million. That’s on top of the $60 million-plus in cuts officials must find in this year’s budget of nearly $1.2 billion, which has already been trimmed by more than $30 million.
In a season of such bleak news about state finances, the unexpected surplus presents a great temptation to budgeteers squeezed for solutions to the state’s financial problems. Yet the policymakers must keep in mind that the money has already been spoken for, that the surplus would normally be used to reduce next year’s school property tax rate.
A tax cut Vermonters have already paid for that fails to happen is, in effect, a tax increase, and Douglas and Shumlin have repeatedly ruled out tax increases to deal with the budget. That’s a pledge we hope they will keep.
If there is no way to meet Vermont’s budget problems without turning to additional revenues — in higher fees, new assessments or by foregoing a tax decrease — then those who make that decisions must be open about what they are doing.
Editorial with permission from Brattleboro Reformer
August 21, 2008
Whenever states find tax revenues dropping during an economic downtown, governors and lawmakers seem typically to reach for their pens to cross something out of the budget. Often, that is like cutting off a nose in spite.
Since almost everything in the budget of a state the size of Vermont involves essential public services, cuts in education or health care funding, public safety and the courts, transportation or other accounts will be acutely felt by Vermonters as the state’s most fundamental services and programs are diminished.
This also will occur just when the need for some services rises because of the economy, or despite significant funding shortfalls from past years — as with transportation maintenance and repair funding.
As Paul Cillo, president of the Public Assets Institute, a nonprofit group that provides information and analysis about state budgeting, said in a recent column, state lawmakers rarely think of raising taxes in some fair way to cover a revenue shortfall — even when that might be the better course in the long run.
He points out, for instance, that a 2 cent gasoline tax hike that would cover the amount of a proposed cut in transportation funding is a mere blip compared to the wild fluctuations in gas prices over the past several months.
Mr. Cillo also points to the state’s rainy day fund, which he believes now contains about $87 million — more than double the projected $32 million budget deficit lawmakers and the governor are trying to address. He asks why that option is not taken.
The Douglas administration is expected to present a spending reduction plan on Friday to the Legislature’s Joint Fiscal Committee. If any Vermonter is less than satisfied with the ideas being floated by the administration and lawmakers, now is the time to let your senators, representatives and the governor know what you think.
Forcing them to be more creative, even bold, would be a good thing.
Editorial with permission from Brattleboro Reformer.
February 19, 2008
In politics, it’s always interesting to watch how an idea evolves and who takes credit or blame for its evolution. Gov. James Douglas proposed eliminating a partial tax exemption for capital gains and using the estimated $21 million it would generate toward income tax relief.
Then, House Speaker Gaye Symington proposed splitting the $21 million for property tax relief, town road and bridge work and school construction projects.
Douglas promptly denounced Symington’s plan as a tax increase.
Undaunted, the Senate Transportation Committee went Symington one better and suggested that all of the $21 million should be earmarked for transportation projects.
Douglas doesn’t like that idea, either. He believes that road and bridge repairs would benefit only certain parts of the state, while his plan would bring tax relief to what he calls “middle-income taxpayers.”
Everyone appears to be in agreement on repealing the capital gains loophole. Douglas’ proposal would maintain the 40 percent capital gains exemption for Vermonters over 65 and for the first $2,500 of capital gains for everyone else. The principal that investment income ought be taxed at the same rate as salary income is a sound one.
But where the Douglas plan falls apart is in what he wants to do with the money.
Vermont has the most progressive state income tax rates in the nation. Of the nearly 275,000 returns filed last year, about 189,000 were taxed at the lowest rate — 3.6 percent — that is applied to joint filers who earn less than $53,150 annually. The rate jumps up to 7.2 percent for those in the $53,150-$128,500 tax bracket, the people Douglas refers to as “middle-income.” The rate is 8.5 percent for those earning between $128,500 and $195,850 and 9.5 percent for those earning more than $195,850.
Douglas wants to use the capital gains money to lower the rates in the top three brackets. The second bracket would drop from 7.2 percent to 6.5 percent. The third bracket would drop from 8.5 percent to 7.75 percent. The top bracket would drop from 9.5 percent to 9 percent.
Tax Commissioner Tom Pelham told the Reformer last week that under the Douglas proposal, the top bracket would pay a bit more but the middle two brackets would see a tax decrease. Pelham believes the plan is a fair one that delivers tax relief to middle-income taxpayers.
Except that the bulk of Vermonters aren’t making more than $50,000 a year. More than 70 percent of Vermont tax filers fall into the bottom tax bracket and receive nothing from the Douglas plan.
As for the people at the top, consider this tidbit from progressive economic policy analyst Doug Hoffer. From 2005 to 2006, the percentage of in-state tax filers who earned more than $1 million grew by 23 percent, from 401 to 491. The total income for this group, the top 0.2 percent of all Vermonters, increased by $338 million during this timeframe. The average income of the top 0.2 percent grew by $200,000 — from $2.6 million to $2.8 million. In other words, the amount of this group’s annual increase in wealth alone was more than what the other 97 percent of Vermonters earned put together.
And this is the group that needs tax relief? We think not.
As for the theory that Vermont’s high tax rates scare away wealthy people from settling here, a December report by the Public Assets Institute in Montpelier found that in 2005, the average per-capita income of people moving into Vermont was about 20 percent higher than those moving out. Despite a net loss of 358 people in 2005, Vermont added $60 million in personal income.
And why do wealthy people come to Vermont? Might it have something to do with safe and close-knit communities, good schools, decent roads and a vibrant cultural and recreational scene? The types of things that are, in part, paid for through taxes?
