Should Vermont education funding come from income or property taxes? - WCAX

MONTPELIER, Vt. (WCAX) - A new report from Vermont lawmakers might change how the state pays for its schools, using income taxes instead of property taxes.

The idea has been kicked around before. Legislation aimed at educational equity got the ball rolling last year, but until now, nobody has dug into the details to see whether it could be done.

Vermont’s school funding formula is complex. Local voters decide whether to pass school budgets on Town Meeting Day. That money comes from the $2 billion statewide education fund, which is funded through sales and property taxes.

“We vote directly on our school budgets, unlike the rest of the state budget, we are making this decision in the moment of how much to tax ourselves to support our schools,” said Stephanie Yu of the Public Assets Institute.

This fall, a bipartisan group of lawmakers explored the feasibility of funding schools entirely through income taxes instead of property taxes. Some 70% of Vermonters already pay based on income.

The report found that if enacted, lower- and moderate-income Vermonters would pay a smaller share than the state’s top earners.

“As any parent knows, fair is frequently in the eye of the beholder,” said Sen. Ann Cummings, D-Washington County.

Cummings says there are questions about how making the switch could affect Vermont’s general fund.

“We know we are going to be asked to make a major investment in child care. Can we do that and make the switch to an income tax?” Cummings said.

Property taxes are more stable and predictable, especially during economic downturns.

And there’s the question of tax flight. The top 2% of earners pay 36% of all income taxes.

“If some number of them left the state because of something like this, that would be a big hurt on the general fund which funds a lot of programs that help Vermonters,” said Rep. Scott Beck, R-St. Johnsbury.

But supporters say making the switch would make education funding simpler and fairer, and would help voters understand the consequences of their town meeting votes.

“The key is making it as straightforward for voters as possible, so when you go in on Town Meeting Day, you know what’s going to happen to your tax rate based on the vote you’re making,” Yu said.

The idea of switching to an income-based ed fund has been explored for years following the passage of Act 60 in the late 1990s. But lawmakers say last year’s work on school funding equity reignited the conversation.

The report didn’t recommend whether the state should or shouldn’t switch to an education income tax. That’s a long-simmering conversation among lawmakers which will resume next week when the session kicks off.

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