Brian Dubie at Northern Power Systems
On Monday, Republican Lt. Gov. Brian Dubie issued his first official policy statement since he began his bid for governor in October 2009. He released his 26-page plan, “Pure Vermont: Blueprint for Job Growth and Economic Expansion,” with great fanfare to a group of business leaders in Barre.
Dubie’s economic development plan sets the stage for the General Election – no matter who emerges the winner among the three Democrats. The recount begins next week following a close five-way primary on Aug. 24. (Sen. Doug Racine, who was the runner up, has asked for the recount; in the meantime, he and Secretary of State Deb Markowitz, who came in third, and Sen. Peter Shumlin, who won the primary by about 200 votes, will campaign together until final results are available.)
The campaign has now been defined for voters as a study in significant contrasts: a choice between two sharply differing policy positions and governing philosophies.
Dubie’s plan radically differs from his Democratic opponents’ ideas. His vision for the state’s economic future is based on Reaganomics 101 (a frequent refrain in his speeches is a paraphrased quote from the Gipper — “the best social program is a job”).
Dubie believes the best way to boost the economy is to reduce taxes. He is proposing a 33 percent cut (from the current rate of 9 percent to 6 percent) in the highest marginal income tax rate for the state’s richest residents, along with graduated reductions for Vermonters who fall in lower tax brackets. He also wants to curb government spending and loosen environmental regulations for development. Vermonters, he says, are overtaxed and over regulated. Dubie suggests that our income-tax-free neighbors in New Hampshire have the ideal tax policy.
Read Dubie’s economic development plan: Pure Vermont
The Democrats — Shumlin, Racine and Markowitz — who issued economic development plans earlier in the summer, have said they want the state’s bureaucracy to become more efficient, but they believe the government must play a key role in the economy to ensure a balanced, humane future for Vermont. They, too, have proposed changes to the state’s regulatory structure, but ones that are less dramatic in scope.
In his plan and in numerous statements from the campaign, Dubie has tried to define the Democrats as big spenders who want to increase taxes willy-nilly.
None of the Democrats, however, has suggested that state benefit programs should be expanded. Nor do they support increases in broad-based taxes, such as income or sales taxes, as a solution to the state’s $112 million shortfall in fiscal year 2012. (Scroll down to “Dubie’s tax relief plan” for more details about the discrepancies between Dubie’s and the Dems’ tax records and plans.)
No one has a better handle on the stark dissimilarities between the two approaches than Dubie himself. “Whether my opponent ends up being Peter Shumlin or Doug Racine, our plans to address the economic challenges that face Vermont could not be more different,” Dubie stated in a recent press release. In that statement, he also challenged his Democratic contenders to 12 debates between now and Election Day, Nov. 2. “I look forward to letting Vermonters decide who they think best represents the interests of Vermont families, workers and job creators.”
There are also some areas of agreement. Dubie and his Democratic rivals all believe Vermonters are tapped out on tax increases. They also hold the same views on the benefits of more energy efficiency, the value of Green branding for Vermont, the need for broadband expansion and the efficacy of improvements to the state’s IT system.
But the Dems and Dubie are divided by a philosophical gulf on more difficult issues. The Dems believe government, on the whole, offers essential services, goods and programs for Vermonters; Dubie takes issue with the efficacy of state government spending, particularly on education and Medicaid programs, which he believes need to be reined in.
Brian Dubie at Northern Power Systems
Here are a few of the policies eschewed by Dems and strongly embraced by Dubie:
*Spending and property tax caps based on a finite, inflexible percentage;
* Widespread government deregulation;
*Mandatory education spending cuts or caps based on the often-disputed assertion there are too many teachers for too few students when the ratios are actually skewed by ever-rising special education teacher needs;
*Income tax cuts for all, regardless of wealth (Shumlin says he would cut income taxes, but he doesn’t see a way to pay for them);
*A significant increase in tax credits for businesses, despite the fact the effectiveness of the Vermont Economic Growth Incentive tax credit program is often disputed by critics. (Skeptics say jobs would have been created with or without tax credits);
*Allowing “master plans” for fast-track development. (A very small percentage of developments are held up by Act 250);
*Shifting resources from K-12 education to preschool and higher ed. (Shumlin would shift money from Corrections to early education);
* Changes in eligibility standards for Medicaid-funded health benefits and strong opposition to government-sponsored health reform, including single-payer. He favors, instead, cost-containment through enhancement of preventive care, hospital coordination and tort reform.
*Unspecified alterations to the current pension system for state workers and teachers.
Dubie paints his vision for Vermont in broad brush strokes, and he often substitutes anecdotes and folksy sound bites for hard data and basic information about his proposal. (“We need economic sustainability and environmental sustainability. When you work in the woods, tapping maple trees, you’re always thinking about the next generation.”)
Dubie says, for example, that he would give tax cuts to “all Vermonters in all brackets,” but his campaign won’t say what the targets are for each of the brackets, with the exception of the top level, which would drop from 9 percent to 6 percent, according to Kate Duffy, his communications director.
One critic said his tax plan, which would significantly reduce the income tax burden for the wealthiest Vermonters, would “cost a fortune.” Dubie doesn’t say what the pricetag would be for the tax cuts. In his speech, he pointed to a chart showing that, as state revenues increase and spending is capped at 2 percent, the difference would be parceled out to taxpayers as an “Automatic Tax Reduction.”
Some of the facts in Dubie’s plan are misleading; others are inaccurate. In a graph he uses to illustrate how he would give back $240 million to taxpayers, he conflates projected tax revenues with state spending. He cites Rhode Island and Maine as states that have 5 percent tax rates for the wealthiest taxpayers. Both states are on a par with Vermont taxwise.
“Growing” state government
Dubie presented his 10-point economic development plan at Northern Power Systems, a high-tech wind generator manufacturer in Barre. Several business owners, including John Danner, CEO of Northern Power, and Burlington-based real estate magnate Ernie Pomerleau, introduced Dubie to more than 100 business leaders who convened on the factory floor.
Dubie said his plan was crafted from conversations with “thousands” of Vermonters “gathered all over this great state.”
Ernie Pomerleau
“We’ve crafted it from you business owners, from you managers, from you employees and George Clain, the members of IBEW,” Dubie told the crowd. “I’ve asked what helps, what hurts, what doesn’t help. I’ve listened to your answers and learned from your inputs. Pure Vermont is my vision drawn from your wisdom.”
