Tag Archives: Property tax

Our favorite Taxation Imp strikes again

As is customary on Thursdays, yesterday’s edition of the Burlington Free Press* once again was graced by the comedy stylings of Art Woolf, Vermont’s Loudest Economist. This time, Art was letting us know just how difficult it is to be rich.

*Newsstand price now a DOLLAR-FIFTY!!! for a few pages of wire copy and recycled USA TODAY “content.” I’d like to see Professor Woolf’s cost/benefit analysis of that little bargain.

No, seriously. The One Percent have it rough. Here’s how it starts.

Rich get richer, pay more taxes

In 2014, the state collected $650 million in income taxes from Vermonters. High income Vermonters continue to pay a very large share of that.

Well yeah, because they make most of the money.

He goes on to break down tax collections by income bracket in a way that emphasizes just how much we peasants are benefiting from the forced largesse of Our Betters. Which, if you consider state income tax in isolation, is true; the more money you make, the more taxes you pay.

But when you consider the entire burden of state and local taxes, you flip the script. Here’s a handy chart from the Institute on Taxation and Economic Policy (ITEP), showing Vermont’s total tax burden.

ITEP chart

That’s right. In Vermont, the rich get off easy and the middle class takes it in the shorts.

See, our income tax is reasonably progressive, but our other primary taxes are not. Sales taxes are strongly regressive, hitting the poorest people hardest. Property taxes slam the middle classes. Add ‘em all up, and that chart is what you get.

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If the Governor is worried about the wealth gap, he could maybe do something about it

Gov. Shumlin’s budget address began with a bit of boilerplate that’s been a recurring feature in his recent public remarks: bemoaning the wealth gap in America.

At a time when the wealth gap between the people at the top and everyone else is more extreme than since before the Great Depression, Vermonters hear about the recovery both in Vermont and nationally; they hear about our state’s low unemployment numbers; and they wonder: Why aren’t I seeing it? Why is my family being held back?

The bemoaning is appreciated, but when he does so little about the wealth gap, it comes across as an empty rhetorical gesture — the last ghostly trace of a progressive agenda.

Okay, I don’t expect Peter Shumlin to single-handedly fix our profoundly unbalanced economy. But there’s one big thing staring him in the face that would help the middle class and help close the state’s budget gap.

Raise the effective tax rate on top earners. Not the actual rate, but the effective rate.

Yes, I’ve said this before; and yes, Shumlin blocked a House proposal to do just that a couple years ago. But our tax system has gotten worse since then, and our budget shortfall has grown.

Just look at this chart.

ITEP 2014 tax chart

Sorry, I should have warned you: seeing that chart may result in nausea and vomiting.

According to figures released this week by the Institute on Taxation and Economic Policy (ITEP), Vermont’s tax system hits the working and middle classes the hardest, while top earners pay the least of all (as a percentage of their incomes).

In the past, the Governor has praised the fairness of our tax system. He should never, ever do that again until he fixes it.

Not only has he failed to do so… not only has he blocked efforts to do so… but during the last two years, Vermont’s tax system has actually gotten worse. Here’s the ITEP chart from two years ago.

ITEP 2012 tax chart

Compare the two charts: Higher shares of family income for the bottom 60%, and lower shares for the very top. No relief for the middle class, despite the Governor’s rhetoric.

In many ways, our state tax system is relatively progressive, but there are problems. The sales tax is extremely regressive; the property tax hits the working and middle classes the hardest. And as Paul Cillo of the Public Assets Institute points out: 

“The regressive property tax is Vermont’s largest single revenue source supporting state and local public services, and the Legislature has been shifting more and more public costs onto the property tax.”

And while income tax rates are very progressive, the actual taxes paid are much less so. Vermont’s tax rate for top earners is 8.95% — but because of generous rules on taxable income and deductions, those top earners pay an effective rate of only 5.1%. 

In addition to the fairness issue, the disparity puts pressure on Vermont’s budget, as PAI points out:

If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.

