McClaughry: Tax prospects for 2013

Editor’s note: John McClaughry is vice president of the Ethan Allen Institute. www.ethanallen.org.

In just over a month the 2013 Legislature will convene, and a large question will as usual be “Where will we get the money to pay for all this?”

Administration Secretary Jeb Spaulding has tasked the agency secretaries to submit General Fund budget requests that maintain “current services,” and add on any new initiatives separately. Unlike, say, rebuilding the Champlain Bridge, General Fund expenditures just keep rolling on year after year, growing with more people, depreciated dollars, new political demands, and governors thinking up new things to spend tax dollars on. Those agency requests are likely to produce a FY2014 “budget gap” of $50-70 million.

Five years ago Senate President Peter Shumlin, already marching toward the governorship, repeatedly declared, “We are spending too much, and have used up our tax capacity. … There is no more money in the bank. … We are tapped out.”

Since that time Shumlin has nonetheless discovered all sorts of General Fund tax capacity, and proposed or enacted all sorts of new taxes. Here’s a partial list: Higher taxes on hospitals, nursing homes, and visiting nurse services; tobacco; electric bills (Efficiency Vermont); health insurance claims; and the $21 million pilfered from the CVPS ratepayers to finance his favorite renewable energy subsidy programs, notably the Clean Energy Development Fund.

This list does not include the $27.5 million “penalty tax” on the Education Fund, because local voters failed to heed the governor’s urging to restrain their school budgets. Nor does it include the two cent increase in both school property taxes, to raise the education money to compensate for the penalty tax.

Also urged by Senate President Shumlin, but rejected, were a new “thermal efficiency” heating fuel tax, a “gas guzzler” tax on SUVs and pickups, a tax on milk distributors, a novel “unanticipated profits” tax on Vermont Yankee, and a state cap-and-trade energy tax program.

So the tight fisted Senate leader of 2007 has since found lots more tax capacity, and numerous new ways to spend it, if he can get the bills passed by his hitherto largely compliant Legislature.

There is plenty of pressure to accelerate General Fund spending. The entire Vermont labor movement and their many allies, chanting “Put People First,” are vocally demanding that state government spend lots more to meet “every person’s need for health, housing, dignified work, education, food, Social Security and healthy environment.”

There is plenty of pressure to accelerate General Fund spending. The entire Vermont labor movement and their many allies, chanting “Put People First,” are vocally demanding that state government spend lots more to meet “every person’s need for health, housing, dignified work, education, food, Social Security and healthy environment.”

This is clearly impossible, but Shumlin himself has committed to single payer Green Mountain Care in 2017. This will require $3 billion from somewhere, and his hoped-for new federal funds will surely fall far short of that amount. He also knows well that Vermont’s two state-managed retirement funds show an alarming $3 billion gap between promised benefits and expected revenues.

Reducing state spending, aside from completed Tropical Storm Irene repairs, is not an acceptable option for a liberal majority. So where can Governor “No More Tax Capacity” go to find the money to fuel all the state’s obligations and his ambitions?

Raising income taxes “on the rich” is not a good bet. The Tax Foundation reported last month that Vermont in 2010 had the 13th highest state and local tax burden, a finding that the Shumlin administration concedes is pretty close to the truth. Taxing the incomes of people who make a lot of money is an obvious stimulus for them to make and spend it somewhere else. Also, Shumlin himself has boasted of reducing income tax rates in 1999 and 2009 (in both cases disproportionately benefiting high income taxpayers, although he never mentions that).

The short list of potential new taxes comes down to some form of carbon tax on fossil fuel energy (proposed by Shumlin in 2008), extending the sales and use tax to services (offered earlier this year by Speaker Shap Smith, who is now backing off), and a General Fund “penalty tax” of up to $276 million on the Education Fund, that translates into higher school property taxes. Green Mountain Care, if and when it happens, will almost certainly require stiff new payroll taxes, so that source can’t be tapped now to meet other demands.

