Tax and Fiscal Policy Principles
Supporting state economic growth and long-term budget sustainability requires not just smart policy decisions, but a wise framework within which to make them. This set of principles, focused on the centrality of human capital, can help state and local policy makers engage in productive debate and make the hard choices needed to put our state on the path to global competitiveness.
BUDGET ALLOCATION PRINCIPLES
Supporting Human Capital Development
Act 162 of the Vermont Legislature’s 2012 session added language to the preamble of the Vermont state budget establishing that the “state budget should be designed to address the needs of the people of Vermont in a way that advances human dignity and equity.”
VBSR supports this first step toward a fundamental shift in state budget allocation decisions, and we further believe that to advance human dignity and equity while achieving economic growth and fiscal sustainability, state government must emphasize strengthening the skills and capacities of our current and future workforce.
Evaluation of Efficacy
During his tenure at the Vermont Agency of Human Services, Con Hogan put in place widely accepted outcomes and objective measurements to track the effectiveness of state programs, including the release of an annual Social Indicator Report, which focused on the well being of children and families in Vermont. These models of measuring the effectiveness of state government continued throughout the Snelling and Dean administrations and were so successful that they spread to major municipalities all over Europe. Vermont ceased releasing this report and ended the objective measurement program during the administration of Gov. Douglas.
VBSR believes return on investment should be a key consideration in public resource allocation decisions and recommends a return to such measurement programs.
GUIDING TAX PRINCIPLES
Tax policy should be designed to raise revenues sustainably and meet our obligations and benefit the state’s people, communities and environment. While we certainly need to be mindful about tax system “competiveness” as compared to other states, we caution that competitiveness should be assessed on a true “apple to apple” comparison that focuses on effective rates actually paid by taxpayers, not simply administrative tax schedules. Comparative tax burdens should also be evaluated with respect to government services delivered. More than two-thirds of VBSR members believe they are getting good value for the taxes they pay.
A fair tax structure places a similar assessment on people and corporations of similar circumstances and ensures a level playing field for all. Regressive taxes, such as the sales tax, are minimized in this system. A fair tax system is progressive and minimizes the impact on low-income residents by being based on a capacity to pay.
VBSR believes that tax policy should reflect and complement the economic goals of the state. A competitive tax code requires a broad base, in order to keep overall rates low. Vermont’s tax system should encourage the development of a strong local economy and encourage people to spend money in state as a means of building our tax base.
Complicated procedures and high administrative costs not only undercut the value of the tax system in the eyes of the public, but also encourage the sheltering and hiding of income. We believe that the Vermont tax system should strive toward simplicity in rules and administration and encourage the use of new technologies to streamline the filing and compliance processes. Tax assessment and determination should be easy to understand by an average taxpayer.
The Vermont Legislature and other policy-makers need accurate information in assessing the value of a tax system. Likewise, taxpayer understanding of the rates, collection, compliance and use of tax money are key to building and maintaining confidence in the tax system. This will require education and outreach. VBSR supports efforts to enable citizens to understand and participate in the assessment of revenue and spending decisions.
A high quality tax system clearly links the paying of taxes to specific investments in the public good. Policy-makers should routinely measure tax investments against a rigorous standard of social and economic outcomes to ensure accountability for the proper use of tax money. This requires the regular review of tax expenditures, special tax rules and earmarked funds against objective standards for return on investment.
Tax systems need to be viable over the long term to weather economic downturns and other major external changes. A sustainable tax system relies on predictable and consistent tax bases that meet the revenue needs of the state and minimizes the use of regressive taxes and short-term sources of money. Uncertainty in the future of a tax structure undermines public confidence and makes long-term policy planning difficult for individuals, businesses and government.
Taxes and Economic Development
Tax credits (tax expenditures) were listed behind many other options when VBSR members were asked how the State should best spend our economic development dollars. VBSR members believe that tax credits are a less important economic development tool than strategic investments in health care, education and workforce development, telecommunications infrastructure, sustainable energy, less taxes on business generally, and public transportation.
Tax credits that favor particular sectors or classes of businesses should be secondary to investments in infrastructure that benefit all businesses and citizens.
It is necessary and appropriate to increase the transparency and accountability of tax expenditures. Language included in the 2013 Miscellaneous Tax Bill requires the development of “a statutory purpose explaining the policy goal behind the exemption, exclusion, deduction, or credit applicable to the tax.” Failure to state this purpose results in the termination of that expenditure.
We support this approach and believe tax expenditures should to subject to the same kind of analysis and review as budget appropriations. The Blue Ribbon Commission found that there is over 1 billion dollars (2009) in lost revenue from tax expenditures. This gap needs to be closed.
If we are to believe the traditional rhetoric, taxes in Vermont are the biggest problem facing our businesses. However, VBSR members identify many issues of greater concern than taxes, including the cost of health care, availability of affordable housing and shortsighted state economic development priorities. The accessibility of affordable childcare was ranked as of equal concern to taxes for VBSR members. Taxes aren’t all bad—it all depends on what we are getting in return for our tax dollars as part of our shared responsibility for the social good.
We believe that consistent application of these public spending and tax principles will enhance the “Vermont brand” and quality of life to make Vermont an economic development and workforce talent magnet.
Vermont policy debates need to move beyond the “all taxes are bad for business” and “the sky is falling” rhetoric and take a deeper look at the realities of our current tax system. We commend the report of the Vermont Blue Ribbon Tax Commission for dispelling many myths and misperceptions about our tax system and calling for a bold discussion of revenue priorities. Vermont policy-makers should consider the benefits and values that tax-funded public investments bring to communities and the economy. While Vermont has one of the least regressive tax systems in the country, we can still make further changes to the code that will make the system simpler, fairer and more sustainable for Vermonters and Vermont businesses.