What have we seen throughout the past several months? Income tax receipts coming in lower than expected, forcing cuts in the budget. Hmmm.

There was one modestly progressive tax proposal in the Governor’s speech: he wants to end a tax deduction for state and local taxes paid in the preceding year, a tax break that mostly benefits upper tiers.

Otherwise, he left our unfair, broken, and inadequate tax system untouched.

Just about every time he opens his mouth, he talks about how Vermonters are taxed to the limit of their ability to pay. This is clearly true for most Vermonters, but clearly untrue for the most fortunate among us.

There is a glimmer of hope. Shumlin yesterday took a tiny step away from his past opposition to raising income, sales, or rooms and meals taxes:

You have heard many times over the past four years my opposition to raising income, sales, and rooms & meals tax rates to fund state government.

When he delivered this line, he gave the word “rates” some extra oomph. And making the income tax fairer wouldn’t require a change in rates; it’d just mean closing loopholes and limiting deductions.

Reasonably. I’m not calling for confiscatory taxes on the rich; I’m just calling for them to pay their fair share in an economy that has bestowed most of its benefits on them.

How about it, Shap?

Same song, different verse

Hey, who switched the teleprompter to Español?

Hey, who switched the teleprompter to Español?

Reactions to the Governor’s budget address…

First, I hope the Republicans are happy. Last week they complained about a lack of attention to some major issues. Today they got a whopping hour and fifteen minutes. Be careful what you wish for.

This speech followed Shumlin’s usual pattern. There’s a whole lot of incrementalism — small, inexpensive approaches to big challenges — and, to spice things up, a handful of bigger proposals almost certain to go nowhere. It strikes many observers as a deliberate tactic: offer an unpalatable solution, and force the legislature to find an alternative. Example from a previous year: his plan for a major cut to the Earned Income Tax Credit.

I’ll give him credit, he’s very good at incrementalism. He finds modest improvements that don’t cost much, if anything. In today’s speech, he was constantly talking of leveraging federal funds, private-sector participation, and partnerships with entities of all sorts. A classic example: his plan to offer “motivated high school seniors” a free two-year Associates’ Degree in engineering technology “with no additional cost to the Education Fund.”

The plan involves the state Agency of Education and participating employers identifying students, and leveraging existing programs plus employer contributions to get them free tuition and a summer internship if they stay and work in Vermont after graduation.

It’s classic Shumlin. It sounds good, it will actually help some people, it’s cheap, and it can be effective as far as it goes.

But it doesn’t touch on the underlying problems: high college costs and stagnant earnings for all but the very wealthy. Even if the incremental stuff works, it seems like small potatoes for those of us who vote Democratic.

How big is the budget gap? It's soooooo big.

How big is the budget gap? It’s soooooo big.

Then there’s the other thing we get: the “big idea” that probably won’t go anywhere. I could mention a few; the double ban on teacher strikes and contract impositions, giving power to the state school board to close schools that fail to meet spending or achievement targets, the payroll tax increase to fund better Medicaid reimbursement.

Indeed, his entire education package seems designed for rejection. For one thing, it seems to do nothing to immediately mitigate rising property taxes. That’ll be lawmakers’ top priority, after last year’s election.

Shumlin’s broader reforms are an odd mix of distant and scary. Neither the teachers’ unions nor the school boards are likely to accede quietly to a plan that will strip them of their ultimate bargaining chips. The idea of eliminating “contradictory incentives” like the small schools grant may be good ideas, but they’ll be tough to support for lawmakers with small school in their districts.

Finally, the idea of Agency of Education “evaluation teams” going into every school to measure achievement and spending performance — with those who fail to meet benchmarks in line for state funding cuts or even closure — is DOA. It’s mandatory consolidation and top-down control via carrot and stick, rather than direct mandate. Kinda the worst of both worlds; no immediate impact, and a whole lot of state interference (as it will be perceived) in local decision-making.