Of course the Shumlin administration, staring the facts in the face, could relieve a lot of people by telling them and the union red shirts that 2013 will be the year of “Putting Solvency First.” That thought brings to mind that popular Buddy Holly song of 1958, “That’ll Be the Day” …

 

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40 Comments on "McClaughry: Tax prospects for 2013"

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David Bell
3 years 7 months ago
“Taxing the incomes of people who make a lot of money is an obvious stimulus for them to make and spend it somewhere else.” Does being eternally wrong about this Randian fantasy ever make you rethink it? If it were true, California would not have a single rich person left. Instead it is the wealthiest state in the nation. For that matter, those third world cesspools like Haiti, Somalia, Uganda, the Congo and Sierra Leone would have attracted every wealthy person on the planet with their virtually non-existant taxes and regulations. Your could easily relieve yourself by staring these facts… Read more »
Eric Bradford
3 years 7 months ago

Are you seriously comparing California to Vermont? Or suggesting that leaving Vermont for any one of a number of other easily accessible states is comparable to leaving the US for Somalia?

As a friend recently said after putting his house on the market, “there are a lot of ‘nice places to live’ out there.”

Dave Bellini
3 years 7 months ago

Mr. McClaughry’s tired rant about pensions is akin to saying anyone with a mortgage or a car loan is fiscally irresponsible.

Here’s a partial solution: Start taxing “non-profit” organizations.

krister adams
3 years 6 months ago

Mr. Bellini: I work for a statewide non-profit and bvelieve me we pay our fair share of State & Federal taxes. However, I cannot understand why churches ccan’t pay taxes.

Doug Hoffer
3 years 7 months ago
Mr. McClaughry said, “Green Mountain Care…will require $3 billion from somewhere.” Is there no end to the misinformation? First, I do not think the figure is anywhere near $3 billion. If you have data to support that statement, please provide it. Second, you know full well that the necesary funds are already being spent by families and businesses that pay premiums so it’s not new money. You also said that, “The Tax Foundation reported last month that Vermont in 2010 had the 13th highest state and local tax burden.” How many times must we debunk this baloney before you and… Read more »
Eric Bradford
3 years 7 months ago

http://taxfoundation.org/article/vermonts-state-and-local-tax-burden-1977-2010

“Debunking” and “disagreeing with aspects of the basic premise” are two different things.

3 years 7 months ago
Doug, I’m one of those who will be asked to vote on a new health care system and frankly I’m not interested in political spin or rhetoric. I’d like some simple facts upon which I can make my decision. You’ve chastised the author of this piece with two comments. First, you state clearly that a new system will not cost 3 billion. Secondly, you state that the money to support this new system is already being paid for by folks paying premiums. If memory serves William Hsiao, the expert hired to analyze the state’s health care system, noted Vermont was… Read more »
Lance Hagen
3 years 7 months ago
Sen. Benning, I am a ‘numbers guys’ and though I don’t buy into Mr. McClaughry number of $3 billion, I have a hard time believing the numbers used by the proponents of the single payer system. Mr. Hoffer claims in one of his posts that “Existing premiums pay for wasteful administrative costs (up to 30%)” and Dr. Hsiao claims that 25% saving of total healthcare spending is needed to cover the uninsured. If these saving, as Dr. Hsiao requires, are to come from the “wasteful administrative costs” that means this new system needs to be administered with only 5% (30%-25%… Read more »
Doug Hoffer
3 years 7 months ago
Joe – I will attempt to answer your questions as best I can. 1. Single payer will cover everyone except those already covered by Medicare, Medicaid, and the VA (plus federal employees & families). That’s about 400,000 people (355,000 insured + 47,000 uninsured). 2. The 2008 Vermont Health Expenditure Analysis Report (used by Hsiao) estimated the cost of “the current total health expenditure for the non-elderly privately insured and uninsured…at about $1.7 billion in 2009.” This figure has grown since then but should still be less than $2 billion. 3. As I mentioned before, Lewin, Thorpe & Hsiao all predicted… Read more »
Sen. Joe Benning
3 years 7 months ago
Doug, I do appreciate the response. I’m adding it to the collection of other opinions I’m receiving, and no doubt will continue to receive, as we approach legislation. Since I see this effort as the biggest thing Vermont has attempted to do in the last century or so, I believe it is critical for people to maintain civil discourse while we try understand exactly what we are getting into. So thanks for that. To answer your question about premiums paid by others that will not be available, I remain concerned about political promises being made to certain large corporations that… Read more »
walter carpenter
3 years 7 months ago
“Mr. McClaughry said, “Green Mountain Care…will require $3 billion from somewhere.” Thanks, Doug. What McClaughry does not say here is that we already spend $5 billion, with thousands of Vermonters still uninsured and so pathetically underinsured that they cannot use their insurance if they need it. And where did he come up with the $3 billion? Every year the premiums and deductibles go up, obliging families to pay more of both. Imagine, paying $10,000 or so (in many cases much more than this) in premiums and deductibles before you can use the insurance. So the money is already there. GMC… Read more »
Karl Riemer
3 years 7 months ago

