The proposal being considered in the Senate Appropriations committee would return half of any General Fund budget surplus at the end of each fiscal year to Vermont homeowners as a rebate check. One version of the plan would have the checks be the same amount for every homeowner, regardless of how much tax the homeowner had paid.

Ostensibly, the rebate checks are meant to compensate for General Fund cuts to the Education Fund the Legislature has made in recent years, which have driven up property taxes. The House proposed dedicating half of any General Fund budget surpluses to the Education Fund until the cuts were restored. The Senate, however, is talking about sending the money directly to Vermont resident homeowners in the form of budget-surplus, property-tax rebate checks, which might be a little as $30.

If the Legislature’s goal is to reduce property taxes, the way to do that is to restore the General Fund transfer. Every dollar from the General Fund that is paid into the Education Fund is a dollar that does not have to be raised through property taxes. The solution to high property taxes is to lower them, not to raise property taxes and then give Vermonters a rebate, which is exactly what the Senate plan would do.

And if the goal is to reduce property taxes just for Vermont resident homeowners, the Legislature can reduce the homestead tax rates—the homestead property tax rate and the income-based rate that is available only to Vermont residents.

A rebate check adds a needless complication to Vermont’s education finance system, not to mention the cost to write and mail the checks. Vermont used to send rebate checks to eligible homeowners, and the Legislature discontinued them after people said the system was too confusing. People didn’t see the connection between their property tax bills and the rebate checks and continued to complain that property taxes were too high. Now, they just get a lower tax bill instead of a higher bill and rebate check. Why create that problem all over again?

Finally, the rebate idea lacks the kind of analysis that is missing with much of Vermont’s budget process: Is this really the best use of the $5 million or $10 million or $15 million that might be paid out in any given year? Does it make sense to send money to rich and poor alike if we’re trying to expand the middle class? Should we be cutting support for education when we’re trying to do something about declining math scores?

Time is short if lawmakers want to get out before the end of April. One way they could lighten their load is to shelve the rebate proposal and move on to more urgent business. Come summer, they and we will be glad they did.

Unlike some other tax credit studies, “Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth” doesn’t examine the merits or effectiveness of these tax expenditures, which all states offer. Instead, it asks what states are doing to evaluate their own programs to determine whether they’re achieving their goals and making the best use of the public funds they’re not collecting.

Vermont is among the 25 states that are—as the Pew Center politely puts it—“trailing behind.” In other words, Vermont is doing a poor job assessing its tax incentive programs. A state report (see page 177) issued more than a year ago also concludes that the state isn’t keeping very good track of the effects of its economic development programs more broadly.

Pew found that 13 states were “leading the way” in evaluating their incentive programs. In some cases, those evaluations showed that the incentives were producing the desired results. In other cases, the assessments showed that programs were more expensive than people had projected, or that the money could have been better spent on other priorities.

The study offers criteria that should be included in any objective assessment of tax incentive programs. These include establishing clear, measurable goals, and examining the economic impacts of incentives, and making sure such evaluations are part of any budget policy deliberation.

Measuring the economic impact deserves special attention. It points out the importance of analyzing the potential negative effects of incentives. For example, if a company gets a job-creation tax break and hires employees away from other existing companies, the program hasn’t created any net new jobs. Another consideration: Do the benefits stay in the state? Do all of the Vermont Economic Growth Incentive (VEGI) jobs go to Vermonters, or are some being filled by residents of New Hampshire, Massachusetts or New York? Finally, any economic impact analysis should take into account the lost opportunity costs—that is, what else the state might be doing with the money lost to the tax credits.

Starting with the Challenges for Change program a couple of years ago, both the administration and the Legislature have endorsed the idea of performance measures and greater transparency to give Vermonters a better idea of how effectively their tax dollars are being spent. Montpelier needs to give the same consideration to the money we’re not collecting, thanks to tax incentives.

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.

1. Jeffrey Thompson, “Prioritizing Approaches To Economic Development In New England: Skills, Infrastructure, And Tax Incentives,” July 2010, “Findings in Brief,” p. 3.

The article cited 2009 Census data, the latest available, on taxes collected by state and local governments. For Vermont, the total was $2.9 billion. And as the article said, if you divide that by the number of people in Vermont, you get a per capita “tax burden” of $4,650. And when you compare that to the per capita taxes in the other states, Vermont is the 11^th highest.

But before you jump to the conclusion that the residents of 39 other states are paying lower taxes, you might want to read what the Census has to say about this kind of per capita tax calculation, which it stopped publishing after 2005.

“[U]sing total taxes or per capita taxes as a measure of tax burden on the citizens of that state can be misleading because different states use different approaches to taxation,” the Census warns, “comparing only the total taxes collected by each state is not enough to understand the economic impact of those states’ taxes–one must also understand how those taxes are collected.”