Dubie reiterated his No. 1 priority, which is reducing state spending. He repeatedly invoked the name of Gov. Howard Dean as a touchstone throughout his speech. Dubie said his proposal is more palatable than Dean’s plan to level fund the state budget in the early 1990s. Dean cut spending in 1993 by 2 percent and raised it by 2 percent in 1994, effectively level-funding the budget for a three-year period, according to information from the Joint Fiscal Office, a nonpartisan arm of the Vermont Legislature.
“I’m proposing a 2 percent level funding, which our experts anticipate inflation to be something like 1.4 or 1 percent,” Dubie said. “I’m proposing to grow state government, but at a disciplined rate.”
By reining in spending at 2 percent, Dubie said the state can put $240 million into taxpayers’ pockets. However, Dubie cautioned that it would take time to cut taxes for families and businesses. That assertion appears to be borne out by a graph he referred to which ends at fiscal year 2015, when $113 million would be returned to taxpayers. Apparently, the graph would have to be extended into four years or more, to reach the $240 million mark. CORRECTION: The graph indicates that $240 million, cumulative would be saved over three years: 2013, 2014, 2015.
“State spending cannot grow more than our underlying economy without bankrupting our economy,” Dubie said.
Just two and a half hours after Dubie gave his presentation, Shumlin, the presumptive Democratic candidate for governor, and two of his rivals in the primary, Markowitz and Racine, held a press conference. One after another, they disparaged Dubie’s blueprint. They said that it’s impossible to reduce taxes without going into deficit spending. They also said he plans to cut Medicaid, which would amount to a cost shift to Vermonters who have private health insurance and property taxpayers because health care premiums represent 12 percent of school budgets.
Markowitz, Shumlin and Racine, left to right
Markowitz called the proposal, “a George Bush style plan of cutting taxes.”
“While the five of us were listening and talking about how to jump start the economy, Brian Dubie was invisible,” Markowitz said. “Now he’s come out with his plan for his Vermont. He was visible on Web sites for The New York Times, Boston Globe and The Wall Street Journal, saying Vermont is bad for business. That is not the Democratic vision. What we all agree on here is that Vermont is a great place to do business, and we hear that from businesses around the state. We have our challenges, but we also know that we can meet those challenges by focusing on our strengths, not by talking about what a terrible place Vermont is to do business.”
Racine took a slightly different tack. In a play on the Jim=Jobs slogan Gov. Jim Douglas used in his 2002 campaign, Racine said Dubie=Deficits.
“This is make-believe,” Racine said. “The numbers don’t add up, and it shows a real lack of understanding of how state government operates and what it takes to build a strong economy and what it takes to balance a budget. In many ways, it’s an indictment of Brian’s participation, or I should say lack of participation, in state policy and state government over the last eight years.”
Pure Vermont graph
Is a 2 percent cap really growth?
Depending on how you look at it, the 2 percent cap on state spending can look like slow growth or a straightforward cut in state spending – and therefore services.
Under Dubie’s plan, the state would spend $1.245 billion in fiscal year 2015 – $44 million less than it paid for services in fiscal year 2010, including federal stimulus money.
Dubie told business leaders: “We need to keep state spending at affordable levels. In the past two years, our economy has suffered. Income has dropped, and everyone has tightened their belt. State spending has gone up in the past two years 7 percent. Human services spending has gone up 20 percent. Obviously, that’s not sustainable. I propose that we limit the growth of state spending to no more than 2 percent a year, effectively the same rate as our family budgets grow.”
The money Dubie refers to didn’t come from Vermont tax revenues, however; the bump came from the federal American Recovery and Reinvestment Act funding, which was designed to help states provide more benefits and services to workers laid off in the recession. According to figures from the Joint Fiscal Office, state spending increased 1.8 percent in 2009; 5.45 percent in 2010 and 0.7 percent in 2011, including the stimulus funds.
General Fund expenditures over that same period show a pattern of level funding. The state’s budget, not including ARRA funds, was $1.146 billion in 2009; $1.087 billion in 2010 and $1.143 billion in 2011, JFO figures show.
In an interview with reporters, Dubie was critical of the federal stimulus. “When you borrow money from the Chinese and add debt to your children, that’s not sustainable,” he said.
Dubie also insisted that a 2 percent cap is not a reduction in government spending. “I’m not cutting,” Dubie said. “I’m proposing to grow. This is not a cut. This is a 2 percent increase in spending. I’m proposing that we grow government higher than the rate of inflation.”
Economist Jeffrey Thompson, assistant research professor at Political Economy Research Institute at UMass Amherst, said Colorado tried an inflationary cap on state spending, and it’s been “largely panned as a huge failure.”
That’s because inflation goes up at a higher rate than 2 percent for things like fuel, health insurance premiums and other goods and services, Thompson said. In Colorado, the TABOR Law, as it’s called, has so badly restricted the state’s ability to fund higher education and fundamental services, he said, that “they’ve put themselves in a budgetary straitjacket.”
Jeff Thompson
Thompson said such a cap is designed to shrink government over time.
“A 2 percent formula wouldn’t even keep up with inflation,” Thompson said. “It wouldn’t keep up with population growth, and one of the things that we know from what’s actually happened in public state and local expenditures and taxes is that the things we ask government to do, namely educate our children and (provide) health care (to qualified beneficiaries), those are things that have actually grown faster than the rate of inflation.”
There is a common misperception, Thompson said, that state government is a drain on the economy, when in fact it provides essential services and infrastructure and is part of a successful recipe for growth.
Dubie on the budget deficit
The state faces a looming deficit of $112 million in fiscal year 2012 and has committed to $72 million in savings through the Challenges for Change government restructuring effort that have yet to be fully identified.
Dubie’s plan does not propose other solutions to the budget shortfall, nor does it provide guidance on the Challenges for Change process, or suggest cuts in state government for the coming legislative session. The 2 percent cap on government spending would not be imposed until fiscal year 2013, according to “Pure Vermont.”
Instead, Dubie makes general assertions about excessive state spending without specific proposals for cuts. Those details, he says, will be part of a “conversation” with the General Assembly in January. Even when pressed by reporters in a 12-minute briefing, he reiterated the same key phrases four or five times. (See Vtdigger.org’s article “More time, sir? Um, probably not.”)
