The Results of an Uneven Spreading of the Tax Burden

by Robert Maynard

Vermont’s property taxes are increasing, but our appetite for over spending does not seem to be decreasing.  This problem was examined in this recent Vermont Digger article:

Prior to Town Meeting, Gov. Peter Shumlin implored Vermont voters to convey “a clear message to school boards and to their local communities that we’ve got to find ways to curb unsustainable costs of education in our state.”

Voters instead sent a resounding message that the prospect of rising tax rates hasn’t deterred them from supporting their local school budgets.

More than 90 percent of school budgets were approved on Monday and Tuesday in Town Meeting ballots. Sixteen school budgets were rejected.

The article does not speculate why the increasingly high tax burden is not curbing our appetite for spending, but the Campaign for Vermont’s Tom Pelham but forward a very reasonable, if not politically popular, explanation in the article’s comments section:

Vermont’s property tax system is a system based upon three rates. These are the income-sensitized rate applied to household incomes and the residential and the non-residential rates applied to listed property values. Generally, residential properties owned by households with incomes slightly over $100,000 qualify for the income sensitized rate.

These rates are not managed or in the control of local school districts, but managed by the state legislature. The House has already passed a bill (H.265) in this regard. One might think that if school spending is going up by 5.3% that the Legislature would fairly distribute this added burden similarly across all three rates, but that’s not the decision they’ve made.

The House bill results in the non-income sensitized residential rate effectively increasing by 6.8% from $1.32 to $1.41 and the non-residential rate increasing by 4.3%, from $1.38 to $1.44. However, the income sensitized rate, which effects about 70% of Vermont’s households, will effectively rise by only 7/10ths of one percent, from 2.68% of household income to 2.7%. This disproportionate distribution of the increase in education spending is a thoroughly considered choice by our legislators.

Both residential rates are comprised of two factors – a base tax rate and a multiplier applied to this base tax rate driven by a local school district’s per pupil spending divided by a legislatively set “base education amount”. For school budgets just voted, the House increased the base rate for residential property from $.89 to $.94 but left unchanged the base rate of 1.8% applied to income sensitized residential properties. As designed, the “base education amount” was to be adjusted annually by an inflation factor. Here’s the underlying statutory language in Title 16, section 4011:

(b) For each fiscal year, the base education amount shall be $6,800.00, increased by the most recent New England Economic Project cumulative price index, as of November 15, for state and local government purchases of goods and services from fiscal year 2005 through the fiscal year, for which the amount is being determined, plus an additional one-tenth of one percent.

However, the legislature, given its encompassing powers, can by-pass this language and do as it will. For school budgets voted this town meeting, the legislature increased the “base education amount” by 5%, or more than twice the inflation rate, from $8,723 to $9,151. The result of this legislative choice is to lower the value of the multiplier applied to the unchanged 1.8% base household income rate and thus lower the relative tax burden assigned to income sensitized properties.

The bottom line result of these legislative choices is that the tax rate on income sensitized taxpayers will rise by only 7/10th of one percent versus the 6.8% and 4.3% effective rate increases on all others. From a political perspective, this is likely a desired result as the increase in education spending is shifted away from the majority of voters who will see little increase in their tax bill and the politically active education lobby enjoyed a friendlier path to higher and higher school budgets.

Michael Garder offered similar insights:

Budgets go up because 73% of the population is isolated from an increase in property taxes. If you can vote yourself more services, and force your neighbor to pay for it, you’re getting a good deal and will continue to vote in favor of increases. It is rational self interest.

Until you change the funding mechanism and require a little more skin in the game the problems will continue.

This theory of passing on liabilities, increasing profits (services) for oneself caused a great deal of the financial crisis when practiced by banks. Liberals are furious that banks should have had more skin in the game, but this time apparently “it’s different” and somehow through a combination of pixie dust and unicorn farts it will all work out.

I call shenanigans on the whole process and our Dear Peter Shumlin should sack up and start telling the truth.

A high tax burden is a natural result of an uneven spreading of that burden.  If  we don’t abandon this unsustainable approach to paying for government provided services, the whole system will eventually collapse like a house of cards.

One thought on “The Results of an Uneven Spreading of the Tax Burden

  1. In this situation, the growth in ed-spending may not be “a good deal”, because it goes largely for ever-smaller classes, whichy, 40+ years of achievement test scores have shown, have not improved. (I won’t get into the “dumbed-down” argument. ) There’s now considerable empiric evidence proving the old headmaster’s insight that students learn from watching each other struggle, and when there are fewer to watch, the learning is curtailed.

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