Whether you divide total tax collections by a state’s population or the personal income of the state, you’re assuming all of the taxes are coming from state  residents. But of the $2.9 billion collected by Vermont state and local government in 2009, for example, about $580 million—20 percent—was property tax paid by corporations or out-of-state residents. If we want to know how Vermonters’ taxes compare with taxes in other states, we should be looking at the taxes paid by the residents. Unfortunately, it’s not an easy task to separate resident taxes from non-resident and corporate taxes in every state.

We have written about this problem before, and once again we’ll point to another annual report that more accurately reflects the taxes Vermonters pay relative to their counterparts in other states. The District of Columbia does a nationwide comparison each year of the taxes paid by typical taxpayers in the largest city in every state. The study looks at income, property, sales, and automobile taxes (gasoline taxes and registration fees) for hypothetical families of  three with incomes of $25,000, $50,000, $75,000, $100,000 and $150,000.

The 2010 study, released last fall, is the latest. When the cities are ranked highest to lowest in overall taxes, Burlington ranks in the middle to the bottom nationally for taxes paid by the families in each of the income categories as shown in the table below.

If we look at Anchorage, Alaska, in the DC study, it’s near the bottom for all income categories because the state has no income tax and no general sales tax. But Alaska collects billions in severances taxes each year from the oil companies, so in the per capita rankings, it’s typically at or near the top of the list.

Alaska can’t be called a high-tax state on the basis of what Alaskans pay. That’s the measure we should use in assessing whether Vermont’s taxes are high or low compared to other states.

Without a single nay, the House voted to use future budget surpluses to restore General Fund support for education. For the last three years, the Legislature has cut the annual transfer from the General Fund to the Education Fund, which covers all pre-K to 12 education costs in Vermont. The effect has been to push up property taxes even though local school boards have held the line on spending. Now the House wants to reverse that trend and dedicate half of any future budget surpluses to restore the transfer to pre-recession levels (with an adjustment for inflation).

Why the change of heart all of a sudden? And why was the vote so easy? Two reasons.

First of all, this is an election year, and no House member wants to be branded as voting  against lower property taxes if he or she can help it. This amendment to the annual mid-year budget adjustment bill (H.558) sends a clear message: every representative wants to provide property tax relief.

Second, and more important, this action requires no increase in broad-based taxes, which are commonly defined in Montpelier as taxes that go to the state’s General or Transportation Funds—taxes on sales, income, rooms and meals, and motor fuels are examples, but not school property taxes. The only thing that our elected officials are more afraid of than raising school property taxes is raising broad-based taxes. Governor Shumlin has committed his administration to not raising them.  Given the choice of increasing broad-based taxes or school property taxes over the past few years, the Legislature chose, more often than not, to raise property taxes.

So now legislators get to make a statement that they want to lower property taxes, and they don’t have to raise broad-based taxes to do it—because all they’re committing to is the use of any future General Fund surpluses. No surpluses, no property tax relief.

What may be most notable about this vote, though, is that it reflects a very different dynamic than existed in 1997. In those days, most General Fund aid to public education went to property-poor towns with insufficient tax base to pay for their children’s education at reasonable property tax rates. Most towns, however, did not qualify for this aid, so their elected representatives, not surprisingly, didn’t support the increases, which were often voted down.

Act 60 of 1997 and Act 68 of 2003 changed that. Now every town in the state gets a property tax break when General Fund support is increased, and every town sees higher property taxes when that support is cut. All state representatives and senators are in the same boat, so to speak. And on Friday they were all rowing in the same direction.

And he is correct in making job creation the state’s top priority and in recognizing that investment now in education and public infrastructure are key to Vermont’s economic future.

We disagree with his comments about taxes, however.  Vermont is not a high-tax state: a typical Vermonter would pay higher taxes in about half of the other states. There is no evidence that lower taxes create jobs: between 2000 and 2010, despite the Bush tax cuts that saved hundreds of millions of dollars in federal taxes for the so-called “job creators,” the state had the worst decade for job growth on record.  And finally, several studies in the past year have shown that increases in tax rates have little impact on individuals’ decisions about where to locate.

Congress—at the urging of the Vermont delegation—appropriated more money to the program than the president had proposed. Vermont would have received only $11 million under Obama’s budget. The Consolidated Appropriations Act, 2012 that Congress passed early this month increased that to $19.5 million for Vermont for fiscal 2012. Nevertheless, the federal funding is short of the $27.5 million the state received in fiscal 2011, and Vermont is providing a smaller benefit—albeit to more people—than it did just a few years ago.

Vermont used to have a target of covering 60 percent of the cost of the average winter heating cost. Last year, it covered a third of the cost.

Governor Shumlin proposed today that the state allocate $6.1 million to LIHEAP. That, along with the $19.5 million in federal funds, is projected to cover 31 percent of the estimated average heating cost this winter.

This will be the third time since 2005 that Vermont has been forced to make up for inadequate federal funding, but this is likely to become the new normal if Congress insists on cutting federal spending instead of raising taxes, which are now at the lowest level since the early 1950s.

It was just a year ago that Congress and the Obama administration extended the Bush era tax cuts for the wealthiest taxpayers, producing a $190 million windfall this year and a like amount next year for the top 5 percent of Vermonters. Evidently afraid to ask the top 5 percent across the country to pay a little more, Congress chose instead to force poor and elderly Vermonters to shiver in the cold this winter.