Dubie says revenue growth in fiscal year 2012 would be used to reduce the $112 million deficit. The state’s consensus revenue forecast is for a $15 million increase in tax receipts – about $100 million short of the mark.
Shumlin has proposed cutting $40 million from the Department of Corrections budget and adopting a single-payer health care system to fill the budget gap. Racine would look for efficiencies that can be gained through upgrading the state’s IT (computer) systems, use $30 million of the rainy day funds and introduce targeted sales taxes on junk food or Internet merchandise. Though Markowitz is critical of Challenges for Change, she has suggested she would eliminate or upgrade outdated state programs.
Dubie’s plan for reining in spending
Dubie said his budget-tightening targets would be health care and education, though he didn’t offer specifics on how those areas of state spending would be reduced. He also wants to make changes to the government subsidized pension system for teachers and state workers.
“We’re going to have to look everywhere,” Dubie said. “There is a perfect opportunity to find savings as our student numbers decline. There’s a significant number of retirements with our teachers, many of which entered the profession in the Vietnam era. There are going to be a lot of layoffs, a lot of long-distance opportunities, global classroom, all kinds of innovation for us to manage the retirements, manage the fact that our student populations are decreasing, and this is a great place to start the conversation.”
Dubie on education
Dubie said Vermont’s student enrollment has dropped 12 percent (a loss of 12,500 students over 10 years from a high of 108,000, and school spending has increased more than 70 percent. The state’s student population is expected to decline by an additional 8,500 students, he said.
In the blueprint, Dubie said education spending should “grow even more slowly (than inflation) given the ongoing decline in our school-age population.”
He proposes a “commonsense cap” on per-pupil spending and property taxes. He also wants to dismantle Act 60, Vermont’s state-aid-to-education formula. In addition, Dubie is an ardent proponent of school choice.
“Voters in Massachusetts passed a cap 30 years ago, and even the Democratic candidate for state of New York Andrew Cuomo is proposing a 2 percent cap,” Dubie said. “Vermont needs to find a reasonable way for a cap to be imposed, and I look forward to that conversation.”
He said he also wants to create a cabinet level Secretary of Education who would be appointed by the governor and be under direct control of the administration. The commissioner of the Department of Education is currently selected by the State Board of Education and has a certain degree of autonomy.
Dubie on Medicaid
Another major target for the budget knife in a Dubie administration would be Medicaid.
Dubie told Louis Porter of the Vermont Press Bureau on Aug. 1 that eligibility standards for Medicaid spending must be changed. (Medicaid money is used to pay for the state’s suite of subsidized health care programs, such as Dr. Dynasaur, Catamount Health and VHAP, under Green Mountain Care.)
Dubie said he will look at spending by government subsidized nonprofit groups, such as the “designated agencies” that provide regional mental health and developmental disabilities services. In the interview with Porter, he said his administration would examine the operational spending and salaries of these organizations, along the lines of Tiger Team cost-saving proposals developed under the aegis of Tom Pelham, a deputy secretary in the Douglas administration.
“These organizations have developed responding to a need. I greatly appreciate the work they do, and I would involve them in any solution,” Dubie told the Vermont Press Bureau. But “all of us must acknowledge we are going to be forced to do things more efficiently and more effectively.”
Thompson, the professor from UMass, says cutting Medicaid is “deeply troubling” in the current economic environment.
“Medicaid spending is one of the things that brings in the most federal dollars,” Thompson said. “It’s heavily matched. If you cut Medicaid dollars, you’re going to be taking far more money out of the state and that’s an absolute job killer. I think anyone proposing a move that’s going to lose that much in federal dollars is basically telling you they want to reduce employment in the state.”
Dubie on state pensions
Dubie also wants to “address major pension liabilities.” He says the combined “unfunded pension liability for state employees and teachers in retirement is in excess of $2 billion.” He pegs the annual cost to state government at $100 million a year. Though his plan doesn’t include specifics, he references the recently negotiated pension deal with Vermont teachers as a model for state employees.
The total unfunded pension liability over the next 25 to 30 years is actually $1 billion, according to Jeb Spaulding, the state treasurer. If you add in state contributions for retiree health care costs, however, Dubie’s figures are correct, according to Spaulding.
Jeb Spaulding
Last year, the state paid $48.2 million into the teacher retirement system and $37.2 million into the state workers’ pension system. Health care payments to teachers were $20 million; contributions for state workers were budgeted at $27 million. Health care is a “pay as you go” obligation; the pensions are, in fact, a long-term unfunded obligation.
Spaulding, a Democrat who supports Shumlin, said he thinks Dubie’s plan is a “pretty thoughtful document.”
“I think he’s right to identify retirement plans, including retiree health care as a challenge for this state,” Spaulding said. “Retirement security is a huge issue nationally. I think he’s right. There are things that need to be done. I personally believe that we’ve made very significant reforms in teacher retirement and health care, and we don’t need to go there again for several years.”
The state’s teachers agreed to work longer and contribute more to their pension plans this year. Spaulding hopes to renegotiate health care and pension benefits for state workers this fall.
“Accounting standards have changed now, and health care is part of our unfunded liability,” Spaulding said. “For the teachers, we made pretty significant revisions in pensions and retiree health care.”
He said until this year, the state paid 80 percent of the health care costs for teachers who had worked in the system for 10 years for the rest of their lives. Now that figure is 40 percent after 15 years of service.
Dubie’s tax relief plan
Dubie has made taxes his signature issue. He proposes an “Automatic Tax Reduction” for taxpayers that would be tied to the gap between increasing revenues as the economy recovers and the cap on state spending.
He told reporters that he would be looking at tax-rate reductions for “all Vermonters in all brackets.” Dubie cited 6 percent as a target rate for the marginal income tax rate for the highest bracket tax filers. A married couple, filing jointly, for example, that earns more than $372,950, currently pays a marginal rate of 8.95 percent on the first dollar after $372,950, according to the Department of Taxes. Dubie proposes a 3 percent drop in that top tax tier, and graduated reductions for the four brackets fall below it. (Income above $56,700 is currently taxed at the 3.55 percent rate; income above $56,700 is taxed at 6.8 percent; income above $137,050 is taxed at 7.8 percent; income above $208,850 is taxed at 8.8 percent and anything over $372,950 is taxed at 8.95 percent.)
