Public Assets Institute > Policy Areas > Education > Who wins and who loses under the new school tax plan?

Who wins and who loses under the new school tax plan?

Before Vermonters can assess the new education funding bill emerging in the Vermont House, they need to see a thorough analysis of winners and losers. The plan is being touted as a major shift from property taxes to income taxes to pay for education. But looking at the proposed education revenue numbers, there isn’t much of a shift. In fact, there will be slightly less in income taxes and slightly more in property taxes going into the Education Fund than under the current system.

But individual Vermonters will see a change. Upper income Vermonters who now pay only property taxes would pay both property taxes and a new education income tax. Depending on the value of their homes, they could see a reduction in their school taxes overall. But without more data from the Ways and Means Committee, we can’t know how many of these upper income taxpayers will be better off and how much they would save.

For low- and moderate-income homeowners, the new plan will mean a shift away from income taxes and back to property taxes. Under the current system, many resident homeowners can opt to pay school taxes based on their income. About two-thirds of homeowners—primarily people with household incomes of $90,000 a year or less—pay based on income because those taxes are lower than their property taxes would be.

The current income-based system, commonly known as “income sensitivity,” would be eliminated in the Ways and Means plan. Households with income of $47,000 or less will pay only property taxes, albeit at a lower average rate than the current system. Everyone else will pay both the income tax—with the first $47,000 of income exempt from the new tax—and the property tax. For moderate-income households, depending on the home value, the new plan could mean a significant increase in school taxes.

We won’t know how much more they might pay and how many households will see increases until we see some analysis from the committee.

But, despite what you may have heard, overall the new plan will generate roughly the same amount of income-based taxes and property-based taxes as now goes directly into the Education Fund.

For years—and for political reasons—the state has calculated the hypothetical amount of homestead taxes that would have been collected if everyone paid only based on property. For next year, that hypothetical amount is $634 million. But because two-thirds of homeowners pay school taxes based on income, the state doesn’t collect that amount of homestead taxes. If it did, there would be a big surplus in the Education Fund. The actual amount projected for next year is $458 million.

A further breakdown of homestead taxes shows that for next year approximately $186 million would come from income-based taxes. That’s more than the $172 million the new education income tax is estimated to generate.

Property-based homestead taxes for next year are expected to be $272 million. The new plan—including the property tax exemption for certain low-income households—would generate a bit more, around $285 million.

Who pays the income and property taxes under the new plan is key to understanding whether it’s an improvement over the current system. Extending the income tax to upper income taxpayers appears to be a step in the right direction. But it seems that school taxes on low- and moderate-income Vermonters also should be based on their ability to pay. That’s why we need to see the full picture of winners and losers under this new plan before the committee votes on it.

