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Prebates

09/18/06 12:00AM By Allen Gilbert
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(HOST) Commentator Allen Gilbert has been listening to the discussions around "prebates." He thinks that a simple concept is being spun into something that it isn't.

(GILBERT) We are once again in a war of words over the property tax refunds called "prebates." The issue is being spun in so many directions that we've lost sight of what the "prebate" system is all about. The system isn't complicated, and it's eminently fair -- despite what politicians are saying. Let me explain.

The state's education finance system was revamped in the late 1990s. At that time, many people felt that using property taxes to fund schools wasn't fair. They argue that property taxes aren't based on your ability to pay, but on the value of your home. And home values can fluctuate -- wildly, as we've seen. A spike in home values pushes taxes higher and higher -- even though your income isn't rising nearly as fast. That doesn't seem right.

Switching to an income tax to pay for schools seemed a good idea, and it was proposed. But Howard Dean was governor at the time, and he was adamantly opposed to any new income taxes. So legislators came up with the idea of adjusting people's property tax bills to their income. The tax would still be called a property tax, but it would be based on ability to pay.

This novel system was called "income sensitivity." But there was a glitch. The bill that your town sent was still based on the value of your home -- which under the new system might not be what you actually owed. How to adjust the bill to your income? The solution was "prebates." Prebates are a tax refund for money that your town collected but that you don't owe.

Governor Jim Douglas and Tax Commissioner Tom Pelham have recently criticized the size of some refunds -- but they haven't mentioned the amount of taxes that the recipients are paying. The important issue here is whether people are paying their fair share of taxes. If they're not, the fault lies with how the state calculates the income on which we pay our school taxes, and from which prebates are calculated. The fault isn't with the prebate system.

The only way that people can beat the prebate system is to hide income -- and then not only are they not paying enough in school taxes, they're not paying enough in state income tax, either. The Tax Department should look into that, and the governor should make recommendations on plugging loopholes. But the tax commissioner and governor shouldn't dismiss the prebate system. The purpose of the system is a good one -- to make sure that we all pay our fair share of school expenses and don't get hammered by some outlandish tax bill based on inflated home values.

Here's the long and short of the picture: Opposing prebates is like agreeing that it's OK for school taxes to rise with home values, with no adjustment for income. Those of us who favor taxes based on income need to stand up for the prebate system. It's really that simple, despite the rhetoric.

Allen Gilbert is a former journalist, teacher, and consultant currently serving as executive director of the ACLU of Vermont.

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