Commentary – Shumlin’s Budget Address:  More Centralized Government (January, 2014)

John McClaughryJohn McClaughry

In his earnestly delivered January 15 budget message, Gov. Peter Shumlin addressed many of the pressing issues left out of his inaugural address the week before.

The coming year’s budget, Shumlin said, was “the toughest budget that I’ve put together.” Not much argument there. The flood of federal cash has reduced to a trickle, revenues are coming in well below projections, and the FY2016 General Fund faces at least a $94 million deficit. At this crucial time, he said, the legislature must “curb state spending to bring the cost of state services in line with revenue growth.”

The governor also appealed to overburdened taxpayers by declaring that “tax raising won’t work” to solve the deficit. Before he was done, however, he was back into tax raising (terminating the income tax deduction for state and local taxes paid, which will extract $15.5 million more from taxpayers who itemize).

The governor promised to avoid going into debt, make government operations more efficient, protect programs that actually produce benefits, and protect children.

After Shumlin dejectedly announced on December 17 the death of single payer health care, he is still inspired by the “vision of Act 48”. He has gone from proclaiming that “health care is a human right” to announcing that “health care is a public utility” to saying (as in Act 48) that “health care is a public good”. (All three of these characterizations are false.)

Instead of battling for “single payer” – a government controlled, taxpayer financed health care monstrosity – the governor will now devote his efforts to installing “all payer”. When coupled with “payment reform”, inclusive Accountable Care Organizations, and “global budgets”, “all payer” begins to look a lot like “single payer” all over again.

Shumlin announced his determination to reduce the infamous “cost shift” that drives private insurance premiums to unaffordable levels. The major culprit is Medicaid, which pays providers roughly 60% of their costs. The providers are obliged to cover this shortfall by jacking up health insurance premiums, which practice Shumlin candidly described as “a hidden tax”.

But where to get the dollars to cut the cost shift in half?  Gov. Shumlin has the answer: everyone earning a paycheck will be “asked” to cover part of the state’s chronic Medicaid underpayment.

This isn’t an “ask”, it’s a demand, in the form of a new state payroll tax of seven tenths of a percent. This will obviously be the opening rate for the much higher payroll tax rate needed to support “single payer”, or “all payer”, or whatever label will be hung on the next version of government health care.

Shumlin recognized that the burden of school property taxes has become an incendiary political issue. He fingered the “complex and archaic governance structure” of public education and promised to create new state-local “partnerships” to achieve state goals. He reiterated his commitment to “local control”, but redefined that as locals cooperating responsibly with their mandated “partner” in Montpelier. This new partner will make locals offers they can’t refuse, including mandating higher pupil to staff ratios and closing small schools. This “partnership” will be one more giant step in the direction of “One Big School System”.

Strangely, the governor who keeps inviting people to give him good ideas got through the entire address without ever mentioning “parents” or “choice.”

He did announce a promising initiative whereby students can get an Associate degree from Vermont Tech, with one year of dual enrollment, a summer internship, and a sizable contribution from the eventual Vermont employer.

Conspicuously absent from this governor’s delivered budget message was a frank analysis of why under his four-year administration state spending growth has cruised along at four times revenue growth. In fact, aside from pointing out the $94 million deficit, his speech gave scant attention to the reasons for this distressing budget performance.

A concise answer: economic performance lagging, spending outstrips revenues, can’t raise taxes, time to get serious about cutting back overgrown government.  Shumlin knows this. The question is whether he can get beyond rhetoric to make it happen, in face of furious opposition from his already resentful liberal supporters.

- John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).

{ 2 comments… read them below or add one }

James Hall January 24, 2015 at 12:27 pm

In spite of the Governor’s talk, he is an ultra-liberal, always has been, and will always maintain the thinking that he and his people know what’s best for us. This approach has put us in a terrible fix; one that he will not be able to extricate from given his tendencies, and will be very tough for the next governor coming in. Other states have pulled out of similar messes, but most have much more industry, and many more people than does Vermont. I do not know what it will take for people to wake up and see the reality of our situation.

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Merle Chilcott January 26, 2015 at 10:35 pm

In the above third paragraph it reads “…..he was back into tax raising (terminating the income tax deduction for state and local taxes paid, which will extract $15.5 million more from taxpayers who itemize). ” My question is –would this proposal apply to both the state income tax and local taxes or just to the state income tax? We itemize our deductions and our local taxes are considerably higher than our Vermont State Income Tax. Your answer on this would be greatly appreciated.
Merle Chilcott
Newport Center VT

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