Posted by Jack Hoffman on February 22, 2018 at 3:13 pm

3 Responses to “Who wins and who loses under the new school tax plan?”

  1. Mark Truhan says:

    Mr. Hoffman,

    There is no either / or, winners or losers, concerning the “…new school tax plan…” Every Vermonter loses, and always has. Funding for Vermont Public Education continues to increase–via property tax,income tax or sales tax, and sadly, the quality of that education continues to erode. Why is that? I was a member of a town school board (pre-K through 6th) for ten years. During my tenure I saw a steady drift away from the basics of Reading, Writing, and ‘rithmetic, while there was an increase in what I can only call “Feel Good” courses, adamantly pushed by small but very vocal groups, with an emphasis on sociology and diversity oriented subjects at an inappropriate grade level. Couple that with what is turning out to be surrogate parenting–the teaching of everything that parents can’t or won’t, from toileting and hygiene, to what I consider to be an additional two “R’s” — Respect and Responsibility. And we now offer universal free breakfast, free lunch, and a weekend back pack of meals. Unfortunately, in many cases the meals are warranted. So these additional tasks take away from the teachers primary job of, well, teaching, Did you know that if a kid craps his/her pants, it takes three adults to remedy the situation: Two adults to clean the kid up (because no teacher in their right mind would dare be alone with a child thus exposed) and of course one adult to watch the rest of the kids in class. Thus, there has been a tremendous increase in “Para Educators.” When I finished as a school board member a couple of years ago, our ratio was between 4 and 5 students to one teacher or para educator. And since the major portion of any school budget (between 60% to 80%), no matter how you fund it, goes to personnel expenses, the cost of people keeps going up, with increases in wages, benefits,and numbers. 4 or 5 to 1! That’s ridiculous.
    And the much toted Act 46 (I was two years on the unified district study committee) is a joke, a waste of time and money (our plan imploded because none of the subject towns wanted to give up their school boards), conjured up by ineffectual legislators who know little or nothing about education but much about politics. Just another “Feel Good” initiative. And that includes the State’s Secretary of Education…
    Alas, in my humble opinion, after having helped negotiate a few staff contracts, I’ve come to the conclusion that perhaps some of the biggest impediments to the public education system, are the teachers unions. In their estimation, educational quality is secondary to increases in wages, a decrease in personal costs for benefits, and reduced working hours and better working condition. That’s what a union does. But you’ll probably never find anyone who would willing go toe toe with a teachers union and pointing that out to the general public. I’m not going to do that now.
    But hey, I’m just an old retired guy on a fixed income and I’m tired of paying more for a system that’s not doing what it’s supposed to do. Be it our state schools or our state government.
    Thank you for the opportunity to voice a comment.

    Mark Truhan
    N. Clarendon, Vermont

  2. Pat Robins says:

    Dear Jack. It comes as no surprise to you that I have always felt strongly that the income sensitivity scheme while well intended dislinks all increases in the amount of money raised for schools from the 2/3 of the taxpayers who are sheltered. They are therefore indifferent to rising costs. Since we have allowed the cost of the system to balloon up to $20,000 per pupil, any increase in taxpayer accountability is a step in the right direction.! But of course with the K12 student population at around 80,000 (around 107,000 when I left the state school board in 1996) and probably headed to 60,000 based on out current birth rates, the whole system needs to be radically restructured to avoid ‘ breaking’ the economy. That has to start with a hard look at the 100 plus schools who receive Small School grants and profit from the ‘phantom ‘ student counts allowed during periods of shrinking head counts. But that’s just a start,! Best regards. Pat Robins

  3. Sarah Lyons says:

    Dear Pat,

    Thanks for your comment. It was welcome even if not a surprise. However, I need to point out an often-repeated misunderstanding about the current funding system. The two-thirds of Vermont resident homeowners who pay school taxes based on household income are not “sheltered,” if by that you mean their taxes are unaffected by increased spending. Under the current system, higher spending means higher homestead tax rates. That’s true for the property-based homestead taxes and the income-based homestead taxes. There is a misconception that the income-based rate is somehow capped. But the income rate in each town is determined by per pupil spending. If per pupil spending increases, so does the income-based tax rate. And the homestead income rate is higher in a town that spends $16,000 per pupil than it is in a town that spends $14,000 per pupil. (Or at least it is before consolidation tax breaks are factored in.)

    As for “breaking the economy,” total education expenditures for fiscal 2016 were 5.5 percent of Vermont’s gross state product, the same percentage as in fiscal 2006.

    Of the $1.68 billion Vermont spent on education in fiscal 2016, the small schools grants cost was $7.6 million—less than 0.5 percent.

    So-called “phantom students” do not increase the cost of education. Vermont isn’t paying for students that don’t exist. However, the practice of protecting school districts from sharp declines in enrollment in any given year does have the effect of redistributing the cost of education. Tax rates rise more slowly if towns can spread out their enrollment drops over several years rather than absorbing the losses all at once.

    Thanks again for taking the time to respond to the blog. Education is a major expenditure for the state and therefore deserves our constant attention. And I would argue that education, as a paramount responsibility and obligation of society, is also worthy of a major investment of society’s resources.