Vermont Tiger

Lessons From Oregon?

by Art Woolf

Last week, Oregon's voters overwhelmingly approved a ballot initiative to raise the state's corporate and personal income tax rates.  The initiatives passed by 54-46 majority, despite the opposition of well-known right wing entrepreneurs who lead corporations such as Nike and Columbia Sportswear.  (Just kidding about the right wing part.   But entrepreneurs Phil Knight of Nike and Tim Boyle of Columbia did vocally oppose the initiatives.)

Oregon's personal income tax rate before the tax hike was 9.0%, and it kicked in at such a low level that just about every taxpayer paid at that rate.  By contrast, Vermont's 9.4% rate only applies to income levels above $400,000 for married couples.  The Oregon ballot initiative raises the income tax rate from 9% to 11% but only for taxpayers earning over $250,000.  

Does this have any significance for Vermont?  I think so. 

It *Does* Matter....

By Daniel Foty

.... and even true-blue Democrats understand it:

[W]ho would have thought of Chicago as a lower-tax refuge? The bright idea comes from Chicago Mayor Richard Daley, who is looking to lure employers from Oregon after that state's voters approved a huge tax increase last week. The tax hike in Oregon "will help our economic development immediately. You'd better believe it," Hizzoner told the Chicago Sun Times late last week.

Res ipsa loquitur....

The Realities of Revenue

by Chris Campion

Last Sunday's Freeps editorial starts off with a tasty blast - Gov. Douglas is sticking it to the little people, and giving "relief" to the well-off in Vermont, in his budget proposal.  As the governor stated in his budget address, without reductions in spending, the state will be $150 million in the red in FY2011, and this will only increase to $250 million in 2012.  Simply put, this spending is unsustainable, without revenues to support it, leave alone for a moment the discussion about what we're spending these dollars on.

The bulk of the state budget falls into two categories (seen on p.25) - General Education and Human Services. In FY09, General Education made up 35.75% of the budget expenses, while Human Services made up 37.77%.  That constitutes 73.52% of all state spending, and to keep this in perspective, the next highest expense categories were "Business-Type" at 7.3% and "Transportation" at 6.66%.  Human Services is the largest expense item in the budget, even larger than education.

Sen. Shumlin and Income Tax Rates

by John McClaughry
          
In his November 22 You Can Quote Me interview with Kristin Carlson of WCAX, Senate President and gubernatorial candidate Peter Shumlin startled me by remarking, “Under Howard Dean I was the one who pushed to reduce income taxes on the top level of income.”

Now it’s true that Sen. Shumlin was chair of the Senate Finance Committee in 1999 when Gov. Dean proposed to shave a percentage point from the flat 25% of the Federal income tax liability then in effect. And it’s true that the Democratic legislature, including Sen. Shumlin, obliged their Democratic Governor by doing that. But as so often seems to occur with Sen. Shumlin, there’s more to the story.

Tightening the Noose

by Art Woolf

The state is facing a $150 million deficit in FY11 and, if our legislators don't do anything to fix the problem, even larger deficits for the following three years.   Then we fall off a cliff (actually, no one forecasts farther out than FY14).

All of the state's political leaders agree (at least now) that the state has no capacity for higher taxes.  We'll see if that sentiment still holds by April.  That means cutting spending.

How about saving $1.6 million in the current use program? 

"We don't think this is the place to cut," said Jonathan Wood, secretary of the Agency of Natural Resources. The program is too valuable to the state's rural economy, the administration argues. It promotes the use of land for agriculture and forest products.

How about saving a few million by cutting the state contribution to the Housing and Conservation Trust Fund? 

Former Gov. Howard Dean singled out one state program, urging Democratic lawmakers for whom he was collecting campaign cash not to cut funding for the Vermont Housing and Conservation Board...."We need that program," Dean said. "It is the perfect public-private partnership."

Instead, legislators and the governor rally around a dubious plan to save an unspecified $38 million through "efficiency" savings (assuming it does work, that still leaves a $110 million hole).  And it's highly unlikely that legislators, or the public at town meeting, will put the 800 pound gorilla on the same diet the rest of government has been put on.

Every state program has its vocal advocates and every one of them is going to protest loudly if their program is touched.  It's still early in the session, but I'm already beginning to get the feeling that the tax option is going to be put on the table sooner, rather than later.

Education Property Taxes: A Look Inside

by Hugh Kemper
 
As, barring a significant course correction, property taxes are likely to increase significantly yet again over the next three years, it is useful to revisit the property tax itself. More specifically, revisiting (1) who pays property taxes and (2) income sensitivity and current use policies that continue to narrow the tax base thereby placing more of the property tax burden on fewer Vermonters. In practice, these policies desensitize the pocketbooks of a large majority of Vermont homeowners (and voters on school budgets) from the full impact of public K-12 spending and, thus, have undoubtedly encouraged the profligate education spending that has occurred since enactment of Act 60. Common sense suggests that desensitized voters on school budgets won’t be as fiscally responsible when spending others’ money as they would be when spending their own money.
 

