Tuesday February 5, 2013

John McClaughry

Gov. Shumlin's 2013 budget address had some unusually peculiar features. One was his recommendation to strip the state's supplementary Earned Income Tax Credit of two thirds of its funding ($17 million) and use the money to expand day care subsidies.

One could argue that the state EITC, which pays as much as $1,885 a year to a working family with three children, on top of $5,891 provided by the Federal EITC, is excessive. Such criticism has usually come from conservatives, not from those of Gov. Shumlin's political persuasion.

One plausible rationale for the proposed funding shift is this one: EITC families use the credits as they choose to meet whatever expenses they face (along with a host of other subsidies for food, housing, Medicaid, etc.). Day care subsidies, however, are directed by the government to day care providers, who are currently the target of a union organizing effort. Better have the money flow to your political friends, rather than allow low income families to make their own choices.

Then there's the governor's proposal to tax break-open tickets used by all kinds of nonprofit and patriotic organizations to fund such programs as American Legion baseball, plus of course, the organizations' club houses.

This new target of the state's tax power follows a long list of innovative tax ideas embraced by Peter Shumlin. He began with a proposal for enormous increases in income tax rates to avoid an increase from four to five percent in the sales tax (1991, failed).

As a senator, Shumlin bought into a flood of new-tax ideas. The two state education property taxes of Act 60 (1997). The tax on everybody's power bill to finance Efficiency Vermont (1999).

The "heating fuel savings charge" to finance a "thermal efficiency utility" (2007, vetoed). The gas guzzler tax on pickups, vans and SUVs (2008, not passed); the tax on milk distributors to pay for more dairy price fixing (2009, not passed); the "unanticipated profits tax" on Vermont Yankee (2007, not passed); increased provider taxes on hospitals, nursing homes, and visiting nurse services (2011); increased liquor and tobacco taxes (2011); and a new health insurance claims "assessment" (2011).

This list doesn't include the Shumlin-engineered $27.5 million "penalty tax" on the Education Fund, levied because local voters failed to heed the governor's urging to restrain their school budgets (2011); the $21 million Shumlin contrived to pilfer from the CVPS ratepayers to finance renewable energy subsidy programs (2012); or the increases in the two statewide education property taxes in part to compensate for the penalty tax (2012, with more scheduled for 2013.)

It also doesn't include the heating fuel tax currently being proposed by a Shumlin task force to finance another version of his beloved "thermal efficiency utility." Nor does it include increased motor fuel taxes, which most everyone agrees will be necessary to rebuild our transportation system after Tropical Storm Irene.

It would appear that there's not much more left to tax, but our creative governor has found something: a tax on breakopen tickets sold by nonprofit organizations.

There's no strong reason why this form of gambling ought to be immune from taxation. Where the proceeds of breakopen ticket sales end up is murky. The nonprofits who sell them usually do good works, such as American Legion baseball and patriotic observances. But so do businesses that make profits that are taxed.

Still, taxing nonprofits selling breakopen tickets does seem like something of a desperate effort to scrounge up ever more state revenues. In this case the purpose of the new tax is not very convincing: to subsidize higher-income homeowners to install solar PV panels as their contribution to the governor's quixotic campaign to defeat the Menace of Global Warming.

Interestingly, it took Peter Shumlin 22 years to come around to favoring the taxing of breakopen tickets. That proposal, ardently promoted by House Ways and Means chair Oreste Valsangiacomo (D-Barre City), was furiously debated in 1991-92. The bill containing the tax passed the House, but the Senate refused to approve the tax provisions.

Rep. Shumlin (D-Putney), in his first full House term, opposed the tax. But of course, back then he wasn't obsessed with constantly finding more tax dollars for the Clean Energy Development Fund. 

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).