Plan would overhaul Vermont school taxes, add new income tax

MONTPELIER - House lawmakers are considering a major change to Vermont's education tax system, including a new education income tax and other changes designed to make a stronger link between voters' school budget decisions and their wallets.

Rep. Janet Ancel, D-Calais, who is leading the effort as chairwoman of the House Ways and Means Committee, has said her goal is to make the often-confusing tax formula "more fair, simpler to understand, more direct."

The plan would set up a hybrid school tax system using a lower homestead education property tax rate and a new education income tax. Non-residential property taxes would remain unchanged.

The new income tax rate would increase with adjusted gross income, replacing the current system of an income sensitivity on Vermonters' property tax bills. Lawmakers have yet to settle on tax brackets or rates, but a recent document uses rates from 0 to 1.70 percent as "placeholders."

Lawmakers have yet to release a document that spells out which Vermonters would pay more or less in taxes under the proposal.

Vermont Tax Commissioner Kaj Samsom created a preliminary document showing that a household earning $50,000 in adjusted gross income with a property value of $200,000 would pay more under the hybrid tax system, while a household earning $100,000 with a property value of $300,000 would pay less. These numbers assume homeowners currently are paying the statewide average residential property tax rate.

Ancel wrote in a recent statement there would be "winners and losers at every income level." She said "every voter on the school budget will feel the consequences of their vote."

The new system would make taxpayers pay more, compared with the current system, for high amounts of local school spending, according to an analysis prepared for the Committee on Ways and Means.

Nicole Mace, executive director of the Vermont School Boards Association, urged lawmakers not to make any decision that would affect tax rates for the upcoming fiscal year

"To change the formula this year places local officials in the untenable position of presenting a budget to their communities on Town Meeting Day without being able to describe the tax implications to residents," Mace said in written testimony this week.

Tax Commissioner Samsom called the proposal "intriguing." He told the House committee, however, that Republican Gov. Phil Scott would be concerned about imposing any new income tax on people who don't live in Vermont, such as shareholders who have invested in Vermont companies.

Jeffrey Francis, executive director of the Vermont Superintendents Association, cautioned lawmakers that reducing education property tax rates, even as part of a larger package, could lead to more spending.

"If a property tax rate falls by half, despite the fact that the education income tax is being applied, budget makers and promoters of a budget might assert that they’ve found a new way to afford more things," Francis said.

The House Committee on Ways and Means expects to continue working through the proposal next week.

Contact April McCullum at 802-660-1863 or amccullum@freepressmedia.com. Follow her on Twitter at @April_McCullum.