Public Assets Institute > Policy Areas > Family Economic Security > It’s the property tax that’s unfair

It’s the property tax that’s unfair

Economist Art Woolf wrote recently that Vermont spends too much on education because taxes are too low for many residents. Woolf was referring specifically to resident homeowners who qualify to pay school taxes as a percentage of their income rather than on the value of their property. According to Woolf, because their income-based taxes are less than their property taxes would be, these homeowners feel like education in Vermont is on sale, so they’re buying more of it.

One problem with Woolf’s hypothesis is that it assumes that the value of a primary residence is a fair and rational indicator of how much each Vermonter should be contributing to the education of our children. It may have been 200 years ago, when the value of a person’s property and possessions was the best measure of his ability to pay. But that isn’t true today, and the system should be brought up to date with today’s economy.

The education of children is one of society’s most important responsibilities, and we all benefit when children can grow to be informed, productive, contributing members of the community. Because we all benefit, we each need to contribute our fair share to the cost of education—that is, according to our ability to pay. In our present-day economy, a better and fairer indicator of a person’s ability to pay is income, not the assessed value of one particular piece of property.

Nearly 50 years ago, Vermont recognized that property values did not reflect people’s ability to pay. At the time, newcomers were moving to Vermont and driving up property values, but older residents living on fixed incomes didn’t have the money to pay their higher tax bills. To avoid pushing people out of their homes, Vermont instituted a rebate program for older homeowners whose property taxes exceeded a certain percentage of their income. This ability-to-pay concept was later incorporated into the state’s current education funding system. Today, about two-thirds of Vermont homeowners pay school taxes based on their household income rather than the value of their home.

Woolf argues that these people are getting a break, and that because they’re getting a break, they feel they can afford to spend more on education. But studies done by the Vermont Tax Department over the years show something different: that many high income Vermonters who pay property taxes are the ones getting a break. People with annual incomes of $500,000 or more typically pay a smaller percentage of their income to support schools than do Vermonters with incomes of $60,000 or $70,000. Given the importance of education, shouldn’t those who benefit most from society contribute the most to the cost of educating our children?

There is a problem of fairness with Vermont’s two-tiered system, but the solution is not a return to the school property tax for all Vermont resident homeowners. A fair system would have all Vermont residents pay school taxes based on their income and all non-residential property owners continue to pay the property tax.


Posted by Jack Hoffman on August 3, 2017 at 2:25 pm

4 Responses to “It’s the property tax that’s unfair”

  1. Bud Meyers says:

    Good analysis. Art always seems to miss this. His view unfortunately diverts attention from the problems we face in achieving equity where it really matters, the individual student.

  2. Ernie Ciccotelli says:

    Absolutely accurate.

    In Norwich we still have some people of modest means, with incomes far below the state mean incomes. Yet the values of their homes are relatively high due to the (inexplicable) desirability of Norwich to high income people with incomes far above the state mean incomes, who outnumber the modest income people. The income spread between the high income people and the modest income people is about 25 to 1, yet the home valuation spread is only about 10 to 1. And since the high income people outnumber the modest income people, our education taxes rise, just as Mr. Hoffman describes.

    It is long past time that we extinguished the impractical, regressive, unfair property tax, recognize that property is no indicator whatsoever of one’s ability to pay nor of the benefits one has received from the society, and start taxing fairly for education.

  3. Ann Manwaring says:

    Thanks, Bud, for putting the right question on the table. Here are other questions we need to be asking. Property tax rates are set on total spending (both education and municipal). So why do we depend on the use of percentages and per pupil spending, which are at best just arithmetic, to justify policy decisions. Brigham calls for substantially equitable opportunity for all students, yet our ed financing system is driven by economy of scale thinking which benefits students in larger schools at the expense of students in smaller schools? In the decade since Act 68, the Legislature has passed 130 unfunded education mandates all of which have had to be absorbed in every school budget. So why is it we at the State level continue to point the finger at local school districts as the bad actors for spending too much? Vermont’s revenues from income taxes are about half as much as revenues from the property tax. To keep suggesting income tax revenues as a solution to high property taxes driven by school spending is a solution without any real life possibility.

  4. Liz Curry says:

    This dynamic increasingly results in the demonizing of the costs of delivering high quality public education, rather than analyzing who and how we pay for it. Local control over school budgets allows local school boards to establish budgets that respond to our own districts’ complex needs. The tendency to assume that all Districts should look and act the same, and assume costs should be lower in one District because another district can achieved a lower cost, results in inequitable outcomes for kids of different incomes, races and abilities. Using the property tax burden to shine a light on education costs also allows the legislature to delay updating the formulae for kids enrolled in free and reduced lunch, and for kids with English language learning needs.