By Don Keelan
In early February, the Vermont Tax Structure Commission delivered its final report to the Vermont Legislature. The 184-page report was authored by Deb Brighton, a land use and forestry expert; Stephen Trenholm, a CPA and high-net-worth tax advisor; and Bram Kleppner, a CEO and strong zero fossil fuel advocate. In late 2018, they were appointed by the Legislature and the Scott administration to “develop long-term recommendations to help make the State’s overall revenue system more fair, more sustainable and simpler.”
As far as long-term recommendations, the commission was not kidding. Some parts of the report, dealing with climate issues, extend to the year 2070. Now, that is a long way off.
The report discussed income taxes, estate taxation, property taxes, and sales taxes. For now, I will only cover the report’s recommendations on sales taxes.
A good part of the report pertains to macroeconomic issues as well as social issues. The authors note that the Vermont economic landscape will change dramatically and that the present tax structure is inadequate in raising sufficient revenue.
According to the report, the Covid-19 pandemic will be overcome but not its economic fallout. It is forecasted that there will be a devaluation of commercial real estate due to many closing businesses, curtailed retail shopping, and employee remote working. Not to mention, Vermont’s ultimate conversion to electric vehicles (a topic from my previous articles) that will have a significant impact on the State’s revenue source from taxation of gasoline and diesel fuels.
The report authors looked to mitigate the loss by recommending a vast broadening of the sales tax base (an idea suggested in the Blue Ribbon Tax Commission in 2007) to include close to another possible 150 consumer spending areas.
Not everyone spends money for veterinarian services, legal and accounting services, or even for hiring a plumber or electrician. Still, those who do could be looking at paying a sales tax on such services if the Legislature adopts the Commission’s recommendations.
The Commission contends that broadening the tax base could reduce the sales tax rate from its present amount of 6% to 3.6%. As a long-time student of taxes, I don’t believe the rate of 3.6% will be around long before it is raised to 4% and higher in the not-too-distant future.
I took the liberty of seeing what impact the change in the sales tax base would have on my household. It was no surprise; there would be a $450 net annual increase if the base were to include haircuts, home heating fuel, lawn and snow services, plumbing and electrical repairs, and even my favorite apple pie. I don’t have a dog anymore, so no vet services.
The state of Vermont needs to have a tax system that is fair, equitable and simple. The state requires revenue, and the Commission’s report addresses this. What is not dealt with is how the state works the issue’s other side — spending. Where is the report among the plateau of this year’s published reports that explains how the state can reduce spending?
A classic example that is discussed but lacks action is education. How is it possible that we are approaching $2 billion to educate a PreK-to-12th-grade school population that has decreased by over 30% in the past 10 to 15 years (another 2,600 student decrease this year alone) when the cost was about one half of what it is presently?
Another area of out-of-control spending (and the state doesn’t even know how much is being spent) is the non-state entities that conduct business that the state would customarily do. A good example is Efficiency Vermont. The 350 employee plus nonprofit collects over $90 million from electric users. According to its most recent tax filing, it has an executive team of a dozen or more people, each earning more than $150,000 per year.
Yes, it is time to take a comprehensive look at our State’s revenue-generating sources, but let’s not ignore the other side — spending.
Don Keelan writes a bi-weekly column and lives in Arlington, Vermont.