During the 2014 Legislative Session there will be discussion of the same longstanding economic problems. How can we balance the budget while fulfilling the essential functions of state government? How can we prevent property taxes from going up? How can we stimulate economic development? A Vermonter might wonder why such problems are never really solved. I think that the primary reason is that the formation of these economic policies is dominated by politics rather than by economic reality, therefore they never really work.
One of the weaknesses of the representative form of government is the tendency for elected officials to promise more spending programs without setting up tax revenue to finance them. Another weakness is the tendency for the tax code to be riddled with special provisions that reduce tax payments for particular interests. It is politically advantageous to provide new spending and tax cuts but politically unpopular to finance spending with taxes or to reduce tax subsidies.
Vermont is trapped in vicious cycles due to these weaknesses. Ambitious spending programs are promised without sustainable funding. Programs therefore fail to achieve their goals due to lack of resources. There is continual pressure for spending greater than tax revenue, creating perpetual budget gaps that are hard to close. Particular groups receive special reductions in taxes. This then means that to raise the same amount of revenue tax rates have to rise, leading others to ask for special tax reductions, and so on. The costs of entitlements and special tax provisions grow out of control because if requirements are met the statutory benefits must be provided, without further direct governmental management.
Examples of spending difficulties include numerous programs within the Agency of Human Services in which costs outstrip funding repeatedly. There is also the proposed state financed health insurance program, in which universal insurance and health care have been promised without specifying taxes to fund the cost of up to $2 billion. There are about $3 billion in state unfunded liabilities in retirement funds. Then there are about $1.3 billion worth of “Tax Expenditures” – special tax provisions that reduce payments by those who qualify – that are spread throughout the entire tax code.
We can transcend these vicious cycles. We could develop a budget that would be sustainable if we restricted entitlements to the basics rather than making new promises that we cannot keep reliably. We could lower all tax rates through the elimination of many special exemptions. I think that property tax rates could come down by 20 cents and all income tax rates could be reduced several percentage points each. Even those who lose special tax treatment would benefit from the much lower rates. Basic but effective government programs and low and stable tax rates would create favorable conditions for economic activity.
There has been some Legislative interest in such reforms, but too little progress has been made. In part this may be because the Governor has shown a preference for rhetoric over reality in both budget and tax matters. He has chosen to make ambitious promises for programs in education and health care for which he has specified no new funding sources. He has claimed that he will not increase “broad-based taxes” while taking actions that increase the gas tax and property taxes. The only tax expenditure that he has suggested eliminating was one that benefited the working poor.
The Governor’s political success is such that he has no announced opponent. I have no confidence that any future Republican or Progressive candidate would be any more willing to face our economic realities in terms of BOTH spending and tax reform than he is. My disappointment and frustration at his failure of economic leadership is so intense that if I could I would run for Governor myself.
However, armed only with uncomfortable economic realities and without an established base of support, if I tried to run for Governor it would be a joke. I will continue to work in the Legislature to bring economic analysis and creative common sense to bear on the problems before us, so that our solutions might strengthen Vermont.
Cynthia Browning represents Arlington, Manchester, Sandgate, and Sunderland in the Vermont Legislature.