Shumlin administration: Governor’s tax credit proposal a strategic way to prioritize resources

Secretary Doug Racine. VTD/Josh Larkin

Secretary Doug Racine. VTD/Josh Larkin

Advocates are criticizing Gov. Peter Shumlin’s proposal to divert $16.7 million from a tax credit for low-income Vermonters to help fund child-care investments. State officials in turn defend the proposal strongly, while lawmakers hold an uncertain middle ground.

Shumlin, in his inaugural address last week, proposed to redirect nearly $17 million from the state’s earned income tax credit to child-care subsidies.

Commissioner David Yacovone, who heads the Department of Children and Families (DCF) which oversees the subsidies, says the $16.7 million transfer is a bold and overdue policy move, which is about “being strategic in prioritizing our resources.”

According to Yacovone, his department spends about $42.5 million annually on child-care subsidies already, mostly from federal funds. The extra $16.7 million would more than double the state’s contribution, he said, increasing both the number of assisted families and how much they receive.

The average child-care subsidy comes to roughly $5,300 per household annually, said Yacovone, who explained that the subsidies go to child-care providers, who in turn reduce bills for registered families with incomes below 200 percent of the federal poverty line.

About 44,500 working Vermonters file for the earned income tax credit, which costs the state about $25.5 million annually, according to the state’s latest tax expenditure report detailing tax exemptions.

On average, these taxpayers received $376 via the state’s EITC in 2011. Those most affected could lose up to $1,214 in benefits, according to Doug Racine, the secretary of the Agency of Human Services. The $16.7 million reduction from the $25.5 million typically budgeted for the tax appropriation leaves the state with $8.8 million for EITC. The shift represents a potential 65 percent cut.

While some advocates criticize the proposal for taking funds from the poor to help another class of poor Vermonters, Racine counters that the proposal balances priorities strategically, helping the state squeeze the most value from its investments.

“We’re talking about a finite amount of money available to help,” said Racine. “With more money, we could obviously do more, but with a finite amount of money, our job is to get the maximum value out of the dollars we have. … I know we’ll get more value out of the dollars spent on children, than we will with how the dollars are spent now.”

“It’s a balancing act, it’s a tradeoff,” he continued. “The governor feels we’ll benefit a whole lot more by investing in children, by helping families afford child care to stay in their jobs, than by sending out a check in April or May, or whenever people might receive their tax refund,” said Racine.

“I don’t think it’s really a question of fairness,” he said. “It’s a question of priorities.” Racine added that the state’s spending on EITC had increased by 45 percent in the last eight years, without a meaningful policy debate accompanying the increase.

That’s because Vermont’s state EITC is pegged at 32 percent of the federal EITC: as the federal rate and determination of the benefit fluctuates, so does the state’s spending, said Racine.

Racine said taking funds from the state’s EITC seemed the best source so far for the $16.7 million, short of raising broad-based taxes, a policy Shumlin is strongly against. He added that the federal EITC would remain untouched.

Still, advocates for low-income Vermonters remain unconvinced about the proposed policy, tentatively suggesting a range of alternative funding sources while defending the success and importance of the state’s EITC.

All those interviewed emphasized the importance of investing in child care, though each had differing views on how to fund it without resorting to the EITC.

Vermont Legal Aid attorney Chris Curtis said that since Shumlin tied education closely to economic development in his inaugural address, it made sense to take money from the state’s economic development budget to fund child-care subsidies.

Similarly, Jack Hoffman, a senior policy analyst with the think-tank Public Assets Institute, suggested in an blogpost last Friday that the Shumlin administration look to reduce corporate tax credits instead, calling for Vermonters to oppose Shumlin’s proposal.

After arguing that the proposal would effectively raise income tax on the poorest Vermonters, Hoffman concludes: “… If the governor is going to insist on a zero-sum game and take from one group of Vermonters in order to “invest” in another, he should look elsewhere for the child care money. Vermont’s business tax credits would be a good place to start.”

Karen Lafayette, from the Vermont Low Income Advocacy Council, said raising revenues would represent a lesser evil given the choices here, adding that research suggests that the EITC is fundamental in keeping children out of poverty.

“I get very nervous when we’re going to take from one program that helps low-income workers and give it to another, or vice versa,” Lafayette said. “It simply doesn’t make sense to me. … I’m not comfortable with robbing Peter to pay Paul.”

Lafayette pointed out that the more than 40,000 families who benefit from EITC wouldn’t necessarily be the same families who benefited from child-care subsidies.

Lawmakers, finally, are caught somewhat in the middle of the exchange between state officials and advocates, but aren’t ready to stake out positions just yet.

Rep. Chris Pearson, P-Burlington, is formulating an alternative funding proposal with fellow Progressives, which would broadly include tax increases on wealthy Vermonters and eliminating certain tax exemptions.

He wouldn’t discuss further details, but Progressives are set to respond to Shumlin’s speech at a press conference on Tuesday, where they’ll present some specifics.

“The earned income tax credit is the most effective anti-poverty program we have,” Pearson said. “So why we would use that to fund child care, even though that’s also an important priority, is beyond me.”

Rep. Janet Ancel, D-Calais and chair of the House Ways and Means Committee, which oversees state tax policy, said that she wants to learn more before commenting on the administration’s proposal, and particularly to understand which groups benefit from the two programs, and how much they overlap.

Ancel said, however, that she couldn’t easily identify another potential source of revenue in the tax that could raise the proposed $17 million. She added that eliminating tax exemptions is always a more difficult task than it seems.

Nat Rudarakanchana

About Nat

Nat Rudarakanchana is a recent graduate of New York’s Columbia University Graduate School of Journalism, where he specialized in politics and investigative reporting. He graduated from Cambridge University with a B.A. in philosophy: hence, the slightly odd accent. Raised in Hong Kong in a Thai family, he has interned for the Bangkok Post and The New Paper, with experience reporting across several Asian countries. He enjoys news photography and state and city politics.

Email: [email protected]

Follow Nat on Twitter @natrudy

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