1-20-15 – The Impact of the 007 Solution

Posted by Wendy Wilton

Governor Shumlin is proposing to moderate the cost shift of Medicaid and Medicare by implementing a 0.7% payroll tax to be paid by employers.  The soonest this tax can be implemented would be July 1, 2015 if the legislature agrees to his proposal.  The governor expects this tax to raise about $90 million from the state’s annual payroll of $13 billion in wages earned by Vermont’s 300,000 workers, including those who work for the state.

Typical of Mr. Shumlin proposals, it sounds good at first but a closer look at the details reveals the devil in the mix.

First, the Green Mountain Care Board will be approving health insurance rates this spring for calendar year 2016 enrollment before such a tax proposal can be approved by the legislature.  This makes it impossible to incorporate new revenues into the rate review.  Employers would possibly be paying this tax in July without any economic benefit until calendar year 2017.

Second, the cost of the employer tax will fall heavily on Vermont’s property tax and income taxpayers for public employees who work for federal, state and local government to the tune of $16 million or 18% of the total anticipated employer revenues.

The tab for the payroll tax for the state employees will be about $2.8 million based on a $400 million payroll, $5.9 million for the state’s teachers and other Pre-k to 12 educational employees, based in a payroll of about $850 million, and $2.1 million for the state’s municipal employees with a payroll at $311 million.  The payroll tax for the state employees will have to be found in the state’s general fund and payroll tax for school and municipal employees will fall on the shoulders of the property taxpayer.  Altogether that’s $11 million to be collected from the state and local coffers that must be raised by tax dollars, somehow, as the legislature struggles to close a $94 million budget gap.

For my community, the City of Rutland, this is $73,000 for the municipal employer and  $200,000 for the school that is not in either FY 2016 budget.  These amounts represent wages and benefits for four full time employees. Any government entity, including the state, will need to decide if they will cut positions or raise taxes to pay the tax.

Federal employees working in Vermont earn about $441 million annually resulting in a payroll tax of $3 million which will fall onto those who pay federal taxes (I know that includes me).  Vermont’s state’s colleges and university payrolls will yield about $2 million, which will increase their budgets and boost tuition and state funding requests.

The legislature and the Shumlin administration knew when they passed Act 48 Medicaid and Medicare enrollments would increase and this would result in lower reimbursements overall, worsening the cost shift.  They also know that nearly 1 in 5 Vermont employees works for local, state or federal government resulting in tax increases to fund a payroll tax. It would be more honest and fair if the governor and legislature would scrutinize the state budget and find $90 million in cost savings to make up for their poor financial decisions of the past.  If the governor and legislature had not increased the state budget beyond the rate of economic growth in the last few years the money would be available in a surplus to provide the reimbursement support that is badly needed without a new tax.

Wendy Wilton is the Rutland City Treasurer and a member of the Ethan Allen Institute Board of Directors. 

{ 5 comments… read them below or add one }

Dan January 20, 2015 at 2:41 pm

Wendy…to be clear…are you saying that this is effectively a double tax? The first tax is the .7% tax on private employers’ payrolls. The second tax is one needed to pay for the .7% payroll tax on state/town employees. Since a town budget is fixed with no profit margin to cover the tax increase, individual taxpayers will have to cover the increase.

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Wendy Wilton January 20, 2015 at 9:15 pm

That’s correct, the government employer will need to raise taxes or cut something else I order to pay the payroll tax at 0.07%.
The state is crafting its budget now, and would be able to incorporate the payroll tax burden into that document, but towns and school districts are done or nearly done their budget setting to have it warned for town meeting day vote.
Crazy, right?

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Dan January 21, 2015 at 6:38 pm

Indeed.

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Jim BUlmer January 24, 2015 at 9:54 pm

Asking the legislature to trim fat and eliminate costly well intended feel good projects is asking for a miracle. These folks do not understand that repeating the same process over and over and expecting a different result is one definition of insanity.

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Dick Trudell January 26, 2015 at 2:32 pm

Isn’t it time for the Legislature to start listening to Wendy. She was “spot on” in the healthcare fiasco we are all paying for. It time for some common sense to creep into Montpelier. I have a novel idea – why not look for ways to cut State spending instead of ways to raise more taxes to increase State spending. I wouldn’t mind a little less control over my liberty.

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