“Is there no end to the misinformation?”
He uses what he has. He has so little. Misinformation can be generated at will, and repeated indefinitely, so, no.

Lance Hagen
3 years 7 months ago

How anyone can believe that in adding the presently uninsured or under insured to the healthcare system and have the cost of these additions be covered by existing premiums, is just ludicrous. This is what Mr. Hoffer and Mr. Carpenter would have you believe.

Talk about ‘misinformation’.

Michael Stevens
3 years 7 months ago

Because it is exactly what has happened in every country in the civilized world that has done so.

But never let facts get in the way of right wing talking points. Facts, after all, have a left wing bias.

Eric Bradford
3 years 7 months ago

“every country in the civilized world”

So… secession is a precursor to this plan? You do realize that Vermont is not technically a country, right?

Michael Stevens
3 years 7 months ago

Lance asked how covering the un/underinusred can be covered by existing premiums.

I answered because this is what has happened every other time is has been done. This is the reason most of us believe it will happen for single payer in this state, no secession required.

As for secession as a goal, have the decency not to confuse me with a Republican.

Eric Bradford
3 years 7 months ago

“I answered because this is what has happened every other time is has been done.”

That a healthcare funding system has succeeded elsewhere on a national basis has absolutely nothing to do with whether it can succeed for a single state in the US. My secession comment gave you credit for understanding this fairly obvious point.

Doug Hoffer
3 years 7 months ago

Is it your contention that covering the uninsured will cost $3 billion? Absurd.

The intent is to achieve significant administrative savings to help cover the uninsured. That has been part of the equation for more than a decade and has been a critical assumption in all three major studies of the issue for the state (Lewin, Thorpe & Hsiao).

Doug Hoffer
3 years 7 months ago

Existing premiums pay for wasteful administrative costs (up to 30%). All three major studies of the issue have assumed that the savings will be sufficient to cover the uninsured (Lewin, Thorpe & Hsiao).

Glenn Chase
3 years 7 months ago

Because, Lance, the uninsured already have access to healthcare … it’s called the Emergency Room. Guess who pays for it? People who are insured properly.

The trouble is that it costs WAY more than the healthcare that insured people get and the outcomes are WAY worse!

The uninsured & underinsured are just shoving their healthcare costs off on the rest of us. Continuing down this road is certainly ludicrous.

Bob Zeliff
3 years 7 months ago
Let’s just think about this statement a bit. How many uninsured does Vt have? 20/25% like Texas? Nope, about 7%! Some of these are young health people and some are old and sick and currently getting “free” care at dr. and hospital expense. This being the case the medical provider community is footing the bill for some of these “uninsured”. The medical provider community includes these “free” services in their costs as much as they can….so those of us who have insurance to pay them get to pay a bit higher rates to cover this “free” coverage. yep Surprise we… Read more »
Doug Hoffer
3 years 7 months ago

Ludicrous? Ask Lewin, Thorpe & Hsiao. All three consultants over ten years have told us that administrative savings will be sufficient to cover the uninsured.

