Commentary: The Continual Tax Raising Mania (May 12, 2013)

by John McClaughry (MAY 12, 2013)John McClaughry

“‘Normal’ tax rates are never enough to pay for the Grand Liberal Vision of the majority in Montpelier. Even. Gov. Shumlin has slammed the door on some of the legislature’s more ambitious tax increase ideas.”

As the 2013 legislative session crawls to its conclusion, a lot of Vermonters are probably wondering why the main business of that session seems to have been finding and extracting ever more millions of tax dollars.

First, let’s look at transportation taxes. Unlike most taxes that have a percentage rate, the motor fuel taxes have been levied since 1923 as cents per gallon at the pump. As the Federal Reserve depreciates the value of a penny over the years, the cheaper motor fuel tax pennies can’t keep up with the rising costs of bridge and highway maintenance. So the cents per gallon rates must periodically be raised.

In 2008 the legislature bit the bullet and raised the motor fuel taxes from 20 to 25 cents per gallon. (Regrettably, the additional five cents was buried in a wholesale tax that motorists can’t see.) Since then, high fuel prices have driven down taxable fuel sales, hybrid vehicles are using far less fuel, and deferred highway and bridge maintenance costs are becoming more serious.

So the legislature is raising transportation revenues by changing the traditional method. The new schedule is considerably more complicated, but the net effect is projected to raise $22 million in 2014.

Could this have been avoided? Phasing down Amtrak subsidies ($6 million) and restoring the $29 million of motor vehicle purchase and use tax revenues diverted away from the Transportation Fund in 2004 to subsidize the Education Fund would eliminate the present need for increasing motor fuel taxes.

Next, let’s look at the Education Fund. This legislature has already increased the base residential school property tax rates from 89 to 94 cents per $100 of fair market value, and the nonresidential rates from $1.38 to $1.44. The actual residential school property tax rates are then increased by the ratio of local spending per adjusted pupil to a state-set amount of $9151 (for school year 2013-14).

The rationale for these property tax increases is that local school districts are (collectively) voting too much money, and that the recession has depressed the grand list values of taxable property.

Both are true, but the Fund would be much stronger had the legislature not endorsed Gov. Shumlin’s 2012 snatch of $27.5 million from the Education Fund to pay for more Medicaid. The more serious problem lies in the structure of the school finance laws. School district voters cannot judge the impact of their own spending decisions, because their districts have been financially merged with all other districts under Acts 60/68.

Finally there are the General Fund taxes. Gov. Shumlin has repeatedly said “this is not the time to raise broad based taxes (income, sales, rooms and meals)”. The compelling reason is the looming challenge of squeezing at least $1.6 billion a year out of Vermont taxpayers to finance Shumlin’s cherished Green Mountain Care single payer health plan. It’s pretty clear that the governor is resisting broad-based tax increases now, in anticipation of being forced to announce in 2016 that “now is the time to raise them”.

The bottom line here is that given the present liberal ascendance in Montpelier, taxpayers will continually be asked to pay more in taxes to finance ever more ambitious government. As of two weeks ago, new taxes in play included taxes on satellite television, breakopen tickets, liquor and tobacco, candy, soft drinks, dietary supplements, bottled water, and vending machine food and beverages.

Last Tuesday the governor and legislative leaders agreed on a deal to scrap all of these proposed new General Fund taxes, and balance the budget with $10 million in spending cuts. The agreement featured an amusing announcement by Commissioner of Finance and Management Jim Reardon, that the administration would hire consultants to identify the required savings. Let’s hope they don’t hire the expensive consultants that launched “Challenges for Change”, that almost totally failed.

Last Friday the “no tax” deal collapsed when the legislative leaders insisted on jiggering the income tax schedules to squeeze more from the rich. Shumlin enthusiastically seized the opportunity to be the top bracket taxpayers’ friend, saying “the last thing we should be doing is changing the income tax system on the fly and at the last minute when we don’t need the money.” In a peroration he may soon come to regret, he concluded “We should not raise income taxes, we will not raise income taxes, we must not raise income taxes.”

Despite occasional strategic backsliding like this, the tax raisers are always with us. “Normal” revenue levels produced by “normal” tax rates are simply not enough to pay for the Grand Liberal Vision of the majority in Montpelier. They can’t bear to see their vision fade away for want of money, and they always, urgently, want more.

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

{ 1 comment… read it below or add one }

MJ Farmer May 13, 2013 at 10:47 pm

My VT Gas bill came today and there will be a new added tax starting next month for approx. $1.50/month for the “low income”. Is this tax deductible(forced charity)?

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