Rep. Anne Donahue
February 10, 2018
As we near the midsession deadline, issues are heating up around the state house with consideration of two major tax initiatives: reshaping how we pay for education, and revising state income tax rules to prevent the federal changes from becoming a big state income tax increase.
The Senate has also voted on a 6-year staged increase to a $15-per-hour minimum wage, so we will need to be addressing that proposal in the House.
In meantime, we had a major split on a policy bill on the floor, when I led objections to part of a new bill on parentage that would allow a court to order that a DNA sample be taken from a person who is not involved in the court case.
The parentage bill is a worthy and important effort to rewrite old laws to address the realities of the current world, including surrogate births (termed “gestational carriers”), but it also includes a fairly radical provision on genetic testing. In lay language: if your brother is the subject of a lawsuit asserting that he is the biological father of a child, but he has taken off, the court could order that you must provide a DNA sample. (Your DNA could theoretically provide evidence of whether the child had enough common DNA traits to establish that your brother was, or was not, the father.)
If that clause was going to be included in the bill at all, I wanted the actual genetic specimen to be destroyed after the parentage case was concluded. The committee that had passed the bill disagreed, saying there hadn’t been enough testimony to know what the current protocols were for preserving or destroying genetic testing specimens, so there could be unintended consequences. But the committee was willing to go forward with whatever unintended consequences might result from allowing your DNA sample to be taken and to exist – against your will – in some unknown location under unknown protocols!
It is virtually unheard of for an amendment to succeed on the House floor if the committee rejects it. This one came close to a major upset, but failed on a 70 to 73 roll call vote. My efforts did result in some improvements in the bill to require a more protective court process, but the DNA samples themselves will not be destroyed. The bill now goes to the Senate for consideration, and I am hoping this issue will be reconsidered.
Taxes for Education
One thing everyone agrees on: our current property tax system that contributes to paying for schools is far too complex. One only has to look at what often happens in Northfield: the school board holds to a tight budget with small increases, yet the tax rates go up much higher as a result of spending levels in other towns.
And no one has figured out yet how to slow down the increasing per-pupil costs, as we lose student counts yet keep facing budget pressures. The idea of school district consolidations was probably essential for reasons of educational opportunities for students from small districts, but the cost containment results will be fairly small.
The core of the proposal emerging in the House Ways and Means Committee (the committee in charge of taxes) would be a shift to an income tax surcharge for the statewide share of the education fund. The homestead property tax would drop way down, and would reflect the local district’s spending, without any income sensitivity adjustment (the adjustment for income would be covered by the fact that the income tax surcharge would be scaled based on income.)
It would definitely simplify the system. Despite the intent to keep everyone in about the same tax situation that they are in currently, no system change can do that perfectly, so there would be “winners and losers” – individuals who would do better, or worse, than the current structure. The details are not fleshed out enough yet to know who they would be.
But the big question is what the impact would be on spending levels. What it all costs is a bigger issue than how the taxes are collected. Vermont ranks as the top state in New England in state spending as a share of its gross state product (11.7 percent, compared to next-highest Rhode Island at 10.5 percent), primarily driven by K-12 education spending; education spending as a percentage of the budget ranges from 11.2 percent in Massachusetts to 32 percent in Vermont.
There is a fairly prevalent concept that if taxpayers are “insulated” from spending decisions, they are less likely to hold local spending down. If there is little impact on your property tax bill – because it goes into a statewide pool of money – why vote for a lower, local school budget? That operates if you support the assumption that there are many districts where costs could be restrained, but that local school board (supported by the local voters) are choosing to spend excessively.
If the new system meant that local voters kept tighter control, because their vote directly affected their local property tax – which would be set based upon how much was being spent above the statewide level being covered by the statewide income tax -- it might be a big plus.
If it meant that poorer towns tightened their belts more, but wealthier towns felt comfortable with adding extras, there would be a problem with the equal educational opportunities we are expected to be providing. If it meant that everyone was so relieved that their property taxes dropped so much that they felt it was great to be able to add lots more to their local budget … we’d obviously significantly worsen the overall spending problem in the cost of education.