The additional state funding will make a difference, and Vermont simply can’t allow people to freeze, but it’s not like the state didn’t have other budget gaps to fill.

Then the governor made his pitch to the school board officials to hold the line for another year. “If overall school spending can be held level for another year,” he said, “that could help keep tax rates and taxes paid level as well.”

Not exactly—unless the governor is prepared to reverse course and start fully funding General Fund support for education again.

Education spending, which has particular meaning under Act 68 and includes the expenditures used to calculate a district’s per pupil spending and determine the tax rates, actually declined in fiscal 2011 and again in fiscal 2012. But many of the school officials who received the governor’s letter know that, despite their best efforts, tax rates and tax bills went up in those two years.

That’s because the Legislature—at the urging of the current and previous administrations—has cut the annual General Fund appropriation to support education for the past few years. Montpelier has avoided raising General Fund taxes to balance the state budget, but forced local school officials to increase property taxes to cover what had been the state’s responsibility.

In fiscal 2005, 61 percent of education funding came from school taxes—both property-based and income-based—and 39 percent came from the General Fund and dedicated revenues, like lottery proceeds. In fiscal 2012, the General Fund and dedicated revenue are contributing only 33 percent, and school taxes cover 67 percent. The shift means that property taxes, which still fall harder on middle-income Vermonters than on the wealthy, are $77 million higher than they would otherwise be. Meanwhile, our progressive income tax has been cut for those at the top.

In any case, these sessions provide a great opportunity early in the process for Vermonters to both learn about how we finance health care now and to bring their ideas about needed reforms.

The listening sessions will lead to a February 1 findings report to the Legislature—meeting a requirement of Act 48, Vermont’s Health Care Reform law passed last session.  Here’s what the law says in Sec. 9 on pages 104-5:

(c) In developing the financing plan for Green Mountain Care, the secretary of administration or designee shall consult with interested stakeholders, including health care professionals, employers, and members of the public, to determine the potential impact of various financing sources on Vermont businesses and on the state’s economy and economic climate. No later than February 1, 2012, the secretary or designee shall report his or her findings on the impact on businesses and the economy and any related recommendations to the house committees on health care and on commerce and to the senate committees on health and welfare, on finance and on economic development, housing and general affairs.

(d) In addition to the consultation required by subsection (c) of this section, in developing the financing plan for Green Mountain Care, the secretary of administration or designee shall solicit input from interested stakeholders, including health care professionals, employers, and members of the public and shall provide opportunities for public engagement in the design of the financing plan.

There are three listening sessions scheduled:

November 29:  Marlboro College Tech Center, 28 Vernon Street, Brattleboro, 7:00 p.m.–9:00 p.m.

December 13:  Rutland Free Library (Fox Room), 10 Court Street, Rutland, 6:00 p.m.–8:00 p.m.

December 14:  Large conference room at the Department of Vermont Health Access, 312 Hurricane Lane, Williston, 6:00 p.m.–8:00 p.m.

An additional session in the Northeast Kingdom and possibly one in Montpelier will be scheduled for sometime in January.  More information here.

While he doesn’t frame it that way, Margolis points out that Gov. Peter Shumlin, in a speech at the University of Vermont last week, urged the school to focus on preparing students for business, without mention of the arts, culture, or philosophy. The governor didn’t use the word “citizen” once in his speech about the “better results” the state should expect from its university.

The governor’s remarks reflect a perspective that runs deep these days among members of both major parties—in the Vermont State House, in this administration, and in the last administration.  It’s a money-first, people-second view that underlies policies that affect Vermonters’ lives every day.  As we pointed out in a report last year and in an op-ed last month, the state budget process now focuses on doing what we can for Vermonters with available revenues, instead of starting with a vision of the kind of state Vermonters want and need and adopting fiscal policies to achieve that vision.

Tax policy has become a mindless mantra of “no new taxes” even in the face of greater human need, the greatest income disparity in 80 years, and a declining middle class in Vermont. Economic development has come to mean more business tax breaks rather than public investment in a society that produces widely shared prosperity. Now the governor wants to bring this thinking to education.

The irony is that Governor Shumlin’s liberal arts education did not have the narrow focus he is encouraging Vermont’s university to adopt. Buxton, where the governor spent his high school years, educates each of its charges “to live a fully conscious, responsible life” — not exactly job training.  And his alma mater, Wesleyan University, boasts “[f]reedom, rigor, intellectual experimentation and the desire to make a positive difference in the world” as the Wesleyan Experience.

These institutions are focused on developing human beings to be productive members of society.  While that might involve a life in business, it might also be in the arts or public service or politics, but always as a critical thinking, participating citizen.

Occupy Wall Street has rightly demonstrated to the world how the current focus on money is leaving people behind.  The balance between money and people is tilted toward money in Vermont as well.  And while philosophers still argue about it, we can be confident that the purpose of life involves a lot more than cash.