Lance Hagen
3 years 7 months ago

Mr. Hoffer your comments just made my case. The existing premiums, paid by the existing insured, will not cover the cost of the additional uninsured or under insured.

As you point out, significant administrative savings will be required to cover the uninsured. Using premiums alone will not be sufficient.

According to the Hsiao report, the savings required in 2015, will need to be $530-$580 million, which represents 24% to 25% of total healthcare spending.

walter carpenter
3 years 7 months ago
“How anyone can believe that in adding the presently uninsured or under insured to the healthcare system and have the cost of these additions be covered by existing premiums, is just ludicrous.” Well, Lance, in every other nation with whatever form of single-payer that they have, their costs are far less than ours and everyone has health insurance. As Mr. Zeliff so accurately pointed out, the insured do not get stuck providing for the uninsured, which raises the costs. Also, as Doug pointed out the admin costs for the existing private health insurance is around 30%; with Medicare (a publicly-funded… Read more »
Michael Stevens
3 years 7 months ago
Eric: “That a healthcare funding system has succeeded elsewhere on a national basis has absolutely nothing to do with whether it can succeed for a single state in the US.” As opposed to the Canadian healthcare system, which was set up in a single province by Tommy Douglas, and provided better, less expensive care so well that the entire country demanded the same. Therefore, their is evidence that single payer healthcare can succeed in a single state as well as the federal level. Nice try, but those evil, evil facts just keep getting in the way of right wing fantasy… Read more »
Eric Bradford
3 years 7 months ago

Saskatchewan is to Canada as the entire northeast, including New York, is to the US. Look at a map.

Beyond that, the “Canadian healthcare system” as it exists today bears little relation to Tommy Douglas’ system in Saskatchewan. Doctors could set their own rates, comprehensive private insurance existed alongside the program, and it was 50% funded by the national government from day one. There’s a reason he’s called “the father of medicare” and not “the father of single payer.”

Care to try again?

Jason Farrell
3 years 7 months ago
Mr. Bradford, New England Population – 14,444,865 New York State’s Population – 8,244,910 New England + New York Total = 22,689,775 US Population – 311,591,917 NE + NY as % of US Population – 7.3% New England Land Mass – 71,991.8 sq. miles New York State’s Land Mass – 54,,556 sq. miles New England + New York Total – 126,547.8 sq. miles US Land Mass Total – 3,794,083 sq. miles NE + NY as % of US Land Mass – 3.3% Saskatchewan Population – 1,079,958 Canada’s Population – 34,482,779 Saskatchewan as % of Canada’s Population – 3.1% Saskatchewan Land Mass… Read more »
Eric Bradford
3 years 7 months ago

“NE + NY as % of US Land Mass – 3.3%
Saskatchewan as % of Canada’s Population – 3.1%”

OK, so make it the entire east coast of the US. Happy? I’m not sure what your point is.

Jason Farrell
3 years 7 months ago
“Saskatchewan is to Canada as the entire northeast, including New York, is to the US. Look at a map.” As you suggested, I looked at a map. And, it’s clear that the claim you’ve made “Saskatchewan is to Canada as the entire northeast, including New York, is to the US” is simply not true. As the facts that I posted indicate, Saskatchewan is much bigger than New England + New York both in terms of land mass, and as a percentage of the land mass within their respective nations. I thought you possibly may have been referring to population density… Read more »
Michael Stevens
3 years 7 months ago

Well, so far I’ve disproven every point you have made, which leads you to continue by changing the argument.

As I said, government run healthcare has provided better outcomes at lower costs when done at both the state and federal level.

Since you clearly cannot find any meaningful rebuttal, it seems you are the one who needs to try again.

Eric Bradford
3 years 7 months ago

What?!? Your only response was a clearly false analogy that I easily dismantled. How is that changing the argument?

