Research & Publications

Vermont state budget 101

Curious about how the state budget works? Steph reviews the basics of Vermont’s budget including revenues, appropriations, and the so-called spaghetti chart that ties it all together.

There’s more to school tax increases than spending

Vermonters have been understandably upset by the abrupt rise in their school taxes for fiscal 2025. Most of the complaints focus on the rise in spending, as does the response from policymakers. But taxpayers may also be affected by changes that make the funding system less fair.

The Agency of Education presented some clear analyses last spring explaining the main reasons for the spending increase: rises in salaries and benefits in response to inflation; health insurance cost increases exceeding inflation; the expanding need for expensive mental health services for students; the loss of federal funds the schools received as part of the pandemic-related American Rescue Plan Act (ARPA). There are other reasons as well, related to fiscal decisions made in the past few years. The expenditures are critical for providing kids with a quality education. But knowing that doesn’t make the tax bumps easier to take. Even modest increases can be a problem if the costs, and who pays them, are not distributed fairly.

In fact, some districts and taxpayers have been facing disproportionately higher bills for a while.

Education funding: The three cliffs problem

Education spending saw its biggest jump in years in fiscal 2025, and school taxpayers are noticing the change in their bills. The increase this year was due to a lot of factors outside both schools’ and taxpayers’ control—inflation, healthcare costs, and the loss of pandemic-era federal support chief among them. All of that led to an increase in total homestead taxes of 12.9 percent, although the rate varied from town to town.

But taxpayers can see their tax bills suddenly balloon even when spending increases are modest. The reason: thresholds built into the system. A majority of Vermont resident homeowners pay all or some of their school taxes based on their household income, which better reflects their ability to pay. But the Legislature has imposed limits on these income-based taxes, which means some homeowners—and the number has been increasing—pay a combination of the income-based and property-based school taxes. The property taxes kick in when homeowners’ incomes or house values pass certain thresholds. These thresholds create tax “cliffs”—sudden rises in tax owed. Because the thresholds haven’t been increased or adjusted for inflation over time, more and more Vermonters have hit these cliffs and seen a jump in their school tax bills.

Predicting the unpredictable: budgeting for flooding and climate change

As Vermont recovers from yet another round of flooding and braces for what’s left of Tropical Storm Debby, it may come as no surprise that Vermont is ranked seventh in the nation for the most federal disaster declarations due to extreme weather since 2011.

And some parts are harder hit than others: Washington County is tied for second as the most disaster-prone county in the country, while Lamoille, Chittenden, Orange, Orleans and Essex are all tied for fourth.

Julie Lowell to Senate Finance on anti-poverty tax credits

A presentation by Julie Lowell to the Senate Finance Committee on Anti-poverty Tax Credits, April 17, 2024

Steph Yu to House Ways and Means on State of Working Vermont 2023

A presentation by Steph Yu to the House Ways and Means Committee on the State of Working Vermont 2023, April 4, 2024

Vermont Can Invest in Brighter Future With Targeted Income Tax Measure

Testimony of Wesley Tharpe, Senior Advisor for State Tax Policy, Center on Budget and Policy Priorities, Before the Vermont House Ways and Means Committee

Chair Kornheiser, distinguished members—good morning. I’m Wesley Tharpe, and I’m Senior Advisor for State Tax Policy at the Center on Budget and Policy Priorities (CBPP) in Washington, D.C. Thank you very much for the invitation to speak, and I appreciate the opportunity to share some brief perspective here today and to take any questions you may have at the end.

First, allow me a word about where I work and who I am. CBPP is an independent, nonpartisan research institute that since 1981 has worked to advance both federal and state policies aimed at building a nation where everyone has the resources they need to thrive.

Anika Heilweil in Senate Finance on Fair Share Proposal

A presentation by Anika Heilweil to Senate Finance Committee on the Fair Share for Vermont Proposal, January 30, 2024

House Ways and Means Committee Testimony—January 25, 2024

Hi everyone, thanks for having me back. Again, I’m Stephanie Yu, Executive Director of Public Assets Institute. I just want to make a couple of quick points about what all this great work (and clear, thoughtful methodology behind it) from the Institute on Taxation and Economic Policy (ITEP) means.

First, that the goal is a progressive tax system; we’ve heard now that our tax system actually improves income inequality unlike so many states, but that it remains regressive at the top end and is not truly a progressive system.

So what’s the best way to make our system more progressive? Do we need to increase taxes on the high end or decrease them on the low end? I think the answer is both.

I would say the first step is eliminating the regressivity at the high end. Vermonters making $90,000 or $140,000 a year should not be paying a greater share of their income in taxes than those making $500,000 or $1,000,000.

