McClaughry: Our Tax Capacity

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(Host) As a long-time conservative observer of fiscal policy in
government, commentator John McClaughry expects that debate about our
tax capacity will dominate the coming session of the state legislature.

Very soon now, Vermont’s 2013 legislature will convene, and as usual a
large question will be "where will we get the money to pay for

Five years ago Senate President, now Governor Peter
Shumlin, 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

Since then, in an effort to expand General Fund tax
capacity the legislature has proposed or enacted a number of new taxes.
Here’s a partial list: Higher taxes on hospitals, nursing homes, and
visiting nurse services; tobacco; electric bills; health insurance
claims; and the $21 million diverted from the CVPS ratepayers to finance
renewable energy subsidy programs.

In turn, there’s plenty of
pressure to accelerate General Fund spending. Vermont’s labor movement
and allied organizations, united under the banner of "Put People First",
are vocally demanding that state government increase spending to meet –
quote – "every person’s need for health, housing, dignified work,
education, food, social security and healthy environment."

is clearly impossible, but the Governor himself has committed to single
payer Green Mountain Care in 2017. This will require $3 billion from
somewhere, and any new Federal funds will surely fall far short of that
amount. In addition, Vermont’s two state-managed retirement funds show
an alarming $3 billion gap between promised benefits and expected

So where can the Governor go to find the money to fuel all the state’s current and future obligations?

income taxes "on the rich" is not a good option. 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. Further taxing the incomes of people who make
a lot of money would seem to be an obvious stimulus for them to make
and spend it somewhere else.

So would a new "wealth tax", as advocated by the Vermont Workers’ Center.

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), 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.

A month from now we’ll learn what the Governor has in mind for us.

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