By John McClaughry
Last week the House passed a bill that raised taxes on the wrong people to support a worthy cause for, in large measure, the wrong reasons.
Back in the 1970s, Vermont’s community action agencies, created to wage the war against poverty, hit upon the idea of weatherizing drafty homes of low-income families. This didn’t defeat poverty, but it improved living conditions. It produced, hopefully, energy savings that the weatherized families could spend on other things. It also allowed the community action agencies to offer low-skill jobs and thus incomes to mostly marginally employed young men with time on their hands.
In 1990, federal anti-poverty funds for weatherization were declining, and Gov. Madeleine Kunin wanted to find some new money to keep the program alive. The result was an act that laid a gross receipts tax on all heating fuel.
When the Senate debated this bill, the advocates said that free weatherization would lower the fuel bills of the poor, and the money they saved would end up in their pockets. The critics observed that a decade of savings (recently estimated at 30 percent of annual fuel costs) could easily finance the weatherization without imposing higher fuel costs on other households and businesses. The advocates prevailed 18-12.
The critics back then presciently observed that tapping a new tax base would inevitably invite partisans of the program to push to increase rates whenever their program felt it needed more money. Of course they were right. In 2016 the tax on heating oil and propane was switched to 2 cents per gallon; the gross receipts base was retained for natural gas (.75 percent) and coal (1.0 percent.)
Now, after three years, the House wants to double the 2 cents per gallon tax rate for heating oil and propane to 4 cents per gallon, bringing in an additional $4.6 million. That would, the program manager says, enable weatherizing 400 more homes, and make the LIHEAP heating assistance funds go further.
Let’s agree that weatherizing drafty homes is a sensible thing to do. After a raggedy beginning in the 1970s, the local agencies have considerably improved the quality of their services. The question is, who should pay for it? All taxpayers? All heating fuel users? Or the people who benefit, paying over time out of their ongoing fuel savings?
The economically sensible solution is to finance weatherization at least in part out of the savings it produces. The VA, FHA and commercial lenders offer Energy Efficient Mortgages that allow homebuyers or refinancers to pay for weatherization out of the resulting energy savings. But the fuel tax advocates want to tax all homeowners and businesses to pay for other people’s energy savings, and let those other people pocket the dollars saved.
The businesses that use lots of natural gas — like OMYA in Florence — rightly see the fuel tax as making them less competitive. Many legislators opposed the fuel tax increase because it’s regressive. Gov. Scott said “It hurts the people we’re trying to help.” Speaker Johnson, though, sidetracked Rep. Cynthia Browning’s, D-Arlington, amendment to put the burden on high income earners — not a good solution, but at least not regressive. The House approved the fuel tax bill 81-60, suggesting that a Scott veto could be sustained.
Lurking behind the fuel tax bill is the compulsion of many legislators to show the world that Vermonters are bravely taxing carbon fuels to combat climate change. Rep John Bartholomew, D-Hartford, told the House that “this is an important bill that begins to address the challenges presented by climate change. … The time to find easy and inexpensive solutions to climate change passed long ago.”
Perhaps the most pungent analysis came from Statehouse Headliner journalist Guy Page: “Many climate-minded legislators seem fixed on remedies that most impact older, rural and low-income Vermonters: fossil fuel divestment of the state’s already challenged pension funds; direct carbon taxation that would fall most heavily on poorer rural Vermonters; subsidizing solar power and electric vehicle infrastructure favored by the wealthier; and now, doubling what fuel dealer Shane Cota calls ‘the warmth tax.’”
Instead of doubling the fuel tax on heating oil and propane and increasing by a third the tax on natural gas, legislators should shelve the fuel tax, leave the menace of climate change at the door, go back to drawing board, and work out something economically sensible that asks the beneficiaries to pay at least part of the cost, and is not a regressive tax on everybody else.
John McClaughry is vice president of the Ethan Allen Institute.