The childcare debate that wasn’t

Expansion of Vermont’s childcare subsidy program with an infusion of $120 million in new revenue will be a signal achievement of the 2023 legislative session if it survives a gubernatorial veto. There is more to be done, but this will be transformative for Vermont. Not just for families currently using paid childcare and any family thinking about having a kid or another kid, going back to work, or moving to Vermont, but for the well-being of all our kids. That means a better state for all of us.

Unfortunately, in the rush to adjournment, public debate about how to fund childcare expansion got short shrift. Yes, there were headlines about an impasse between the Senate and the House. The Senate wanted to levy a new payroll tax; the House wanted to increase personal and corporate income taxes. But the Senate threatened to scuttle the reform effort if it didn’t get its way, so there was no public debate and Vermonters never got a chance to weigh in on how they wanted to pay for improving the state’s child care system. The choice between a new payroll tax or increasing income taxes was primarily a choice about who should pay

The choice between a new payroll tax or increasing income taxes was primarily a choice about who should pay. The House proposed a progressive tax increase. Tax rates would have been raised for all income brackets, but the increases would have been proportionally higher for those with higher incomes. And the increase would have applied to sources of income that tend to go to wealthier taxpayers, such as capital gains and other non-wage income.

The House plan, in other words, would have spread the cost of childcare reform across a broader base of Vermont taxpayers. Proponents of the House plan took the view that early care and education of children, like prek-12 education, is a general good that benefits everyone, and therefore should be supported by all Vermonters according to their ability to pay.

The Senate took a narrower view and treated childcare more as a workforce development program—one that primarily benefited employers and working parents. From this narrower perspective, it made sense to levy a tax on wages that would be paid by both employers and employees. It would be more like a user fee, but one that included employers rather than just parents like the current system. There was no progressivity built into the rate, which would be the same for the minimum-wage worker or the CEO. The Institute on Taxation and Economic Policy (ITEP) analyzed the child care funding plans and found the Senate plan was generally regressive while the House plan was progressive.

Vermont’s entire tax system—again, based on ITEP analysis—is one of the least regressive in the country. When looking at taxes as a share of income, most other states favor the wealthy more than Vermont does. That suggests that people might have preferred the progressive House proposal for funding child care reform over the Senate’s approach. But we’ll never know.

Unlike the plan for spending new childcare funds, which followed years of planning and research, relied on stakeholder input all along the way, and focused on how best to support providers and parents and invest in childcare workers, how to raise new childcare revenue was less deliberative. Things happened quickly, under time pressure, and largely out of the public view until the last minute. Most Vermonters weren’t aware of what was at stake in the late-session stand-off between the House and Senate. And they never got a chance to weigh in.

The push for major investment in childcare succeeded because it had broad public support. Those supporters deserved a seat at the table when the discussion turned to taxes.