Statement on Gov. Phil Scott’s Jan. 23, 2024 Budget Address

For a speech that started out on a theme of affordability, it was striking how much Gov. Phil Scott’s budget address focused on the idea of public investment to deal with problems Vermonters face. He repeatedly talked about investing, rather than spending. But he also said he would make his investments while holding to a modest increase in the General Fund portion of the budget.

It was a confusing message. The governor acknowledged that smart, public investing is the key to addressing housing, public safety, drug addiction, workforce training, and other initiatives, so why is he proposing to invest so little? Investments often require some extra initial effort, and an ongoing commitment to provide the resources necessary to get the job done. Vermont has the capacity—and the obligation—to act on these problems now, instead of waiting for Washington or economic winds to somehow generate clearly needed new revenue. These are not problems that we can solve by doing more of the same.

It’s time for the wealthiest to pay their fair share in taxes

We can build a Vermont that works for everyone who lives here.

We can have thriving downtowns, safe roads and bridges, and housing that people can afford. Our children can learn in vibrant and supportive schools. We can protect our environment. We can care for Vermont families at every stage of life.

But first, we need to look at our tax code. That’s right—our tax code.

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.

Celebrate 20 years of fighting for a just and thriving Vermont!

Over the past 20 years, our deep experience, timely, reliable data, and clear, accessible analysis has driven major policy improvements for Vermonters, from expanding the Earned Income Tax Credit, to raising the minimum wage, and making school funding more equitable for all our kids.

In honor of our twentieth anniversary this year, we’ll be celebrating our past wins and inviting more people to get involved in our work.

Repealing the Child Tax Credit hurts Vermont families

Senate Bill 56 holds the promise of better childcare at lower cost to more Vermont families. But the bill as passed by the Senate in late March repeals the Child Tax Credit. This would harm the same families, and many others.

S.56 expands the Child Care Financial Assistance Program (CCFAP) and reduces the cost of care for many families. The bill also aims to improve the quality of childcare by increasing the amount CCFAP pays to providers. However, to help pay for the reforms, S.56 repeals the state Child Tax Credit (CTC) passed just last year, eliminating a $1,000 credit that eligible households now receive for each child under six. The repeal would leave at least 8,200 Vermont households worse off financially.

Vermont families need both the Child Tax Credit and childcare investments

The Vermont Senate voted Friday to repeal the brand-new Child Tax Credit (CTC) in order to redirect funds to early care and education.

But there is no reason to pit the two against each other.

Vermont needs both.

Vermont’s new Child Tax Credit: Improving life for families

Refundable tax credits are an important tool for reducing child poverty and advancing racial, social, and economic justice. They get cash to families efficiently, helping them meet basic needs like food, clothing, and housing. During the pandemic, when many people were out of work, the federal government used refundable income and child tax credits as quick ways of easing families’ financial struggles. Some states, Vermont included, followed their lead by passing state-level child tax credits.

What is the Vermont Child Tax Credit?
Vermont’s Child Tax Credit (CTC) provides $1,000 annually per child under 6 to families with adjusted gross incomes up to $125,000. It is fully refundable—families with low or no earnings can receive its full value. Families earning between $125,000 and $175,000 receive a partial credit. In 2023, over 95 percent of Vermont kids under 6—34,000 children—will benefit from the credit, making it the most robust in the country.

Statement on Gov. Phil Scott’s Jan. 20, 2023 Budget Address

The most memorable part of Gov. Phil Scott’s fiscal 2024 budget address had nothing to do with the budget. He ended his speech extending a hand to immigrants: “With compassion and courage, we can do our part to welcome those bold or desperate enough to leave their lives, and all they’ve ever known, behind to travel thousands of miles just to live the American dream.” It was an important message in these polarized times.

For everyone to access that American dream, we need well-funded public services. We were encouraged by the governor’s call for expanded child care services, but we need to see the details. A RAND Corporation report released last week estimated child care expansion could cost between $179 million and $279 million. The governor said additional services could be provided “without asking families with less to pay for families with more.” Does that mean he’s ready to ask families with more to pay for families with less?

Covid showed us the value of public investment

There were two threads running through Gov. Phil Scott’s fourth Inaugural Address last week. One was a clear, even refreshing, acknowledgement of the role that government and money played in the last few years to protect Vermonters and improve their lives. The other was the governor’s vision of a future Vermont where all communities, big and small, have the tools they need to be “more dynamic and vibrant.”

The challenge of this new biennium will be to keep these two threads connected. Continued public investment—government and money—will be required to provide the kind of infrastructure and services the governor wants Vermonters to have.