The effective rate — or the amount the average tax filer who earns more than $372,950 pays on adjusted gross income (before deductions) — is 5.4 percent. The effective rate for a Vermonter earning more than $1 million is 5.3 percent. (Editor’s note: This section has been updated to clarify the impact a tax reduction would have on wealthy filers. It also includes new effective rate information from the Vermont Department of Taxes. For a complete listing of rates, the number of tax filers in Vermont and download 2008 Vermont Personal Income Tax Returns — Dollars, the effective rates are the percentages in the far right column.)
Download a listing of Vermont tax brackets
Dubie’s campaign said the four lower tax-bracket rates – 3.55 percent, 6.8 percent, 7.8 percent and 8.8 percent — would be reduced proportionately.
The cuts are necessary, Dubie said, because the states of Maine, Rhode Island, and Massachusetts have a 5 percent income tax rate. Maine’s top rate, however, is 8.95 percent, and it is applied to tax filers who earn as little as $19,750. Rhode Island’s top rate is 9.9 percent, and, similar to Vermont, it’s applied to people who make $372,950 in income annually. Perhaps he meant to refer solely to Massachusetts, which has a flat tax rate of 5.3 percent. Duffy wrote in an e-mail that Dubie is not, however, proposing a flat tax.
Download a PDF of tax rates listed by state
“We’ll still have a higher income tax than our neighbors in New England,” Dubie says. “New Hampshire has zero income tax, so it’s a goal, and this is a great opportunity to say that’s not going to happen overnight. It’s going to take time. It’s going to take time to have that conversation about how we can get there.”
Dubie’s plan also references a 2.5 percent property tax cap imposed by voters in Massachusetts 30 years ago, and quotes The Wall Street Journal saying “this move helped the state drop its ‘Taxachusetts’ stigma.”
According to Dubie, the state saw no decline in student achievement as a result. He also cited a recent campaign promise from Democrat Andrew Cuomo, who is running for governor in New York State, that places a 2 percent cap on property taxes.
“Vermont must explore commonsense caps on property taxes and per-pupil spending as one of the many measures needed to fix the broken system of education built on the Act 60 framework,” Dubie said.
Of the Democrats, only Shumlin is proposing that the state consider changing the top rate for the 1 percent of Vermonters with the highest incomes. Like Douglas and Dubie, he worries about taxpayers in the richest tier, who contribute 25 percent of the state’s income tax revenues, leaving the state, according to his economic development plan.
Shumlin presided over the Senate when the state lowered income taxes in 2009 and passed a $26 million tax increase, which included the removal of a 40 percent capital gains tax loophole.
” The truth is that in the last 8 years, Brian has overseen significant tax increases,” Shumlin said in a press release. “The sales tax was increased from 5 percent to 6 percent and by supporting the budget veto, Brian endorsed increasing property taxes on Vermonters by almost $100 million. In the Senate, I helped pass 3 major reductions in income taxes, lowering the top marginal rate from 13.5 percent to 8.9 percent and led the effort to reduce the sales tax from 6% to 5% and eliminated it completely on clothing and shoes.”
Racine voted against a bill in 2009 that lowered income taxes for all tax brackets and increased estate and capital gains taxes by $26 million in 2009. Shumlin presided over the Senate when the bill was passed. He negotiated with Gov. Jim Douglas to reinstate the loophole this year.
In a press release, Racine said, “it was the wrong package.” He has said he would look at targeted taxes — a sales tax for merchandise sold on the Internet or a junk food tax.
As Secretary of State, Markowitz has not been involved in tax policy decisions.
So, do tax cuts in a recession really boost state economies?
Not really, says Thompson, the economist from Political Economy Research Institute. But it’s a tough question, in his view, because tax cuts come at a cost and most states are required to balance their budgets. (Vermont doesn’t have to balance its budget by law, but it does so in practice.) On the other hand, freeing up capital in a downturn economy is also important, he said.
“You want to be encouraging in a downturn where people are holding onto their money because they’re not sure about the economic environment, where firms aren’t hiring because there isn’t sufficient demand,” Thompson said. “You want people to spend. When you raise taxes on households they’re going to spend less, but the issue here is that because of the balanced budget requirement also spends less when you cut budgets. So it’s a tough call, and at the end of the day, it’s the judgment of myself and a lot of other economists, that it’s worse to cut state budgets if those taxes are targeted to affluent households. Why is that the case? It’s the case because the state spends everything it gets within the state. Affluent households save a lot of money and what they do spend is based on things produced outside of the state. So the actual short-term impact on the state’s economy is going to be worse if you cut the state budget than if you are sustaining state spending by raising taxes on affluent households.”
State Treasurer Spaulding disagrees. He said the state needs to consider tax breaks for the richest Vermonters because of their mobility.
“We need to make sure we’re competitive,” Spaulding said. “I think in Vermont it’s the combination of all of the expenses … income taxes and property taxes (that are a problem).”
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“Dubie wants to shrink state government, dole out tax breaks” reads the head line.
I’ve alway been so uncomfortable with this line of reasoning.
“[Doling] out tax breaks” implies that it’s governments’ to give. That one’s labor and the fruits of one’s labor is owned by the state, and it is the state that will decide how much to “dole” out to its earners; to its citizens.
It’s disturbing, to say the least.
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“Dubie cited 6 percent as a target rate for the highest bracket income tax filers, who earn more than $372,950 (married filing jointly) and currently pay an effective rate of 7.6 percent.”
Not sure if this is a quote from Mr. Dubie or from the reporter. In any case, according to the Vermont Tax Department, it’s inaccurate. The figures for 2008 (latest available) show the following effective tax rates:
5.2% $300,000 – $499,999
5.8% %500,000 – $999,999
5.2% $1,000,000 or more
If Mr. Dubie’s target is 6%, he can declare victory and move on to something else.
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“His vision for the state’s economic future is based on Reaganomics 101 (a frequent refrain in his speeches is a quote from the Gipper — “the best job is a social program”).
Out of the mouths of babes. Talk about revealing.
Not sure if this is a quote from Mr. Dubie’s challengers or from the reporter. In any case, this is the accurate quote:
“I believe the best social program is a job.”
