House committee proposes income tax for education

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(Host intro) The House Ways and Means Committee is backing a bill that would dramatically change how Vermonters pay for education.

The residential property tax for education would be eliminated and replaced with a new income tax surcharge.

As VPR’s Bob Kinzel reports, the legislation faces some major hurdles.

(Kinzel) The committee has been studying this issue for more than six months. And by a vote of 8 to 3, members of the panel have decided to find out how much support there is for the plan across the state.

Here’s how it works. A base income tax rate of just under 2 percent would replace the current statewide residential property tax for education.

A town’s income tax rate would be tied directly to the amount of money it spends on its schools. Renters would be held harmless under this plan.  They would pay the new income tax, but then they’d receive a credit for these payments when they filed their taxes.

Ways and Means Chairman Michael Obuchowksi thinks it’s a fair way to raise money for education.

(Obuchowski) "People have been telling us they want to pay their property taxes on the basis of income and this is clean and it doesn’t rely on property tax adjustments. It’s a just rate that is increased according to the amount that people spend that they have to pay. It’s very simple."

(Kinzel) Obuchowski describes the bill as "a work in progress."  He wants his committee to hold public hearings on the plan in the coming weeks.

He acknowledges that it’s a complicated bill to pass this year. But he does see a scenario where it could come into play.

(Obuchowski)"I think that if school budgets run into a great deal of trouble, the odds on this bill moving forward this year improve considerably. I don’t want to see school budgets go down. But if they should because of local circumstances and decisions that local boards make, then we have something in waiting." 

(Kinzel) Governor Jim Douglas doesn’t like this approach.  Douglas says the income tax is an unstable revenue source and he’s concerned that tax burdens will rise if steps aren’t taken to control school spending.

When Act 68 was passed several years ago, the sales tax was increased by 1 percent to help reduce property tax burdens. Douglas says that tax relief didn’t last very long.

(Douglas) "The strategy of attempting to shift tax burden from one source to another didn’t work or didn’t work for more than a year or two. And that ought to be a very clear and convincing lesson to policymakers now that simply shifting the burden to the income tax or some other source is not going to provide the kind of relief that Vermonters expect and need."

(Kinzel) One of the complaints about Act 68 is that the income sensitive provisions of the law apply only to a house and two acres of land.

Chairman Obuchowski says one of the benefits of the new bill is that all residential property, regardless of the size, will be exempt from the statewide education property tax. He says this part of the legislation will make it more affordable for Vermonters to hold on to their property in the future.

For VPR News I’m Bob Kinzel in Montpelier.

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