Some of the complexities of the many variables, including the complexities of why costs keep increasing, are the reason the system hasn’t been changed for so long. While there is momentum this year for a change, it won’t be clear for a while yet whether this initiative will move forward and what the final picture will look like.
State Income Tax
More tax complexities: the big changes in federal income taxes, and what your return will look like next year, will change the impact of some of the automatic features of how our state income tax piggybacks on the federal. For many people, it means that some of their reduced federal taxes will get partially eaten up by increased state taxes.
The best guess right now is that it could result in $30 million more in state revenues. We could expand our state budget, maybe even filling in for some cuts in federal spending, without having to vote on a tax increase. What a great idea!
Oops. No, not such a great idea. No taxation without representation, right? An increase in state spending by $30 million means a $30 million tax increase, even if it is thanks to a change in federal tax law, not ours. If we feel we need or want to increase taxes, that should happen up front, in a transparent debate. So the governor has put forward a proposal for changing state tax codes to – as best as possible – keep everything the same for Vermonters in terms of current state taxes.
But it will be a very tricky process, because the federal tax changes will impact individuals in very different ways. As with changing the property tax structure, no one wants to suddenly cause some individuals to pay a lot more and others, a lot less. Getting an even outcome will be a challenge.
$15 Minimum Wage
Speaking of trying to balance impacts: the Senate is moving forward with a proposal to increase the state minimum wage from $10.50 to $15 over the next six years.
There are many aspects that make a strong case for this. I do believe that a full week’s labor should pay enough for a person to live reasonably above the poverty level. At $10.50 an hour, a person is making $21,840 a year, which is just slightly above what the federal government deems as poverty for a 3-person family. Any of us can compare to our own income to consider whether we think this is a “livable” wage – I do not think it is.
Vermont has some good reference tables that include all the additional supports that low income persons receive, and where that places them in comparison to what Vermont deems a “basic needs” budget. That scale estimates that it takes about $70,000 in resources for a single parent, 2-child family. Again – that become a subjective conclusion about defining basic needs.
Economic arguments for increasing the minimum wage include a savings in what the state spends in various subsidies for those with low incomes and increases in income tax revenues, as well as more buying power for families, resulting in strengthening the economy.
The basic needs budget graph shows the value of all subsidies – childcare, healthcare, food stamps, tax credits, etc – to show where that sample 3-member family falls. If there are no wages coming in, the benefits total about $43,000. As earned income increases, those total resources go up. At wages of around $22,00, combined with benefits, the family reaches $62,000 in net resources.
Then comes the cliff: if you earn more, the subsidies drop faster than your wages increase, so at the point of reaching $36,000 in wages, total resources have dropped to about $52,000. Getting ahead is penalized. (If the state were to attempt to level that cliff, it would cost $66 million.) It is not until earning a net salary after taxes of $48,000 that the family gets back to net resources of $62,000. After that, the progress towards the $70,000 is a bit more even (there are some smaller cliffs) until actually arriving there via after-tax income alone.
So here’s the irony for that sample family: if the minimum wage went from $10.50 to $15 an hour, the total family resources could go from $62,000 to around $56,000!
The Senate plan would increase the threshold for the child care subsidy to help offset that effect – at a cost between $4 and $12 million -- but that does reduce the arguments that say the increase would reduce state spending on subsidies, since that’s the largest direct state funding on family supports. And while keeping the child care subsidy in place at higher wage levels would prevent the drop-off, the increased minimum wage would still would not increase that family’s spending power.
Our legislature’s non-partisan fiscal consultant projects several thousand jobs being lost from the economy if the increase went through, from businesses that would have to cut back based on the increase in wages. Its report also estimated that increases in state tax revenues and reduced benefit costs would be “a net fiscal gain to the State of approximately $23 million” [not counting an expanded child care subsidy cost] under the proposal, “balanced against a $69 million net reduction in federal dollars in Vermont’s economy.”
So nothing is ever as simple as it sounds.
All this assorted data plus much more detailed analysis is available on the Joint Fiscal web site, www.leg.state.vt.us/jfo/
Please stay in touch as you hear about issues affecting you and to keep me informed about your views. You can reach me at firstname.lastname@example.org. Thank you for the honor of representing you.