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Yes, Tom that was my lulu of a mistake. Thanks for the catch. Anne
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Current data states that about 13% (ca. 1 in
Vermonters receives food stamps, and I think it is safe to assume that the percentage of children is higher. Therefore, it leads me to believe cutting tax rates would likely reduce funds for those most in need, (but least able to contribute to whistlestop campaign funding) at the same time he proposes cutting tax rates for those who can most easily afford to contribute.
Meanwhile, I believe Jim Douglas gets to narrate campaign ads stating that Dubie will cut taxes for those Vermonters who are struggling the most. Really?
Do you think that Dubie represents the average Vermonter? I don’t.
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Editor’s note: Tom Pelham is a deputy secretary of administration under Gov. Jim Douglas.
The above article reviewing Brian Dubie’s economic development plan affirms that Jeb Spaulding is a person of integrity. Even though Jeb supports Peter Shumlin for Governor, he remains fair and open minded in his assessment of Dubie’s plan and its value to Vermonters. At one point, he calls it a “pretty thoughtful document”. At another regarding retirement plans, Jeb state’s “I think he (Dubie) is right”. Still again, regarding tax burdens, he aligns himself with Dubie’s view on tax competitiveness by stating, “We need to make sure we’re competitive. I think in Vermont it’s the combination of all of the expenses … income taxes and property taxes (that are a problem).”
Otherwise, with regard to facts and fairness, as they say, the article is “not so much.”
Here are a couple of significant factual deficiencies:
• Anne writes: “By reining in spending at 2 percent, Dubie said the state can put $240 million into taxpayers’ pockets. However, Dubie cautioned that it would take time to cut taxes for families and businesses. That assertion appears to be borne out by a graph he referred to which ends at fiscal year 2015, when $113 million would be returned to taxpayers. Apparently, the graph would have to be extended into four years or more, to reach the $240 million mark.”(emphasis added)
But Anne’s math excludes the tax savings profiled for 2013 and 2014 totaling $127 million. Add this to the $113 million in 2015 and lo and behold….it all adds precisely to $240 million in taxes “returned to taxpayers” without extending the graph four years or more. Just as Dubie’s plan states.
Further, Anne writes: “Dubie doesn’t say what the price tag would be for the tax cuts. In his speech, he pointed to a chart showing that, as state revenues increase and spending is capped at 2 percent, the difference would be parceled out to taxpayers as an “Automatic Tax Reduction.” Yet, the “price tag” is fully disclosed in both the narrative and graph in his 10 point plan. It’s the very same $240 million. Brian Dubie is proposing $240 million in tax savings to Vermonters between 2013 and 2015 by keeping spending growth at inflation (2%) relative to the consensus revenue forecast agreed to by the Administration and Legislature. It’s that simple. For 2012, Dubie is proposing to direct every dollar of the projected $84 million revenue increase to cover current and on-going spending commitments now supported by one-time federal stimulus funds.
• Anne writes: “He is proposing a 33 percent cut (from the current rate of 9 percent to 6 percent) in the highest marginal income tax rate for the state’s richest residents, along with graduated reductions for Vermonters who fall in lower tax brackets.” Later she writes, “Dubie proposes a 3 percent drop in that top tax tier, and graduated reductions for the four brackets fall below it.”
But, the Dubie Plan says, “I propose to cut income tax rates in all brackets. Regardless of the income level, all Vermonters deserve a break. To help make Vermont more competitive with other states, we must aim to lower the top rates to the middle of the pack, from the current 9% to between 6-7%.” (emphasis added). So, we can now see that the Dubie plan is flexible. Maybe the top rate cut will be to only 7% should the consensus revenue estimate be too optimistic for example. An article as lengthy as the one above which twice profiles the proposed income tax bracket cuts should present the facts accurately at least once out of the two separate efforts to describe the proposal.
• Anne challenges Dubie’s proposal to constrain school spending by describing Dubie’s proposed spending caps as “based on the often-disputed assertion there are too many teachers for too few students when the ratios are actually skewed by ever-rising special education teacher needs” The facts are that Vermont has the highest, bar none, pupil to teacher ratios and pupil to staff ratios among the 50 states, exceeding national averages by over 30%. All states are subject to the same federally mandated special education regulations. Given this, it’s impossible to conclude that Vermont’s ratios are “actually skewed by ever-rising special education teacher needs” especially when the proportion of children in Vermont’s schools in special ed tracks the national average.
There are other factual miscues in Anne’s article but let’s move next to the narration.
Anne writes: “This is make-believe,” Racine said. “The numbers don’t add up, and it shows a real lack of understanding of how state government operates and what it takes to build a strong economy and what it takes to balance a budget. In many ways, it’s an indictment of Brian’s participation, or I should say lack of participation, in state policy and state government over the last eight years.”
A nice sound bite to be sure, but easily researched context to the above would have been good reporting. Nowhere during the kumbaya among the primary candidates and some in the press is Doug’s record relative to fiscal responsibility presented. Doug Racine was a leader in the Vermont State Senate during the Kunin/Racine years when state spending grew at annual rates at well over 10% until the state budget ended up in the fiscal ditch with a $65 million deficit. Since that era, we’ve had recessions in 2001 as well as the current one. Before these recessions and during them, Governor’s Dean and Douglas, adopted and more importantly applied the principles of sustainable spending and Vermont survives these recessions in much better shape than other states. To the contrary, Doug Racine has a long and sorrowful record of supporting the types of excessive spending that inevitably destabilize state’s finances and puts in jeopardy the state’s ability to deliver important public services. Vermont’s fiscal woes hit rock bottom in 1990 and 1991 following the Racine era spending spree and not until 1996, due to the fiscal discipline of the Snelling and Dean administration’s, did Vermont regain its fiscal footing. Mr. Racine, however, avoided this difficult period as he left the Senate from 1992 to 1996. In my view, Racine owes Vermonters an apology for the fiscal pain he helped create while a state senator in the 1980’s.
Anne also allows the following from Peter Shumlin: “In the Senate, I helped pass 3 major reductions in income taxes, lowering the top marginal rate from 13.5 percent to 8.9 percent and led the effort to reduce the sales tax from 6% to 5% and eliminated it completely on clothing and shoes.” Well, as Finance Commissioner in the Dean Administration and Tax Commissioner in the Douglas Administration I recall it all a bit differently. For example, the elimination of the sales tax on clothing and shoes was part of the legislation implementing the Streamlined Sales Tax, a Douglas Administration proposal to join with other states to cause internet retailers to collect state sales taxes the same as our Main St. retailers do. And yes, this interstate compact required the elimination of the sales tax on clothing and shoes, as Peter states, but it also required the imposition of the sales tax on beer, which neither Peter nor the VtDigger reveal. This trade-off between clothing, shoes and beer was geared toward keeping the streamline sales tax “revenue neutral”. In other words, no net tax increase and no net tax cut.