That is perhaps the best argument for using the money from closing the capital gains loophole for investments in the state’s infrastructure, rather than lowering taxes for the wealthy.
Editorial with permission from Brattleboro Reformer.
December 19, 2007
The American Legislative Exchange Council spread a little holiday cheer Monday to all those who say that Vermont is anti-business. According to the ALEC, Vermont came in dead last in its first-ever economic ranking of all 50 states, “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.”
In case you’re wondering which state was ranked first, it’s Utah.
As with all surveys, one must consider the source and the motivation of the ranking. ALEC was formed in 1973 by Paul Weyrich, one of the founding fathers of the modern conservative movement. It drafts what it calls “model legislation” for state lawmakers to adopt. It consistently favors big business and works to weaken environmental, labor and workplace safety laws that supposedly harm economic competitiveness.
The authors of the study are economist Arthur Laffer and Stephen Moore of The Wall Street Journal. If Laffer’s name seems familiar, he was the originator of what became known as “The Laffer Curve” — the theory that the more that taxes are cut, the more that revenues are generated. Laffer’s thinking was first embraced by the Reagan administration, which managed to double the national debt in eight years.
Laffer and Moore looked at 16 state policy variables. Their ratings speak volumes for the priorities of ALEC.
To them, taxes are bad. So in the survey, Vermont was 48th in the top marginal personal income tax rate (9.5 percent), 37th in the corporate tax rate (8.9 percent) and 47th in property tax burden ($49.68 per $1,000 of income). Vermont was also rapped for having an estate tax.
Utah, on the other hand, has no personal income tax and no estate tax. The top corporate tax rate is 5 percent and the state is 13th in property tax ($27.30 per $1,000).
Vermont got bad marks for raising taxes in the 2005 and 2006 legislative sessions. Of course, the study does not take into account that Vermont has a balanced state budget and one of the highest bond ratings of any state in the country. That’s why, under the category of debt service as a percentage of total tax revenue, Vermont was ranked 19th while Utah came in 38th.
The ALEC study doesn’t seem to like state governments that provide services to its residents. With 643.4 public employees per 10,000 residents, Vermont was ranked 43rd. Utah came in 10th with 505 per 10,000 residents.
Also, the authors apparently don’t like to see workers get paid a living wage or be able to form unions to collectively bargain for higher wages. Vermont’s minimum wage of $7.53 per hour earned it 47th place on the list, and since it is not a “right to work” state (meaning workers are not required to join a union in a unionized shop), finished 23rd place in that category. Utah’s minimum wage is the same as the laughably small federal standard of $5.85 per hour, and it is not a right to work state. Thus, Utah is first in both categories. In the area of workers’ compensation costs, Vermont was ranked 43rd and Utah came in 14th.
The only categories where Vermont and Utah were more or less equal was in the “educational freedom index” (translation: do parents have free choice to pick whatever school they want and will the state give them vouchers to pay for that choice.) Utah was 24th and Vermont was 25th.
So what do these numbers mean? If you are wealthy or are a business owner, and the only things you’re interested in is how much money you can make and how little money your workers can make, you want to go to Utah.
This, of course, implies that you believe the central premise of this report: taxes and state spending are bad; paying workers a living wage is bad; having fully funded public schools is bad; and having a state government providing social services is bad. Put in those terms, the privatized, free market world advocated by Laffer and Moore is great if you have and horrible if you have not.
Advocates of rock-bottom corporate taxes, liberalized investment laws and labor “flexibility” — the so-called Celtic Tiger formula that Ireland employed in the 1990s — say that this is the only way to achieve economic growth. The flip side of the economic transformation of Ireland is that its wage growth has been well below the rate of inflation for the last two decades and it has the lowest spending on public services in Europe.
If economic “competitiveness” means slashing taxes on the rich and corporations while slashing public services for everyone else, what you end up with is a government that has no capacity to mitigate inequality and a society that is divided between a wealthy minority at the top and everyone else at the bottom. It is the kind of place that most Americans don’t want to live in.Editorial with permission from Brattleboro Reformer.
On the 30th anniversary of the 1977 Food Stamp Act, the Center on Budget and Policy Priorities has produced Making America Stronger.
This short film commemorates the 30th anniversary of the reforms achieved by the Act by telling the story of how food stamps dramatically reduced the extent of severe hunger in our country, how they continue to help Americans in need, and how this essential program can achieve still more.
Budget would cut deeply into important public services and adversely affect the state.
Vermont would lose $34 million in federal funds in FY-08 alone for a wide range of public services including K-12 education, clean and safe drinking water, and state and local law enforcement under the President’s budget, according to a report released on February 21, 2007 by the Center on Budget and Policy Priorities.
Income of the top fifth has risen more than twice as fast as bottom fifth since early 1980s.
The gap between Vermont’s highest-income families and poor and middle-income families grew significantly between the early 1980s and the early 2000s, according to a recent study by the Center on Budget and Policy Priorities and the Economic Policy Institute. The Census-based study, entitled “Pulling Apart: A State-by-State Analysis of Income Trends,” is one of the few to examine income inequality at the state as well as national level.
Tax credits-over $80 million awarded between 1998 and 2002-contribute to loss of corporate income tax revenue.
The Vermont Economic Advancement Tax Incentives (EATI) program created in 1998 gives businesses tax credits for creating jobs and meeting other statutory criteria. But the Auditor’s review found that no one was checking to make sure that jobs were actually being created. Meanwhile, these tax credits reduce state collections from the corporate income tax. During the period reviewed, $9 million had been taken and another $15 million was in carry-forward status.
“Promises to Keep: Recommendations to Strengthen the Performance of Vermont’s Economic Advancement Tax Incentives Program” Office of the Vermont State Auditor
