Administration Looks To Raise Income Sensitivity Levels

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(Host) The Douglas Administration is pushing for some changes to Act 68 – the state’s education finance law.

But critics argue the Administration’s approach is unfair and represents poor public policy.

VPR’s Bob Kinzel reports.

(Kinzel) The fight is over a part of Act 68 that allows a majority of Vermonters to pay their education taxes based on their income rather than the value of their property – it’s known as income sensitivity.

Households with incomes under roughly $90,000 are eligible to use this approach. Generally, these households pay about two and half percent of their income for their education tax.

For instance, a household with an income of $60,000 would have an education tax bill of about $1,500.

Governor Jim Douglas wants households with incomes between 60 and 90 thousand dollars to pay a higher percentage of their income.

Speaking on VPR’s Vermont Edition, Tax Commissioner Richard Westman said the current policy is too generous and shifts tax burdens to other Vermonters:

(Westman) "You’re shifting onto the business community and other property owners and you’re creating a shift that has a cost…You have to calculate that cost and when one person doesn’t pay another has to." 

(Kinzel) Paul Cillo is the executive director of the Public Assets Institute – a liberal think tank in Montpelier.  He’s one of the architects of the original Act 60.  He strongly opposes the governor’s plan:

(Cillo) "The problem with this proposal that’s going through the Legislature that the governor made is that it raises taxes on middle income Vermonters and lowers them for the wealthiest Vermonters. And that’s the fundamental unfairness with this approach."

(Kinzel) The House several weeks ago passed a tax bill that includes a $425,000 cap on the value of any home using income sensitivity.  Commissioner Westman likes this approach:

(Westman) "If you own a home outright and it’s a million dollar home and you’re getting income sensitivity you’re worth more than I ever will be. And at the base of this we’re talking about ability to pay." 

(Kinzel) But Cillo says the plan is poor public policy because it places too much importance on the value of a house:

(Cillo) "You could have somebody with a $350,000 house or a $200,000 house that also has a million dollars in bonds or stocks or a yacht or a second home in another state. In other words, it’s a question of – if you’re going to do an asset test – what are the assets that you’re going to look at, or are you just going to pick on somebody’s primary residence."

(Kinzel) The cap on the value of a house that qualifies for income sensitivity is now being reviewed in the Senate Finance committee.

For VPR News, I’m Bob Kinzel in Montpelier.

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