More generally, with every election, the partisanship seems to escalate and further mask informative dialogue. For example, Deb Markowitz calls Dubie’s plan, “a George Bush style plan of cutting taxes”. Yet, both she and the VtDigger fail to remind voters that the Douglas-Dubie Administration encouraged the Streamlined Sales Tax legislation which is now embraced by our federal Senators and Representative. It’s the Douglas-Dubie Administration who brought reforms such as the Unitary Combined Corporate Income tax to Vermont which closed a major loophole that benefited large multistate corporations, saves Vermont based corporations millions annually and allowed Vermont to lower our corporate income tax rate and enhance our competitive tax profile. It was also the Douglas-Dubie Administration that pursued a large multi-state bank all the way to the state Supreme Court to collect over $6 million in unpaid bank franchise taxes. And twice, the Douglas-Dubie administration submitted legislation to close the capital gains loophole in Vermont’s income tax which, now that the legislature has finally adopted this reform, has allowed Vermont’s income tax rates to be lowered. But, in the face of this substantial record of accomplishment, which clearly is other than “George Bush style” Markowitz and VtDigger diminish themselves by focusing on political sloganeering rather than substance.
VtDigger will better serve its readers by presenting the facts and a contextual reference that fairly profiles the men and women who would be Governor.
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What vtdigger reported in this article:
“He also wants to curb government spending and loosen environmental regulations for development.”
Vs. what Lt. Gov. Dubie intended:
“He also wants family’s to keep more of what they earn and loosen economic development regulations for job creation.”
An important distinction between “environmental regulation” and “economic development regulation” needs to be recognized and made in the state of Vermont. The former is far too often used to thwart the latter.
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Mr. Pelham attempts to skewer Senators Racine & Shumlin for fiscal irresponsibility but left out something important.
He said “Vermont’s fiscal woes hit rock bottom in 1990 and 1991…and not until 1996, due to the fiscal discipline of the Snelling and Dean administration’s, did Vermont regain its fiscal footing.”
Mr. Pelham neglected to mention that Gov. Snelling worked with the legislature to develop a balanced approach to the problem and included a temporary tax increase, which Howard Dean accepted and saw to the end.
So I guess it wasn’t just “fiscal discipline.” It was that plus new revenue, which Jim Douglas and Brian Dubie refuse to consider.
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Mr. Pelham wants us to applaud the Douglas-Dubie administration for the Unitary Combined Corporate Income tax and the (partial) closure of the capital gains loophole. He tells us that it allowed us to lower corporate and personal income tax rates, which he suggests has made us more competitive.
But if we dare to challenge the assertion that it was necessary or beneficial to lower the tax rates, we come to a very different conclusion. For by lowering these taxes, the state foregoes revenue. In doing so, the state has less to spend. Later, Jim Douglas tells us that these are tough times and we must “live within our means.” But the tax cuts have effectively reduced our “means” so our only choices are to lay off state workers and cut programs.
Presto: It’s a Grover Norquist Christmas.
The notion that every advance in state tax policy must be matched with a corresponding tax cut for the wealthy is a recipe for reduced services and greater income inequality.
Forgive me if I don’t applaud.
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This Dubie guy is scary, really scary. We have been following these policies that he outlines here more or less for thirty years and all we have got to show for it is the Great Recession and no jobs because they’ve all been shipped overseas somewhere. Dubie will do the same.
Doug: thanks for the facts you presented to counter Dubie’s assertions. It has always been interesting how Douglas-Dubie have told us to live within our means and then kept reducing our means.
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In response to Mr. Hoffer’s 2 comments below:
Some find validation for their predisposed position to raise taxes rather than constrain spending growth by pointing to Gov. Snelling’s decisions in the early ‘90’s as Mr. Hoffer does below. But, here’s what Senator Diane Snelling said in June to Bob Kinzel of VPR about such assertions:
(Diane Snelling) “I just need to correct the record here. So many people have said to me, ‘Oh, Diane, your father did this. He raised taxes temporarily.’ Well, the situation is, in my opinion, extremely different. When in 1991 the overall tax burden was something in the neighborhood of 6 percent, we’re now over 9 percent. And the circumstance is totally different. The world is very unpredictable and much more global than it was in ’91.”
So let’s take a look at what Governor Snelling faced in comparison to today.
The following general fund spending amounts immediately preceding the 1990 election of Governor Snelling are from the official record – Vermont’s Comprehensive Audited Financial Report – for the respective years.
FY Year Spending % Change
(in millions)
1985 $364.50
1986 $386.70 6.09%
1987 $433.10 12.00%
1988 $492.40 13.69%
1989 $577.30 17.24%
1990 $589.10 2.04%
Given that inflation during this period was in the vicinity of 4.5%, increases in spending totaling $225 million over such a short period were as extraordinary as they were irresponsible. Doug Racine was a State Senator during this entire period and could have chosen a different path. But he didn’t. And when the 1990 recession came, the ground was laid for a tough time for all.
Given the spending momentum built during the Kunin/Racine era, Governor Snelling’s back was against the wall. A $65 million deficit loomed, equal to over 12% of the operating budget, the Rainy Day fund was small and of little consequence and our credit worthiness was in question. One cannot over night remedy the level of fiscal irresponsibility crafted from 1985 to 1989. He had no choice but to raise taxes temporarily. One lesson reinforced for many of us by that era is not to repeat the mistakes of the past.
There were a number of hardy spirits who jumped in to fix this fiscal mess. Both Governor’s Snelling and Dean deserve high praise for the vision and the backbone to make the tough calls. I’ve seen Howard Dean cut budgets and fire staff who wandered from his fiscal directives. Certainly Snelling’s and Dean’s 5th floor staff along with then Treasurer Jim Douglas and Mike Smith were all part of the solution as were the folks at AHS, the major cost center, such as Con Hogan, Jane Kitchel, Nancy Clermont and Jim Reardon among many others. It was a grueling few years but working together and in good faith it was a successful period with many unsung heroes. These years were also quite bi-partisan. Jim Douglas and Howard Dean collaborated, especially on debt financing and bond ratings. I recall one wild ride to scheduled Wall St. meetings between Dean and the rating agencies through a near blizzard with Mike Smith in the car behind keeping pace. We worked with Republican’s like Bob Gannett and John Carroll in the Senate, Walt Freed in the House as well as brave (and good humored) centrist Democrats lead by Mike Flaherty.
