Commentary: Tax Raising Mania Sweeps Montpelier (March, 2105)

by John McClaughryJohn McClaughry

Crunch time is rapidly approaching in Montpelier. The pressing problem is finding at least another $112 million to fill a General Fund budget gap for 2016.

This high-tension exercise requires finding new money from Washington, looting account balances within state government, and pushing spending into a following fiscal year. When those options have been exhausted, the legislature is then faced with either reducing state spending on less strongly defended programs, or even terminating programs altogether.

The first of these means either shrinking program benefits, or, more commonly, shrinking   the workforce without reducing the work. The second – well, it’s hard to recall a state-funded spending program that was actually terminated.

At crunch time, these options become increasingly threatening to the affected interest groups. More and more the cry is heard to get more money from the least organized group – the taxpayers.

So we have the Vermont State Employees Association urging an income tax increase on their definition of “the rich”, to keep all of the union’s members on the job. But the past three governors – two of them Democrats – have resisted urgings to hit up “the rich” in the hope of squeezing out more revenue.

At the top of the list of new taxes is Gov. Shumlin’s proposal for a new state payroll tax. At first he pegged the tax rate as 0.70% (which his official web site continues to show as “one seventh of a percent” – as if .700 = .143.)

The rationale for this tax is to increase the state’s payments to Medicaid providers, which are now in the 50% of cost range. This, he argues, will reduce the “cost shift” to private insurance premium payers. This “cost shift” has steadily worsened since 1996, when Gov. Dean’s chose underpaying Medicaid providers as a relatively undetectable means of making the privately insured shoulder the cost of the publicly covered.

There is no guarantee that the revenues from a new payroll tax would reduce private insurance premiums. Shumlin’s plan would raise $190 million a year, with the 54% Federal match, but much of that revenue would be diverted into other health-related spending.

The House Health Care Reform Committee has proposed a half as large payroll tax, plus a 24 cents a can tax on sugar-containing soft drinks. This latter tax is supposed to deter obesity, a highly unlikely outcome. (Among the sugar products exempt from the proposed tax: maple syrup and candy, chocolate milk, Ben & Jerry’s Ice Cream.)

The proposal includes repealing the $17 million Catamount Health assessment levied on businesses that do not offer health insurance. Catamount Health is of course now gone, but as usual the tax levied to help pay for it lives on. The tax is not likely to be repealed, because businesses that do offer health insurance are staunchly supporting its continuation as a penalty on their competitors.

Many state taxes have started small, but once established they were jacked up step by step, and almost never is a tax actually repealed.

From its inception in 1970, the 3% sales and use tax rate was increased to 5% in 1991, and then scheduled to sunset back to 4% in mid-1993. Three weeks after the sunset Gov. Dean called a special session to reinstate the 5% rate and extend the sunset. In 1997 the sunset, not the tax hike, was repealed.

In 2008 the legislature levied a “Health Care Information Technology Investment Fee” of 0.199% on health claims to finance health information systems. In 2011 Gov. Shumlin persuaded the legislature to quintuple the tax rate to 0.999 % and use the revenue increase for other purposes.

About the only tax ever completely repealed, in my experience, was the poll tax, interred forever in 1978.

Last week 32 House members introduced two bills to impose a “carbon pollution” tax on gasoline, diesel, heating oil, propane and natural gas. The leading bill (H.412) starts off with a tax of $10 per metric ton of carbon, increasing to $100 per ton in the tenth year.  The proceeds – after a ten percent skim off to VPIRG’s favorite renewable industrial complex – are supposed to be used to lower other tax rates and increase subsidies for weatherization , or given back to the poor like food stamps to compensate them for being taxed to defeat “climate change”.

The carbon tax bill will not move forward this year, so it can’t produce a revenue stream to close the 2016 budget gap. But if it is ever enacted, you can bet that the revenue stream will be diverted to other state spending.

In every budget crunch, the campaign-year mantra of “living within our means” is invariably beaten back, and legislators seize upon new taxes to pay for increased state spending. Even if the new taxes yield small revenues at first, there will always be the opportunity to jack them up, to support the ever growing state.

– John McClaughry is vice president of the Ethan Allen Institute (


{ 1 comment… read it below or add one }

Jeanne Norris March 16, 2015 at 4:04 pm

And then there was the gas tax, supposedly used to keep our roads in better shape! HA! guess that is now being used for a different purpose also!! No one is talking much about it! I also wonder if we held off on the Free PreShool for all how much of a difference that would make in the budget shortfall in this State! come on, can’t we just reserve that till we are in a better position to afford it?? Kids have survived this long without ot. Parents are the best teachers for their own kids anyway, it that not one of the benefits of having kids in the first place? Not shoving it off to the taxpayers to foot the bill.


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