• Tax contraption
    April 21,2012

    The Legislature is facing the temptation to placate taxpayers by turning the property tax system into a Rube Goldberg-type contraption even more complicated than it already is.

    It’s an example of making a bad decision and then making another bad decision to try to rectify the first one. In place of straightforward decision-making, the proposal under consideration would construct a creaky piece of machinery designed to do the decision-making the ought to be the job of the Legislature.

    The proposal has grown out of an effort to ensure that any budget surplus that state government creates is, at least in part, returned to the taxpayers in a way that reduces property taxes. The need to reduce property taxes came about when the Legislature cut back on the amount of General Fund money that was transferred to the Education Fund.

    General Fund money comes from broad-based taxes, such as the income and sales taxes. Most of the money from the Education Fund comes from property taxes. As a way to ease pressure on the property tax, the Education Fund has always been bolstered by a large contribution from the General Fund, thus using income and sales taxes as alternatives to the property tax. The advantage is that the income tax is progressive and the sales tax includes a sizable contribution from out-of-staters. So when those taxes are used to offset property taxes, then property owners benefit.

    In response to the starving of the Education Fund, the House this year devised a scheme where half of any unanticipated surplus in the state budget would automatically go to the Education Fund. Lawmakers could have decided instead simply to raise the General Fund contribution to the Education Fund, but doing so would put pressure on the state General Fund budget, making life more difficult for the legislators. Instead they decided to engage in wishful thinking: If by extra money shows up, they would have a plan for what to do with it.

    Members of the Senate Appropriations Committee who were working on the state budget decided to go one better. It occurred to them that if the extra money were simply shifted to the Education Fund, property taxes might enjoy relief, but taxpayers might not know it. They wouldn’t recognize what splendid people the legislators were and they would not experience the kind of gratitude that legislators appreciate. So the senators decided that instead of merely lowering property taxes, they would make a show of handing out favors by mailing a rebate check to property tax payers.

    It is a “circuitous” way of returning money to taxpayers, as Sen. Jane Kitchel acknowledged. It requires the establishment of a whole new bureaucratic mechanism to send out $30 checks to tens of thousands of Vermonters.

    Experience tells us that, even if $30 checks magically begin to arrive in the mail, taxpayers would not necessarily see it as a lowering of their property taxes. They would see it as a nice benefit, and then they would look at their property tax bills and wonder why they were so high.

    In fact, if the Legislature wants to ease property taxes, it could make the hard choice to do so: By restoring the money it took from the Education Fund, not on the chance of a budget surplus, but as a yearly practice. The point isn’t to make a show of tax relief, but to provide dependable tax relief.

    Rep. Oliver Olsen, Republican from Jamaica, has suggested any surplus be used as a way to “rebase” the contribution to the Education Fund. In effect, the Legislature used the previous deficit to rebase the contribution downward. Rebasing it upward seems like a good idea. But the Legislature need not wait for a surplus. It could do it any time, without relying on the machinery of a rebate, which would only add a complication to an already complicated system.

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