And while there were many hard choices that had to be made in the 1990 – 1996 period, possibly the best reward for this work was when the next recession in 2000 hit Vermont. Because of the culture of fiscal discipline developed during the decade of the 90’s in response to the excesses of the late ‘80’s, those dependant on state services, especially at the Agency of Human Services, were not whip sawed by fiscal instability as they were in the prior recession. Vermonter’s moved through the 2000 recession relatively unscathed.
Governor Douglas and Lt. Governor Dubie are solidly within the tradition of fiscal prudence developed in Vermont over the past 20 years. As Governor Douglas exits, and unlike what Governor’s Snelling and Dean were handed, he leaves a budget that is balanced, Rainy Day funds that are full, a bond rating that is the best possible and cautionary words on spending excesses such as in the Education Fund.
So, when I see folks like Mr. Hoffer evoke the heritage of Governor Snelling, the first thought that comes to my mind is the famous debate between Lloyd Bentsen and Dan Quayle, with Mr. Hoffer standing in for Dan Quayle.
Mr. Hoffer’s second comment regarding Unitary Combined is also an empty vessel. Hoffer says:
“For by lowering these taxes, the state foregoes revenue. In doing so, the state has less to spend. Later, Jim Douglas tells us that these are tough times and we must “live within our means.” But the tax cuts have effectively reduced our “means” so our only choices are to lay off state workers and cut programs.”
But again, not true…….a completely fictionalized thread of events.
The Governor’s proposal in 2004 to transition Vermont to Unitary Combined reporting in starting in 2006 for Vermont’s corporate income tax was explicitly designed to be revenue neutral. Mr. Hoffer can check the record on this at the Tax Department or listening to the testimony tapes of the House Ways and Means Committee or maybe simply by asking Steve Klein at the JFO. The strategy agreed to by the Administration and Legislature was to close this unfair loop hole benefiting large multi-state corporations and use the revenue raised to lower the corporate rate, a benefit to Vermont based corporations. The net effect shifted more of the burden onto multi-state corporations, lowered the burden on Vermont corporations (and their employees) with the result of revenue neutrality. In fact, the first full year of implementation of unitary combined reporting affected fiscal year 2008 when corporate tax receipts grew by 2.4%. The effect of Mr. Hoffer’s approach of keeping Vermont’s corporate tax rates unnecessarily high would be to unnecessarily punish Vermont based corporations and their employees.
Whether or not Mr. Hoffer holds his applause regarding unitary combined is of no consequence as unitary combined reporting passed the legislature in 2004, with a unanimous vote in the Senate. (Check it out, Act 152). My guess is that if Mr. Hoffer was a bit less knee jerk in his approach and researched this matter more thoroughly he would agree with the Governor and Legislature that more fairly spreading the corporate tax burden by closing a loop hole benefiting multi-state corporations while reducing the burden on Vermont based corporations is a good thing – both fair and reasonable.
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I have seen several Dubie supporters complain when anyone refers to the present administration as Douglas/Dubie. I can only assume Mr. Pelham is trying to paint a picture of guilt by association when he refers to Kunin/Racine years. We have seen the results of eight years of Jim Douglas’s agenda, and Brian Dubie has promised more of the same. Laying off hundreds of state workers while privatizing public services out of state and country, while making across the board cuts to government and social services is not making hard choices. When your agenda is slashing government it’s the easy thing to do.
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Very interesting.
In Mr. Pelham’s view, it’s OK to raise taxes in order to help close a budget deficit created during a Democratic administration but it’s not OK to raise taxes to help close a budget deficit created during a Republican administration.
Other matters
Mr. Pelham said “The Governor’s proposal in 2004 to transition Vermont to Unitary Combined reporting…for Vermont’s corporate income tax was explicitly designed to be revenue neutral.”
That was exactly my point. Jim Douglas took a good idea (unitary combined reporting) and insisted that the price for this improvement in state policy was a cut in other taxes.
But there was no need for the corresponding cuts that made the deal revenue neutral. Mr. Pelham’s assertion that “The effect of…keeping Vermont’s corporate tax rates unnecessarily high would be to unnecessarily punish Vermont based corporations” is completely without foundation.
There was no evidence that Vermont businesses were being “punished” and there is no such evidence today. And if the rates were not unfair, there was no need to cut them. And by cutting them we reduce revenues (unitary combined reporting produced new revenue that was promptly given away).
It is noteworthy that the prospect of new revenue normally leads to discussions about how to allocate the new resources. In almost every instance when Jim Douglas has proposed changes to the tax code that would result in new revenue, he has insisted that the money be used to reduce taxes to benefit primarily large businesses and/or the wealthy. That is one way to allocate resources but certainly not the only one. But he has invariably made it a condition of his support (as with the capital gains loophole).
So it was not the usefulness of Unitary Combined reporting that I was questioning (quite the contrary, I referred to it as an advance in state tax policy), but the continuing fiction used to justify offsetting tax cuts.
Finally, Mr. Pelham’s suggestion that the Snelling tax increases were justified because of the fiscal situation in the early `90s conveniently ignores some changes since that time. The aggregate earnings of those who earned over $200,000 in 1990 were 8% of total instate income. By 2008, those earning over $200,000 represented 21% of all instate income. Moreover, on average their effective tax rate had declined from 5.4% to 5.2%.
Thus, high-income folks have benefitted disproportionately during the last few decades (growing income inequality and lower effective rates for the wealthy are hardly secret). Now that so many Vermonters are hurting, it’s not inappropriate or unfair to ask those who’ve done well to contribute a little more (as Dick Snelling did). Clearly, Mr. Pelham and Brian Dubie disagree.
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The economic proposals of the only two candidates that the Vermont media are allowing the public to hear, ignore the $1.2 billion/year in corporate welfare maintained by the Vermont Legislature, and the $1.5 billion a year Vermont’s pro rata share of Washington DC’s funding for wars and occupations.