He calls it a “partnership,” but one partner has the ultimate power.

If you think I’m too gloomy on Shumlin’s prospects, just take a look at this reaction statement from House Speaker Shap Smith:

…the Governor acknowledged Vermonters’ concerns about the unsustainable cost of health care, burdensome property tax increases, and the need to clean up our waterways. …I look forward to working with the Administration to make Vermont the best possibly place to work and live, and one that provides opportunity for all Vermonters.

He applauds the Governor for addressing the big issues — but not a peep about the Governor’s proposals. I expect lawmakers to consider Shumlin’s ideas, but he won’t get priority over others’ ideas.

This is all part of the game, as it has been since Shumlin took office. It’ll be even more so after an election that was largely a personal rebuke of the Governor, not the Democrats.

His budget message was a starting point. From here on, it’s a matter of top lawmakers devising proposals of their own that they can convince Shumlin to support.

Multimedia note: if the photos seem a bit blurry, it’s because they’re screengrabs from the Vermont PBS livestream. Workin’ from home today. 

Messaging 101: Don’t make mistakes in press releases about education

So this happened. Governor Shumlin’s office issued a press release on Monday about education funding — specifically its projection of a two-cent increase in the state property tax for the coming year.

And there was an oopsie. First to spot it was Dave Gram of the Associated Press (and now, apparently, chief Statehouse correspondent for the Burlington Free Press):

And here is the error in context:

“The bottom line is that education spending in Vermont is supported by a wide variety of state revenue sources, not just the property tax,” Gov. Shumlin said. “That’s why I do not think simply shifting more education spending to other sources will address the burden Vermonters feel. We need to tackle this first as a spending challenge because education costs have continued to rise faster than Vermonter’s ability to pay for it, even though our student count has declined.”

It’s bad enough when a gubernatorial missive goes out with a big fat juicy typo. It’s even worse when the subject of said missive is education. Does newly-minted communications chief Scott Coriell need a little proofreading help?

BREAKING: Scott Milne holds a news conference! Also, Hell Freezes Over.

Scott Milne and potted plant. Make your own joke.

Scott Milne and potted plant. Make your own joke.

Two rare political events occurred simultaneously today in the library at Spaulding High School: Scott Milne held a news conference, and he unveiled a thoughtful, detailed policy initiative.

Yes, the campaign without a plan has finally come up with one — on education reform. The thesis statement: Vermont spends too much on K-12 education and not enough on higher education. The basic idea: foster efficiency by reorganizing the public school system, and invest the savings into a new program to provide every Vermont student with access to a free college education or vocational program. (The full plan is posted on his campaign website.)

It’s creative. It’s fresh. It’s downright audacious. It’s the kind of thinking that, to me, represents the best of moderate Republicanism: maximizing our investment in the public sector instead of mindlessly cutting. At the very least, it ought to generate some serious conversations about how we spend our education dollars.

There were, of course, spiders in the attic. The Milne plan on paper was seven single-spaced pages with plenty of detail (footnotes, even); but he was less than articulate in the give-and-take of a news conference. He abruptly shifted between explanations of his own plan and recycled attacks on Governor Shumlin. He made plenty of snide comments directed at the media, who were on relatively good behavior. (If he thinks we’re tough on him, he ought to attend a couple of the Governor’s news conferences.) And he didn’t have clear answers to a number of fairly simple questions.

But the biggest problem with today’s announcement was… today. 

It’s October 15th.

The election is three days from yesterday.

And this is the first in a promised series of policy announcements. (A proposal for reinventing state government will come in about two weeks — within days of the election.) After a summer of no ideas, Milne is going to empty the truck in the campaign’s closing days.

If he’d put forward this idea six months ago, or even three, then he might have sparked a serious conversation on the issue and positioned himself as a viable moderate alternative to Shumlin.

That’s conventional thinking, of course, and Milne will tell you he’s running an insurgent campaign. He believes this is the perfect time to start launching his policy ideas.

