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Update April 2009
In this issue: It's Tax (Break) Time April is tax month, but this year it's also the time when thousands of Vermonters will see the tax amounts in their paychecks drop. Through provisions of the federal stimulus package, Vermonters will pay about $490 million less in federal taxes during the next two years. This new round of tax breaks targeted at low- and moderate-income earners, coupled with Bush administration cuts for the wealthy, give Vermont room to increase state income taxes to avoid disastrous budget cuts and layoffs of state workers. The bulk of the new cuts are coming through the "Making Work Pay" program. These tax credits work out to about $800 a year for eligible families and $400 for single taxpayers. Rather than the feds sending taxpayers a lump sum, employers will withhold less federal taxes from paychecks. Starting April 1, most workers should take home about $40 more a month. The program's cuts, available to families with incomes up to $150,000 and singles filers earning up to about $75,000, should return about $281 million to Vermonters in the next two years. The stimulus package also provides increases in the earned income tax credit, certain disability and retirement payments, and reform of the alternative minimum tax. Read our report on all of the projected tax savings. Close the Capital Gains Loophole Montpelier has been slashing the budget as revenues decline. Cuts may look like a rational solution to a shortfall. But they make things worse, increasing unemployment and reducing needed state services. It now appears state officials recognize the need to raise taxes, too. That's good news. The Joint Fiscal Office projects a $207 million general fund deficit in fiscal 2010. The governor proposes to fill the hole with federal stimulus funds and increased property taxes. The House plan uses more of the three-year, $350 million in federal funds and temporarily increases income tax rates, primarily on upper incomes, to reduce the property tax increase. But increasing property taxes at all to balance the general fund is a mistake. The tax is already overused, raising more than $1.2 billion in 2008 for municipal services and schools—more than twice the state's income tax revenue and nearly four times the sales tax's. And even with income sensitivity the property tax is regressive—the wealthiest pay a lower percentage of their income than others do. While raising income tax rates, especially on higher-income households, is a good idea, the Legislature might find more support this way: eliminate the capital gains loophole. Forty percent of capital gains, which accrue mostly to the wealthy, are not taxed in Vermont. The governor supports closing the loophole, which would raise $35 million this year. Vermont should do this even if the revenue weren't needed. It would make the system fairer. Read our press release and this report. Economic Development: Same Old Same Old As the economy sinks, elected officials need to look as if they understand the problems and know how to fix them—even if the ideas they tout have been shown repeatedly not to work. The Legislature and the governor are once again dusting off tired—and failed—economic development schemes and giving them new names: SmartVermont, Vermont Recovery and Reinvestment Act, Blueprint for Revitalization of Vermont's Economy. That was the message that Tom Kavet, the Legislature's economist, delivered to the Senate Finance Committee last week, as it considered S.137, the latest economic development bill. "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 . . . can only be described as minor, and in some cases, misguided," Kavet said in his report to the committee. "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." Kavet continued: "Most importantly, the larger policy framework and supporting analysis within which these measures fit, is absent." The state has two real opportunities for helping Vermonters prosper. First, aggressively pursue and spend federal stimulus funds to provide jobs and economic activity now. That's what Kavet proposes. In addition, the state should keep the public structures Vermonters depend on—public education, health care, child and elder care, courts, public safety, and other services—funded and intact during the economic downturn, providing the foundation for a strong recovery. Read Kavet's analysis. Watchdogging the Stimulus Dollars The federal stimulus bill is designed to boost the economy and help state governments weather the recession without decimating essential services. With hundreds of millions of dollars coming to state and local governments and private sector-grant applicants, the program will be a test of democracy, transparency, and accountability. Vermont, like the federal government and other states, has created a special office—the Office of Economic Stimulus and Recovery (ESR)—to manage and track the stimulus funds. There is also a new website where Vermonters can find out how the federal dollars are being spent and how to apply for stimulus grants. The oversight process is just getting started, but Vermont needs to make sure that both the Legislature and the public have formal roles in determining how best to use the money and ensuring that it is being used effectively. Read our report on tracking stimulus dollars. 21st-Century Help for the Jobless Vermont is taking steps to qualify for almost $14 million in federal money to help laid-off workers by reforming its laws to expand eligibility. The Unemployment Insurance Modernization Act (UIMA), part of the federal stimulus package, contains incentives for states to provide new or expanded jobless benefits. Vermont already qualifies for some of the new money—about $4.6 million—because it has alternate ways to calculate eligible work history. However, the state must institute additional reforms to qualify for the remaining $9.3 million. States can choose among four specific reforms to qualify for the full funding under UIMA. Vermont already meets one requirement: it covers part-time workers. New legislation extending benefits to certain workers in training programs would allow Vermont to qualify for the additional $9.3 million. Tom Douse, deputy commissioner of labor, says providing the extended benefits would cost approximately $1 million a year. Adopting all the UIMA reforms could cost as much as $7 million a year, the department says. Currently, Vermont is spending over $6 million a week on jobless benefits. Read the report. Public Assets Institute is funded by grants and donations. Please consider making a tax deductible contribution to support our work. |
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