Vermont needs to hear some NEW ideas, not the same old one slightly leftist, one slightly rightist, but both firmly entrenched in the dogma that more government intervention in the economy is a good thing. Firmly fearful of economic freedom in a free Vermont.
Why are the Vermont media preventing these ideas from being heard? Just tonight I was at the VPR gubernatorial debate. They locked the Independent candidates out, even had police there to ensure that they stayed out. Dennis Steele was there in front of the station, but locked out, his voice silenced. He has fresh new ideas, why is he locked out? Emily Peyton has concrete monetary reform and fiscal policy alternatives. All locked out.
On the radio the debate began. Rehearsed words, not even the candidates’ own. Their hearts weren’t even in it. These candidates stand for nothing at all. It sounded exactly like Soviet kommissars back in the day… pretending to debate, wearily reciting on the radio their old lessons from Nauchniy Marxismus-Leninismus.
Again: Why?
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“it’s not inappropriate or unfair to ask those who’ve done well to contribute a little more (as Dick Snelling did). Clearly, Mr. Pelham and Brian Dubie disagree.”
Thanks, Doug: It’s even scarier to read Dubie’s ideas on hollowing out the safety nets and the health care programs, such as they are, so that the rich can have a little more and us a little less, with the state being plunged into even more serious debt because of it. These guys really are out to take everything that they can.
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>>> Walter Carpenter: the rich can have a little more and us a little less, with the state being plunged into even more serious debt because of it. These guys really are out to take everything that they can. >>>>
Greed is not Brian’s aim, though I do believe it is the aim of some of is corporate sponsors, such as Monsanto.
Brian Dubie and most of Vermonters supporting him want the best for all of us, just like you and I do. They believe by lightening government’s load on the economy, we all can prosper. In their minds and public discourse, they minimize the destructive impact of greed and corruption, whereas I think these are public enemies #1 and #2.
So where you see “them” taking it all, they see more for everyone. Where you see safety net, they see freeloaders abusing the safety net, with the government stealing their earnings to fund heroin addicts like the one I saw in Montpelier yesterday, who collects $672/month from the government for a “medical” condition (he got a dollar from me).
Brian and other conservatives believe people are not really helped when they are supported by overly generous government funding, and they have a point. Perhaps you saw that Cuba is cutting 500,000 government jobs, privatizing swaths of their economy, due in part to the negative impact of government bureaucracy upon worker productivity. Even Cuba’s only labor organization said:
“Our state cannot and should not continue supporting companies” and other state entities, “with inflated payrolls, losses that damage the economy, which are counterproductive, generate bad habits and deform the workers’ conduct.” (http://www.nytimes.com/2010/09/14/world/americas/14cuba.html?_r=1&scp=2&sq=cuba&st=cse)
Brian and his supporters recognize that, as a whole, people rise to challenges and sink to safety nets. It is not greed that drives their view. They are not trying to take it all. They have a point and the left in Vermont never seems to acknowledge it. Brian Dubie is as much an ordinary Vermonter as any.
As for Monsanto’s support for Brian, that is a problem. Where Brian would see people sinking into a generous safety net, you and I see Monsanto and its Wall Street capitalist priests sucking life out of ordinary citizens. In other words, you and I have legitimate concerns about rapacious capitalism that conservatives dismiss. The problem with legitimate conservatives like Brian Dubie and most of his supporters is they are allied with an evil empire that wants everything for itself.
Brian’s challenge is to bridge the legitimate foundation of conservative work ethics with the fairness you and I know our society lacks. To do that, he will have to cut ties with the radical greed wing of the Republican party.
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Hi. I would like us to think about a new way to control taxation, and for the record, i believe that the wealthy often need to contribute more, why ? Because accumulation of sums, vast sums above a comfortable life style describes a person with a hording disorder, and lack of compassion. What we need is a growth of compassion, and abundance. We can have that!
My answer to our deficit is to begin a wall street sales tax, there is one already in place in NY which is a tiny tax on the trading of hedge funds and derivatives. In NY , while they have been collecting many billions of dollars for years ( in VT it would be less) , they have been REBATING it. I feel thats an illegality waiting to be proven. By levying a wall street sales tax we can pay down the deficit, and we can discourage this type of behavior somewhat.
WE are talking about creating the banking structures here in Vermont to benefit Vermont.
Merchants Bank, is one of the few VT owned Banks. We have credit unions, and I am encouraging them to think about partnering with an online Common Good Bank that puts the citizens who deposit as the people who make loan policy decisions and the people who spend the profits, which are much higher than a credit union. As a collective the people of Vermont communities will decide the future investement for their communities. This puts importat control into the people’s hands and away from the too-big-too-be personal corporations. It is our free speech in action. Thats why it is very important to include me in the debates.
I have been focusing this aspect of my leadership, although there is more depth and spread of my beneficial approaches, because, until I have the podium to share this, which is so , so important, there is really no reason to go into other matters.
A State Bank, and a VT Credit card ( pollina’s idea) would return dollar to our own treasury that are now benefitting wall street. The bank of Vermont would not negate other commercial banks, it would act as a whole sale bank, a secondary lender. However, i urge everyone to remember that thousands upon millions of dollars are needlessly leaving the state through Banking with outside banks. TD Bank, People’s Bank, etc, let alone Bank of America.
Also, buy Vermont. Lets stop putting a sales tax on Vermont products sold in Vermont.
I don’t have time, i am sorry to cover again now my VUE plans, though this is vitally important to the benefit of low-wage workers and to return value to the state from those who are on state assistance/entitlement.
Thank you for your help by reading these, understanding them and moving these plans forward. I can only try to give you faith that we should have, these plans are really our future.
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“What we need is a growth of compassion, and abundance. We can have that!”
Compassion, in America? What? It’s all about non-compassion to the helpless
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I agree and disagree.
AGREE
The United States economy has been subjugated by selfish interests of a tiny minority. To that minority, people are resources to exploit, compassion plays no part, it is all about dog eat dog. Main Street is being destroyed by their addiction to money and power organized to soak everything out of ordinary people under banners of meritocracy and survival of the fittest.
DISAGREE
However, Brian Dubie wants to grow compassion and abundance as much as anyone. The debate with Brian is over how to accomplish this. Brian is absolutely not “all about non-compassion to the helpless.”