Governor Scott painted an inspiring picture of what Vermont could achieve. It’s hard to argue with his to-do list.

State of Working Vermont 2022

In an accessible chartbook, State of Working Vermont 2022 analyzes Census and other data, including wages, jobs, and employment, poverty, household income, and migration to portray Vermonters’ well-being before, during, and after the arrival of COVID.

This year’s annual report highlights the progress achieved when our government adequately addresses the needs of people and communities. It shows how Vermonters would benefit from the state’s leaders fixing persistent problems, build on the solidarity expressed during the pandemic, and create a state that works for everyone.

Student loan relief also comes with tax relief

Vermonters who qualify for a reduction in their student loan debt will get another break from the state: The loan forgiveness won’t be taxed.

Debt forgiveness is typically counted as income and taxed by both federal and state governments. People who negotiate debt reduction with credit card companies are sometimes surprised to learn they owe income taxes on the amount written off.

Before President Joe Biden announced his student loan forgiveness plan, the American Rescue Plan Act (ARPA), passed in 2021, anticipated the tax consequences of such a proposal. Under ARPA, federal student loan debt forgiven through 2025 is not be counted as federal taxable income.

State revenue: What do we want for the new “normal”?

A strong economy, spurred by federal stimulus money and funds to fight the COVID-19 pandemic, is producing a surge in Vermont state tax receipts. Personal income taxes are up, meals and rooms taxes are up, and so are corporate taxes.

Now is the time to start planning for when revenues come back down to earth.

What’s the plan when pandemic aid ends?

In the past few years, Vermont has gotten a taste of what it would be like to have a state that worked for everyone who lives here. Thanks to extraordinary federal relief in the wake of the COVID-19 pandemic, the state received billions of dollars that allowed policy makers, at least for a time, to […]

A flexible, effective revenue adjustment tool

Twenty years ago, Vermont lost a valuable tool that let the state easily adjust state revenues to respond to fluctuating demands for public services. It’s time to find a replacement.

In 2002, the state ended the simple, straightforward system for assessing personal income taxes that had been in place for more than 30 years. Vermont stopped using the “piggyback,” whereby the amount of income tax a person owed to Montpelier was calculated from the amount owed to Uncle Sam. Typically, the rate was about 25 percent of a person’s federal tax liability. But it varied, which was the beauty of that system.

Vermont started using the piggyback in 1968. As a result, it had one of most progressive personal income taxes in the country because the federal income tax was much more progressive than typical state income taxes. Under the federal system, income is taxed in tiers, and income in the higher tiers is taxed at higher rates than the income in the lower tiers. Such systems are fairer because they better reflect people’s ability to pay. Thanks to the piggyback, Vermont’s income tax system mirrored the progressivity of the federal system.

Where is the state headed?

The Vermont House, Senate, and governor’s office are thrashing out their differences over state appropriations for the coming fiscal year that will total roughly $8.3 billion. We’re all aware that a massive amount of federal aid has poured into the state in response to the COVID-19 pandemic. But it’s worth pausing for a moment to grasp the magnitude and the potential of all of that aid.

In the five years prior to COVID, Vermont’s annual spending averaged about $6 billion a year. Since COVID, the budgets have been: $6.3 billion (FY2020), $7.2 billion (FY2021), $7.9 billion (FY2022), and $8.3 billion (FY2023, pending).

Much of the early COVID money—and not all of it flowed through the state’s coffers—was used to protect people from the virus and treat its victims, but it also was intended to protect states from economic collapse. States faced extraordinary and unexpected costs, and fortunately the federal government stepped up to foot the bill.

Then came the American Rescue Plan, which extended and expanded some of the earlier programs, but also contained some elements of a traditional economic stimulus plan. As part of that plan, Vermont received $1.05 billion, essentially, to spend as it saw fit.

The Ed Fund needs an outside opinion

Gov. Phil Scott wants to use a $96 million surplus in the Education Fund for a little tax relief for homeowners and to expand job training. Another scenario laid out by the tax commissioner in December was, in essence, to just lower everybody’s school taxes for one year. These aren’t the only options, nor the best ones, which is why the Legislature needs to create an Education Fund Advisory Committee to oversee the long-term stability of the education finance system.

Governor Scott proposed last week that half of the surplus—about $48 million—be returned to resident homeowners in the form of a rebate. He recommended a flat amount of $250-$275 to each household. If you were going to issue rebates, that would be a better way to do it than, say, a small percentage reduction in everyone’s tax bills. The percentage approach favors those with higher tax bills, i.e. those with more valuable property or higher incomes. A fixed rebate is better for lower-income households, but better still would be to set a maximum income threshold and to include something for renters.