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Lured by a simpler plan

04/29/03 12:00AM By Allen Gilbert
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(Host) A new school funding law seems headed for approval in Montpelier. Commentator Allen Gilbert examines some important ways that the proposal shifts taxes.

(Gilbert) Has a "solution" been found to the vexing issue of school finance? Will the "consensus plan" under discussion in Montpelier fix things? Maybe. But I'm surprised at how little public discussion there's been around the long-term consequences of the "fix."

The new plan seems to meet the equity requirements of the Brigham decision. A penny on the tax rate in one town will supposedly raise the same amount of money per pupil as a penny on the tax rate in any other town. That's equity, for kids. And that's good.

However, when it comes to equity for taxpayers, the plan may fall short. The "consensus plan" promises tax relief - but the relief comes at a cost. And the cost will fall more heavily on some taxpayers than on others. Under the plan, property tax rates will drop in most towns. That may or may not mean lower property tax bills for homeowners - it depends on a family's income. But sales taxes will rise - for everyone. We'll all pay more when we buy a toaster or a washing machine. Since a sales tax is by its nature regressive, poor and middle-income folks will have to dig deeper into their pockets to pay the tax than the wealthy.

What's the fuss about a regressive tax, you might ask. Aren't property taxes regressive? Usually, yes. But the framers of the current school funding law, Act 60, accomplished an impressive feat. By setting up the prebate system, they turned the regressive property tax into a progressive income tax for 80% of Vermonters. Unfortunately, that's not evident to most people. People worry that rising home values will send their school tax bills through the roof. The reality is that income, not home value, is the biggest factor in determining what they owe.

I see another tax shift within the new "consensus plan." It's a shift in tax burdens between "classes" of property. The plan sets a fixed rate for nonresidential properties - businesses and second homes. That rate won't rise, unless the Legislature intervenes to change it. In effect, the plan grants tax stabilization to all nonresidential property in the state. If school budgets rise, only residential property owners will see their tax rates go up.

Long-term, the gap between these rates could become vast. Whether the fixed rate for nonresidential property would ever be adjusted upwards would depend on the political muscle of businesses and second-homeowners.

You'd never know about these tax shifts, listening to the political rhetoric about the "consensus plan." Defining fairness has become so complex that most of us seem to have given up. So when something that seems simpler comes along, we jump at it - even though tax burdens are shifted in important ways. I'm afraid that we're focusing on the spare change in our pockets when we should be focusing on the bills in our wallets.

This is Allen Gilbert.

Allen Gilbert of Worcester is a writer and parent who is active in education issues.

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