Michael Stevens
3 years 7 months ago
The only thing you dismantled was the illusion that you had anything valid to begin with. I started off by explaining why most of us believe government run healthcare will provide everyone with better, less costly healthcare. Namely, that this has been the case every time it has been tried worldwide. You proceeded to claim this has only been true of federal programs, I pointed out you were wrong. You also added some inane nonesense about secession, which I was just bizarre. It seems you are now claiming that unless a state the same size with the same demographics as… Read more »
Bob Zeliff
3 years 7 months ago

Contrast this blog thread to that of Ms. Scheuermann

I think reading Ms. Scheuermann commentary on the Vermont Republican party and reading Mr McClaughry shows explicitly the gap between the false information and hyperbole of McClaughry and the reasoned constructive alternatives that Ms. Scheuermann suggests.

In this past election I think most would conclude that Mcclaughry’s style of miss information sponsored by the Superpacs do NOT provide good results for Vermont and sets the Republican Party further from the mainstream Vermonters

Eric Bradford
3 years 7 months ago

Jason:

“Saying that “Saskatchewan is to Canada as the entire northeast, including New York, is to the US.” is demonstrably false, no matter which way you look at it on a map.”

Yes, and saying that Saskatchewan is physically LARGER than the entire northeast, including New York, strengthens my point. Which I’m not sure you bothered to try to understand. But thanks for the support anyway, I guess.

Eric Bradford
3 years 7 months ago
Michael: “state the same size with the same demographics as Vermont must be demonstrated to have instituted the same exact plan in order for anyone to believe it will work?” You got that about 10% right. The point is that quality medical professionals, businesses, and citizens who are ill served by a new single payer health plan can easily leave Vermont – there are very attractive alternatives close by in all directions. The same was not true of Saskatchewan in the 60’s. More to the point, medical professionals had no real incentive to leave, because they could still charge whatever… Read more »
Michael Stevens
3 years 7 months ago

“The point is that quality medical professionals, businesses, and citizens who are ill served by a new single payer health plan can easily leave Vermont ”

Flip that to, the people who are better served by single payer will come to Vermont and you’d have it 100% right, instead of 100% wrong.

Michael Stevens
3 years 7 months ago

Same goes for professionals and businesses.

Eric Bradford
3 years 7 months ago
I’m not sure how my statement is “100% wrong.” There is absolutely no question that it’s easy to leave Vermont. If your assumption is that more doctors, businesses and citizens will come here to take advantage of single payer than would leave because of it – there’s no way to know, so it’s a gamble. A very, very big gamble. I’m not sure why doctors would want to relocate to an area where their pay for the same work would be dramatically less, unless they couldn’t find work elsewhere. “Quantity not quality” is not typically considered a good thing when… Read more »
Lee Russ
3 years 7 months ago
Mr. McLaughry, being Mr. McLaughry, claims that “The entire Vermont labor movement and their many allies” are “vocally demanding that state government spend lots more” to meet “every person’s need for health, housing, dignified work, education, food, Social Security and healthy environment.” Really, Mr. McLaughry, that’s what we’re vocally demanding? Where and when? I assume you are referring to the principle that everyone has a right to health care, housing, etc.” The part about demanding that we “spend lots more” comes from you, not the Put People First campaign. Who knows what meeting the needs would cost? I don’t, you… Read more »
Lee Russ
3 years 7 months ago
[hope this isn’t a double post–something odd happened the first time] Mr. McLaughry, being Mr. McLaughry, claims that “The entire Vermont labor movement and their many allies” are “vocally demanding that state government spend lots more” to meet “every person’s need for health, housing, dignified work, education, food, Social Security and healthy environment.” Really, Mr. McLaughry, that’s what we’re vocally demanding? Where and when? I assume you are referring to the principle that everyone has a right to health care, housing, etc.” The part about demanding that we “spend lots more” comes from you, not the Put People First campaign.… Read more »
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