Originally printed as an editorial in the Times Argus on May 31st
Legislators next year may be presented with an idea that could ease property taxes, bolster school funding and bring greater fairness to the state’s tax system. It all has to do with the tax advantage now enjoyed by wealthy property owners in Vermont.
An idea promoted by Sen. Anthony Pollina found its way into legislation earlier this year, calling for a study by the Legislature’s Joint Fiscal Office. Depending on what the JFO study finds, the Legislature may have a road map toward greater fairness in education funding.
The Legislature designed the present education funding system nearly 20 years ago to remedy the gross inequities existing in money available to the towns of Vermont. Property-rich towns had abundant education revenues, even at lower tax rates. Property-poor towns had inadequate funding even at high rates.
The new system correcting those inequities contained a bargain allowing wealthy people a specific tax advantage. In order to cushion the burden of property taxes for the middle class, the law allowed people with incomes under $90,000 to pay property taxes based on their incomes. Under the new law the family would not have to pay more than 3 percent of their incomes in education taxes.
People making more than $90,000 were allowed to escape this new provision. That’s, because at higher income levels, taxpayers tend to pay less on their property if they are paying on their property’s value, than if they are paying on their income.
Pollina noted that numbers from the Tax Department show that people earning between $300,000 and $400,000 tend to pay about 2 percent of their income in education property taxes. People earning $500,000 tend to pay about 1 percent. People earning $1 million pay about 0.5 percent.
Meanwhile, support for education from the general fund has fallen from about 40 percent to about 19 percent, placing a greater burden on property-tax payers, particularly middle-class taxpayers.
The JFO is looking into the notion that those upper-income taxpayers pay on the value of their property or 3 percent of their income — whichever is more. Pollina estimates this change would produce about $80 million in new revenue.
The Legislature’s recent education reforms have been prompted in part by an uproar about property taxes. The Legislature has refused to acknowledge its role in causing higher taxes, instead shifting the burden to towns, forcing them to enact reforms that few believe will actually save much money.
Meanwhile, awareness of galloping economic inequality has shifted focus to the ways that the tax system allows special tax breaks to wealth taxpayers, while heaping greater burdens on the middle class. Pollina has pinpointed one way the education funding system is perpetuating inequality. It remains to be seen if the Legislature is willing to learn the lessons of Bernie Sanders’ so-called political revolution.
Despite the gains in equity achieved through Vermont’s education funding system, other inequities remain. It has become increasingly evident that poor cities and towns, where taxpayers are hard-pressed to pay even a low tax rate, suffer, not so much from town-to-town inequities, but from the limits created by their own poverty. For the state to direct resources to poor communities to help schools bring high-quality education to children from struggling families, is a way to bolster economic and community development in Vermont. Thus, $80 million in new education revenue from upper-income taxpayers would help the state address the needs of communities where education is the key to progress.
Wealthy taxpayers sometimes express a sense of entitlement, as if they expect kid-glove treatment because the gross amount they pay is higher than what other people pay. That higher payment masks the fact that the rate they are paying coddles them in a way that middle-class taxpayers are not coddled. The Public Assets Institute in Montpelier has shown that upper-income taxpayers pay less in total taxes as a percentage of income than middle-class taxpayers — despite our notion that we employ a progressive system that asks the wealthy to pay a greater share.
The JFO study ought to shed some light on the reality of who is asked to pay what to support our children in school.