Vermonters Pay 84% of Education Property Taxes

 
Implemented in FY 2005, Act 68 split Vermont’s education grand list into two components, homestead and non-homestead.  Homestead property is defined as the principal domicile and contiguous property owned and occupied by a resident individual. Non-Homestead property is all other real property.

From an individual town’s property tax perspective, non-homestead property is non-resident property and, as non-resident owned property generates approximately 60% of statewide education property taxes, many Vermonters believe or assume that out-of-staters pay the lion’s share of property taxes.  The truth is quite the opposite (view chart here) – Vermonters’ pay 84% of statewide property taxes as Vermonters own 73% of the grand list value of non-resident properties. (Note 1)

While Vermonters pay 84% of statewide education property taxes, an increasingly disproportionate share of this tax burden is falling on fewer Vermonters as income sensitivity and current use policies continue to narrow the tax base. 

Quotable

by Art Woolf

[Speaker of the Vermont House of Representatives Shap] Smith said he hopes that combining these trims can add up to between $30 million and $80 million. He's ruled out new taxes to fix the rest of the budget gap – he said he is focusing on expenditures, not revenue 

--Rutland Herald

The state faces a projected deficit in the next fiscal year of more than $100 million. Some Democrats have said the state needs to raise additional revenue to meet its needs. But [Vermont State Senate President Pro Tem Peter] Shumlin  flatly ruled out new taxes.   We're going to solve Vermont's problems not with new taxes, but with new ideas, new ways of doing things. I think we're in a fragile economic recovery. There is not the capacity for taxes to solve the problem."

--Vermont Public Radio

It is an encouraging sign that on the same day the leaders of the two houses of the legislature (one of whom is running for governor) implicitly recognize that Vermont, a state with one of the highest overall tax burdens in the nation, doesn't have any more tax capacity.

By The Numbers

Public K-12 Spending, Enrollment and Staffing

by

Hugh Kemper

Public K-12 spending, enrollment and staffing data is often confusing as different sources provide information in different ways at different times. To mitigate prevailing confusion, Geoffrey Norman asked for a snapshot of accurate and relevant data that could be updated periodically.

This table is my initial response to Geoffrey’s request. Feedback that will make this table more helpful to Vermont Tiger readers is welcome. 

The Power of Incentives

 by Art Woolf

One of the issues we stress at Vermont Tiger is that incentives matter and taxes are a powerful incentive because they affect individual decision making.  That's not just true for entrepreneurs and business people. It's also true for low income folks. That's very evident in this piece in the Rutland Herald. The gist of the article is that because the poverty level of income is tied to the consumer price index, and in 2009 the CPI will be less than it was in 2008:

... the federal government's poverty level guidelines will drop in 2010 for possibly the first time ever, changing the qualifications for a host of programs ranging from state-subsidized health insurance to food stamps.

Peter Sterling, head of the Vermont Campaign for Health Care Security, shows the impact on a hypothetical Vermont family:

 A family of four making about $4,150 a month with two parents on Catamount Health and two kids on Dr. Dynasaur would now fall in the 225 percent of the federal poverty level bracket. They pay about $245 a month for the family's health insurance premiums. With the lower federal poverty level, the family now is categorized as more than 250 percent of the level, although their income has not changed. Their premiums will increase, Sterling said, to $358 a month.

The family effectively has a marginal income tax rate of 100%.

Where Have We Read That ...

... even though there are 10,000 fewer students in Vermont today than there were in 2000, school spending is projected to increase at about 2 percent a year for the next three years ...

* * *

... Vermonters will likely have to pay much more for an education system whose expenses keep rising even while enrollment keeps dropping. And, a decade after the passage of Act 60, the current cobbled together statewide property tax system is not working. And while student performance is high in Vermont, there are other states whose students perform as well, but spend substantially less on education ...

* * *

Staff-related expenses account for 80 percent of current education spending, but the Vermont chapter of the National Education Association has balked at pay and benefit reductions -- despite the fact that many Vermont workers have had to accept cutbacks in the past year. And it's hard to justify having a 23.1 percent increase in K-12 school staffing between fiscal 1997 (15,555) and 2008 (19,145) when enrollment has declined 12.9 percent, from 106,341 pupils in fiscal 1997 to 92,572 in fiscal 2009 ...

These stark observations will not be unfamiliar to people who have been visiting this site for the last (almost) three years.  Of course, when we made them, they were the product of a bunch of right wing soreheads.  There was no problem with the property tax system and education funding.  All was well in the kingdom.

What makes these paragraphs of interest to our readers is that they were not lifted from Hugh Kemper's most recent effort or from something written by Art Woolf – who has been sounding this alarm for a decade now.  The passages are, in fact, excerpted from the editorial page of the Brattleboro Reformer.

Eventually, it becomes impossible to continue denying the undeniable.