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Livingston: Reconsidering tax reform

10/08/09 7:55AM By Judy Livingston
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(HOST)  Not so long ago, many people thought that "tax reform" meant taxes would go down. Commentator Judy Livingston has been thinking about why things haven't quite worked out that way.

(LIVINGSTON)  The 1997 Brigham Decision handed down from Vermont's Supreme Court resulted in Act 60. To legislators, it became that kind of hopeful cross-your-fingers-behind-your-back-and-pass-the-legislation-fast move. But education is not, nor can it be, completely equitable, address the high standards we want for our kids and be inexpensive to boot. In fact, costs have gone through the roof and property taxes go up to pay for them.

The state Education fund expenditures have increased by 23% and school budgets by 32% since 2005 - but those are the obvious drivers. Under the radar, are other programs we pay for out of that battered fund - that are also skyrocketing:  The tax rebate program reimburses residents who earn less than $85,000 per year, any amount they owe above 3% of their income - and currently costs us $153 million per year. The Current Use program that offers a lower tax rate to owners of undeveloped acreage now costs $34.6 million per year. Both programs have increased 36 % since 2006!

And here's one you may not be aware of - the Tax Increment Finance or TIF program. Designed to encourage commercial health in particular areas, this program allows towns to set up an education tax free zone. Burlington, a good example, has their valuable waterfront property enrolled in a TIF. Property taxes from that district are therefore collected by Burlington to be plowed back into their infrastructure and improvements. As the assessments rightly adjust upward, more tax-free dollars are available and the area flourishes and attracts investment from the private sector, which produces attractive and lucrative development - a nice thing for Burlington, Rutland, Milton, and other towns that have the wherewithal to launch the program. Before Act 60 when towns kept property tax dollars for their own use, commercial development would be equally advantageous to others - but the way things are now, every TIF becomes another exemption from the State Ed Fund, and the rest of us have to backfill.

Considered on its own, this program works well. I am customarily pro-business. I realized early on that Vermont desperately needs a stable and predictable tax base - one that doesn't rely heavily on residents and I applaud the efforts of the legislature to offer towns the means to nurture a vibrant business climate. But in order to justify broad based tax support for the economic vitality of just one area, the benefits must be clearly greater than local. If not, it's an unfair tax. Act 60, the complicated attempt to repair old taxing inequities has simply resulted in new taxing inequities.
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