Well, if he’s right, and every political observer and activist in the state is wrong, then Milne can celebrate his election by holding a good old harvest-time Crow Pie Dinner and invite all of us to dig in. I’ll be at the front of the line.

The broad outline of the Milne plan, entitled “Investing in Vermont’s Future”:

— His previously announced two-year cap on the statewide property tax, designed to force the Legislature to get serious about reform. Any shortfall in school funding caused by the cap would come out of the state’s General Fund. That, in turn, would be made whole through some combination of cuts in other areas and tax increases. Milne favors spending cuts, but he wants to work out the details with the Legislature.

— Universal tuition-free education from pre-K through four-year degree or vocational training for every Vermonter at vocational centers, colleges and universities in the state system.

— The money for free tuition would come from savings in K-12 spending. To realize this, Milne proposes a reorganization of the system into 15 Regional Education Administration Districts (READs). READs would have authority over budgets. There would be no statewide property tax; instead, tax payments go to the READs, which would each set district-wide per-pupil spending.

— READs would foster efficiency because voters would have a stronger connection between school budgets and their taxes. This would lead to lower budgets, leaner spending, and voluntary consolidation of smaller districts.

— The state would ensure compliance with the Brigham decision mandating educational equity, by providing supplemental funding for READs with low per-pupil spending.

— School choice would be gradually broadened. Eventually, every family could send their kids to any school within their READ. School choice would not include private schools.

— For every two years a student attends Vermont schools, s/he would get one year of free post-high school education at any of the state’s public colleges, universities, or technical schools.

— Existing private colleges could join the system, if they’re willing to give a tuition break in exchange for access to more Vermont students.

— The deal would not include any tuition for institutions outside Vermont.

Milne argues that the offer of free tuition would be a powerful draw for people to move into Vermont, thus fueling our economy and putting our finances on sounder footing.

I see some problems with the Milne plan, and I’m sure you do, too. He assumes that a primary cost driver in public schools is the supposed disconnect between voting for school budgets and the resulting tax bill. I’m not at all convinced that this is as big a factor as Republicans think it is.

He also assumes a pretty high degree of public engagement in the READs. I think that’s tremendously optimistic; most of us don’t have the time, or inclination, to get seriously engaged in that process.

Then there’s the problematic Brigham fix. If the state is the funder of last resort, then doesn’t that retain one of the weak points of the current system?

A question about the free tuition. Is the two-year requirement for a year of free tuition retroactive? If so, then you’d potentially have thousands of high school graduates expecting free tuition next fall. If not, and the clock starts with the passage of this plan, then the four-year free tuition offer wouldn’t go into effect until current fourth-graders are graduating from high school. (A current fifth-grader couldn’t qualify for more than three years tuition-free.)

Another quibble (but these kinds of quibbles often doom policy initiatives): If a student attended 12 years of Vermont school, graduated, and is now a freshman at UVM, would s/he retroactively qualify for free tuition? If so, then you’re blowing a fresh hole in state colleges’ budgets. If not, you’ll have a whole passel of pissed-off parents.

And finally, in an effort to avoid any sort of state-mandated cuts, Milne puts an awful lot of faith in voluntary compliance. He criticizes Governor Shumlin for putting the onus on local voters and school boards; but his plan would force the voters and the READs to make some really tough choices, because his goal is to bring per-pupil spending from its current $17,500 to somewhere around the national average of $12,000.

That’s roughly a 30% cut. He sees room for savings in the alleged overstaffing of public schools, and (without saying so directly) in the extra costs of small school districts. Still, that’s a whacking great number, and it’s hard to imagine anything like that number surviving the policymaking process.

Still, it’s an idea. It’s a plan. I give Milne full credit for putting it together, and for finally giving his campaign a raison d’etre beyond “I’m Not Shumlin.”

I look forward to more of his plans. I just wish this had happened a long time ago.