Tax prospects for 2013

Monday December 3, 2012

In just over a month the 2013 legislature will convene, and a large question will as usual be "where will we get the money to pay for all this?"

Administration Secretary Jeb Spaulding has tasked the agency secretaries to submit General Fund budget requests that maintain "current services," and add on any new initiatives separately. Unlike, say, rebuilding the Champlain Bridge, General Fund expenditures just keep rolling on year after year, growing with more people, depreciated dollars, new political demands and governors thinking up new things to spend tax dollars on. Those agency requests are likely to produce a FY2014 "budget gap" of $50-70 million

Five years ago Senate President Peter Shumlin, already marching toward the governorship, repeatedly declared "We are spending too much, and have used up our tax capacity There is no more money in the bank ... We are tapped out."

Since that time Shumlin has nonetheless discovered all sorts of General Fund tax capacity, and proposed or enacted all sorts of new taxes. Here's a partial list: Higher taxes on hospitals, nursing homes, and visiting nurse services; tobacco; electric bills (Efficiency Vermont); health insurance claims; and the $21 million pilfered from the CVPS ratepayers to finance his favorite renewable energy subsidy programs, notably the Clean Energy Development Fund..

This list does not include the $27.5 million "penalty tax" on the Education Fund, because local voters failed to heed the governor's urging to restrain their school budgets. Nor does it include the two cent increase in both school property taxes, to raise the education money to compensate for the penalty tax.

Also urged by Senate President Shumlin, but rejected, were a new "thermal efficiency" heating fuel tax, a "gas guzzler" tax on SUVs and pickups, a tax on milk distributors, a novel "unanticipated profits" tax on Vermont Yankee, and a state cap-and-trade energy tax program.

So the tight fisted Senate leader of 2007 has since found lots more tax capacity, and numerous new ways to spend it, if he can get the bills passed by his hitherto largely compliant legislature.

There is plenty of pressure to accelerate General Fund spending. The entire Vermont labor movement and their many allies, chanting "Put People First," are vocally demanding that state government spend lots more to meet "every person's need for health, housing, dignified work, education, food, social security and healthy environment."

This is clearly impossible, but Shumlin himself has committed to single payer Green Mountain Care in 2017. This will require $3 billion from somewhere, and his hoped-for new Federal funds will surely fall far short of that amount. He also knows well that Vermont's two state-managed retirement funds show an alarming $3 billion gap between promised benefits and expected revenues.

Reducing state spending, aside from completed Tropical Storm Irene repairs, is not an acceptable option for a liberal majority. So where can Governor "No More Tax Capacity" go to find the money to fuel all the state's obligations and his ambitions?

Raising income taxes "on the rich" is not a good bet. The Tax Foundation reported last month that Vermont in 2010 had the 13th highest state and local tax burden, a finding that the Shumlin administration concedes is pretty close to the truth. Taxing the incomes of people who make a lot of money is an obvious stimulus for them to make and spend it somewhere else. Also, Shumlin himself has boasted of reducing income tax rates in 1999 and 2009 (in both cases disproportionately benefiting high income taxpayers, although he never mentions that).

The short list of potential new taxes comes down to some form of carbon tax on fossil fuel energy (proposed by Shumlin in 2008), extending the sales and use tax to services (offered earlier this year by Speaker Shap Smith, who is now backing off), and a General Fund "penalty tax" of up to $276 million on the Education Fund, that translates into higher school property taxes. Green Mountain Care, if and when it happens, will almost certainly require stiff new payroll taxes, so that source can't be tapped now to meet other demands.

Of course the Shumlin administration, staring the facts in the face, could relieve a lot of people by telling them and the union red shirts that 2013 will be the year of "Putting Solvency First." That thought brings to mind that popular Buddy Holly song of 1958, "That'll Be the Day ."

John McClaughry is vice president of the Ethan Allen Institute (


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