School spending isn’t to blame for Vermont’s climbing property tax rates, Dean Corren says. The state’s education finance system is.
To fix it, Corren, the Progressive/Democratic candidate for lieutenant governor, wants to extend income sensitivity tax breaks to all residential property taxpayers.
In essence, he wants to tax all homestead property owners based on personal income. Second homeowners and businesses would continue to pay taxes based solely on the value of the real estate they own.
Corren’s proposal stands in stark contrast to that of his political rival, incumbent Lt. Gov. Phil Scott, who wants to create a central, apolitical board that would regulate school spending and decide whether districts should consolidate.
Changing the complex education funding formula won’t relieve tax-weary Vermonters unless schools spend less, Scott told VTDigger. “It’s a fallacy to think we can just rearrange the deck chairs of who pays,” Scott said. “It’s much bigger than just how we derive the revenue.”
Corren argues that the education funding burden is unfairly distributed.
“Today, a wealthy property owner may pay 0.5% of their income for school taxes,” Corren said in a press release unveiling his plan. “Meanwhile, middle-income Vermont households pay, on average, about six times that rate. This massive inequality is at the heart of what’s wrong with our property tax system.”
Corren said in an interview that his goal would be to revamp the financing structure in a way that keeps it revenue-neutral.
What’s most important to Corren is that lower- and middle-income Vermonters not be asked to pay more, and that no residents pay higher property taxes than non-residential property owners.
According to data available from the Tax Department, residential property tax rates in 116 cities and towns exceed the rates for second homeowners and businesses. In a press release Wednesday, he cited South Burlington, where homeowners pay higher tax rates than the University Mall.
“That’s pretty shocking to people, and totally out of whack,” he said. “I don’t think we should allow a situation where middle-income families are subsidizing vacation homes and big businesses.” He describes his plan not so much as “progressive” but “less regressive” than the current system.
Non-residential property encompasses a wide range of properties — everything from modest fishing camps to million-dollar vacation condos to rental properties and business real estate owned by local people or national chains.
“Vermonters think everybody should be able to live in their house before they start subsidizing second homes (and businesses),” Corren said.
“We’re not talking about raising taxes on business,” he said. “We’re talking about not cutting taxes on business and dumping it on the middle class.”
Rep. Janet Ancel, D-Calais, who chairs the House Committee on Ways and Means, said Friday that under the current property tax formula, middle-income households pay a higher percentage of their income in property taxes than upper-income payers.
Over the past decade, various proposals to reconfigure the property tax formula have been considered, Ancel said.
In 2006, the Legislature directed the Joint Fiscal Office to analyze an income-based statewide property tax. The same goal was discussed at length in the most recent biennium when Rep. Jim Condon, D-Colchester, introduced H.164.
Basing the education fund tax formula on a person’s ability to pay needs to go beyond personal income, Ancel said.
“I think it’s a good measure, but it leaves out the question of assets, and of course your house is a major asset,” she said, which is why some previous proposals have suggested a mix of property- and income-based tax rates.
A redistribution of the tax burden is inevitable when tax formulas change, and that can lead to political challenges.
“Any time you change the distribution of who pays, there are people who like it and people who don’t,” Ancel said.
