Editor’s note: This commentary is by John McClaughry, the vice president of the Ethan Allen Institute.
Four months from now the 2017 Legislature will hear the new governor’s budget message for FY 2017. Each fiscal year over the past five the Legislature has been presented with an opening general fund deficit projection. Each year, by hook and crook (including a host of tax increases and aggressive fund robbing) the governor and Legislature have managed to produce an arguably balanced budget.
To Shumlin’s credit, he did not sign laws to increase income tax rates or sales tax rates. He did, however, sign laws that increased the residential school property tax rate no less than five times, and also laws that raised taxes on hospitals, nursing homes, home health agencies, insurance claims, use value property transfer, and liquor and cigarette sales.
He proposed, but couldn’t get, increases in payroll taxes, and increases in provider taxes on independent doctors and dentists. When he finally came to grips (three years too late) with the glaring fact that installing his signature government program – single payer health care – would require over $2 billion in new state tax dollars, he conceded defeat.
But battles over taxes never end. Here’s a quick survey of some likely tax battles of 2017:
Income taxes: Democratic Govs. Dean and Shumlin and Republican Gov. Douglas understood the danger of pushing up the top marginal tax rate. None did so, and it’s not likely that even a more liberal successor would attempt to go beyond the present 8.95 percent. Conceivably a tax-hungry new governor could try to change the tax brackets to capture more tax dollars from the middle class, as Shumlin did.
Sales taxes: Since 1970 Vermont has had a sales and use tax, now at 6 percent. Democratic candidate for governor Sue Minter has expressed enthusiasm for broadening the sales and use tax to cover perhaps a hundred services. Depending on which interests have the political clout to get exempted (educators, health care providers, lawyers), the rate could theoretically drop from 6 percent to around 5 percent. This proposal, however, would be highly visible, and wildly unpopular with thousands of service providers. Republican candidate Phil Scott says he’ll veto any such bill.
The Legislature amended the byzantine school financing formula a year ago to make it hard for taxpayers to figure out the homestead property tax rate.
School property taxes: The Legislature amended the byzantine school financing formula a year ago to make it hard for taxpayers to figure out the homestead property tax rate. It also set in motion a forced school consolidation (Act 46) that its backers suggested (unconvincingly) would restrain education costs. But those costs and school taxes will go up, as always happens where there is a government-fed bureaucracy insulated from choice and competition. Since the financing system is essentially on autopilot, taxpayers won’t know who to hold accountable – which to its backers is a great blessing.
Carbon tax: The renewable energy interests are pushing hard for a carbon “pollution” tax to punish the people who heat their homes and drive to work with fossil fuels, thereby hastening what Shumlin called the “horrid future” of “climate change.” The real purpose of the not-revenue-neutral carbon tax bill is to divert ultimately $50 million a year into a renamed state fund to subsidize renewable energy and weatherization. This is especially relevant to the solar PV industry, because it wants those dollars to replace the federal solar subsidies diminishing in 2018.
Minter has an alternative plan, called “Transportation RGGI,” to drive up the price of gasoline and diesel fuels and bring in money to feed the Democratic majority’s never-ending appetite for defeating climate change. Scott is strongly opposed to a carbon tax. Prediction: politically dangerous, hence not likely.
Taxing banks: Minter has proposed to give two years of free tuition to any qualified Vermont high school graduate, regardless of income, who enrolls at Vermont Tech or Community College of Vermont. She proposes to finance this “Vermont Promise” plan — $12 million a year – by imposing a corporation income tax and a higher bank franchise “fee” on the biggest banks doing business in Vermont.
Bank customers wouldn’t see this tax, and therefore it’s “outrage proof.” But it would alter the large bank’s calculations about keeping its back-office operations in a state that where the governor has chosen large banks as the new “cash cow” to replace the departed Entergy Vermont Yankee nuclear plant.
Whoever becomes governor will probably find it necessary to increase numerous “minor” taxes and fees, and will likely achieve no significant school property tax reductions. But there will be other tax battles, and taxpaying citizens concerned about the steadily growing tax bite ought to get well acquainted with their new governor and legislators soon after Election Day.
Read the story on VTDigger here: John McClaughry: Tax prospects for 2017.