Economic reality or political convenience
The 2014 Legislative session resulted in the passage of potentially useful legislation related to substance abuse problems, highway safety, and other issues. The "must pass" budget and tax bills passed. But in my opinion those crucial bills continue to contain long-standing distortions and inefficiencies that weaken Vermont and discourage economic development. There was no real progress on budget reform or tax reform that would make our systems more effective and more equitable. I think that this is due in part to the way that political considerations distort economic policy decisions.
The state budget is 'balanced.' However, funding the planned spending requires the use of one time sources of funds that will not be available in the future. Going forward there is a $70 million gap between spending and revenue indefinitely. This can no longer be blamed on shortfalls in revenue due to the recent recession. Vermont continues to plan to spend more than it will have tax revenue to support, and this is without additional funding for future health reform programs or properly funding pension systems. We have not yet faced the difficult decisions about resource allocation before us, nor have we undertaken the kind of tax and budget reforms that would ensure that Vermonters are treated fairly by the tax code and that the tax revenue that is spent in their name is as effective and efficient as possible.
Taxes were raised on cigarettes and on businesses that do not provide affordable health insurance to their workers. No tax reform was undertaken to reduce the inequitable and inefficient special tax expenditures costing $1.3 billion. The significant increase in the education property tax rates puts a growing burden on homeowners and businesses alike.
The consistent state explanation for the rising property tax rates is that school districts increased spending. Districts certainly need to work on controlling costs. But the Legislature is failing to take responsibility for its own role in high property tax rates. The General Fund transfer into the Education Fund has been reduced by $27 million. And in a way the funds in the transfer can be seen as mostly covering Legislative priorities within the Ed Fund rather than going to our children's education. The Legislature continues to fund programs that are not education within the Ed Fund. The costs of the Income Sensitivity program supporting homeownership and the Current Use program for Agriculture and Forestry account for about 20 cents of the property tax rate. Just this session the Legislature has shifted some of the cost of funding retired teachers' health insurance into the Education Fund.
The other important tax story was what was not discussed: The possible financing plans for the proposed future publicly financed health insurance program called Green Mountain Care. These were legally due in January 2013, and the Governor had planned to submit these to the legislature for preliminary consideration this spring, but he did not. I find it fiscally irresponsible, politically irresponsible, and morally irresponsible to continue to plan to launch this $2 billion program without telling Vermonters how it will be financed.
An economic development bill was passed. Provisions include better information for businesses about regulation, assistance, and resources, and improved workforce development policies. So far, so good.
But there are also provisions that involve the state in choosing companies to support with taxpayer dollars. There is a loan program for new and growing companies and an emergency assistance program. I don't think that the state should get involved in the difficult task of choosing which new companies should survive or succeed. I don't think that the state has the skill and foresight to do this well, and I think that it is an invitation for favoritism and inequity.
These new programs will be financed with up to $5 million from an expected surplus of revenue over spending at the end of the 2014 Fiscal Year. That money had been intended to go to state reserves and to property tax relief - such uses could have helped all Vermonters not just a few.
I would think that a better approach to fostering healthy economic development would be to reduce the high levels of uncertainty that face all businesses in Vermont. This could be begun by first undertaking comprehensive tax reform to achieve lower tax rates for all through reduction of special subsidies. Low and stable tax rates within a simple tax code are best for businesses and all Vermonters. The second action would be either revealing the financing plan for the future publicly funded health insurance program or admitting that it is not fiscally or politically feasible.
The economic analysis that I hope that I provide may be even more important going forward. It now appears possible that the Administration and Legislative leadership may be planning to undertake tax reform, reform of education financing, and the financing of GMC all at once in the next session. Talk about creating uncertainty.
The best way to undertake tax reform is to take a "revenue neutral" approach in which all rates are lowered through the elimination of special treatment provisions like credits, deductions, and exemptions, but the state does not end up collecting any more revenue overall. This would mean that even those who lose the benefits of some special provision may end up better off as all tax rates come down. I believe that if this were done with the property tax and the income tax it might be possible to lower property tax rates by over 20 cents and each income tax rate by 2 percentage points. But the approach that I now see coming will be to use tax reform to raise tax revenue for GMC and for other state spending.
And this may be done in such a complex way that it will be difficult to understand and analyze the shifting tax burden. Politically convenient, but not transparent and accountable.
I ask for your vote in the Democratic primary so that I might continue to be a voice for independent common sense in Montpelier. Please contact me if you would like a copy of my 2014 Legislative Report- call 802-375-9019 or firstname.lastname@example.org .vt.us. I even have a Facebook page now. I continue to hold legislative "office hours" over breakfast at Chaun cey's Restaurant on Rte 7A in Arlington every Saturday from 8 to 9:30 a.m.
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