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What if we funded public education differently?

Four people sit at brown desks next to a window. One of them has their hand raised.
Daniel Fishel for VPR
/
File
To answer a listener question, Brave Little State investigates what educational funding would look like if it were based on income rather than property value.

Amanda Calder of Winooski asked Brave Little State what it would look like if we raised money for our schools in a totally different way. It’s a hypothetical some lawmakers hope will become a reality.

Note: Our show is produced for the ear. We recommend listening to the audio above if you can! But we also provide a written version of the episode below.

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So many good stories start with a confession.

So, here’s mine: There was a time not so long ago that I hoped this episode of Brave Little State would never get reported into existence.

And when executive producer Angela Evancie and I were talking last month about which questions to put in a voting round (the process BLS uses to empower you, our audience, to direct our coverage), I immediately latched on to one in particular, from a guy who basically wanted to know: “What’s up with ice fishing?”

I saw this ice fishing question and I was suddenly transported to the Northeast Kingdom somewhere, talking about trout and eating jerky and purging my pandemic dread.

But that’s not what our voters had in mind, though. You all chose a question about education funding — about what it would look like if we paid for public schools with an income tax instead of a property tax.

I was disappointed at first about not getting to go ice fishing, but it didn’t take long for me to get sincerely enthusiastic about reporting on how we pay for schools.

Tax policy is actually really amazing. And one of the reasons I love covering the Legislature.

Taxes, when you think about it, are an incredible form of intimacy between human beings. Where we agree to pool resources with people we’ve never met, to pay for things we all care about.

During my reporting, I came across a quote from Oliver Wendell Holmes, former Justice of the United States Supreme Court:"Taxes are what we pay for a civilized society."

And the forms of taxation we choose in Vermont probably reveal a lot about who we are as Vermonters.

So, we’re not landing any pickerels today. There won’t be any nips of Yukon Jack in a canvas shanty on Willoughby.

Instead, we’re diving into a surprisingly urgent policy debate over education financing. It’s a debate that could change who pays what to fund our schools. And, it might even be a debate over the future of schools themselves.

Meet Amanda

Amanda Calder is 37 years old. She lives in Winooski.

“I grew up in Vermont. I went to school in Ohio,” she says. “And then I came back, so I've been here just working for a while.”

Working at the Howard Center, with people with developmental disabilities. Amanda, by the way, is our winning question-asker for this episode. About education funding.

The question is, essentially: What if? What if we raised money for our public schools in a totally different way?

Amanda says she has a close personal connection to the education part:

“My dad is a retired public high school teacher, and my aunt was an elementary school teacher and my grandma was an elementary school teacher.”

And Amanda is passionate about the funding part of this question because she spends a lot of time thinking about economic theory.

“I’m a socialist, she says.

And not an idle one.

“So, I’ve been an activist on a lot of different issues, including economic justice,” Amanda says. “You know, I was part of Occupy [Wall Street] back in the day, and so forth. And so, caring about having a more equal society is something I’ve cared about for a long time.”

A person with short brown hair and glasses smiling
Courtesy
/
VPR
Question-asker Amanda Calder from Winooski wants to know: "What would it look like if the taxes we had to pay for education were based on income rather than property value, with an equal tax on capital gains income?”

Amanda thinks income inequality is the scourge of our time. She believes taxation policies are part of the problem. To put a finer point on it: Here in Vermont, Amanda thinks the property tax is making rich folks richer, and poor folks poorer.

“I mean, it’s not based on ability to pay,” she says. “So, like, if you lose your job, you have to pay the same amount of property taxes. If you get sick and can’t work, you have to pay the same amount of property taxes. If your partner leaves you so you have half as much income but you’re trying to keep your house, you have to pay the same amount of property taxes. If you retire, you have to pay the same amount of property taxes.”

Quick clarification here: There is some “income sensitivity” built into our property tax code. More on that later. But, Amanda’s point is well taken.

Say you’ve got two neighbors who both live in houses worth $300,000. One of them makes $150,000 a year, the other makes $500,000 a year. In our system? They both pay the same amount in property taxes.

This makes no sense to Amanda. So she wants to know:

“What would it look like if the taxes we had to pay for education were based on income rather than property value, with an equal tax on capital gains income?”

As it turns out, a lot of people have been contemplating this very same question.

_

‘Things would be better’

Here on Brave Little State we invite our winning question-askers to join us for our reporting. So Amanda joined me, on Zoom, to talk to Bram Kleppner.

Kleppner is the CEO of Danforth Pewter. But Amanda and I are less interested in his job than we are in the volunteer gig he landed a few years ago.

“I was one of three commissioners of the Vermont Tax Structure Commission, which was created three years ago by the Legislature,” Kleppner says.

The Legislature’s charge for the Tax Structure Commission was to review Vermont’s entire tax structure and come up with ways to make it more fair, more sustainable and a lot simpler than it is now.

And the big recommendation they brought back to the Legislature was to change the education funding system — and base it on income taxes, instead of property taxes.

Which makes Kleppner an obvious candidate for Amanda to pose her question to.

“On the question of, what would happen if we based education tax purely on income ... To answer the question straight and directly, things would be better,” Kleppner says.

Better as in more progressive. Not like the Progressive political party, but progressive economically. Meaning most higher-income Vermonters would pay more for schools, and most middle-income folks would pay less.

Before we go deeper on that, a quick side note: One thing you need to know about our current education financing system is that even though it’s based on property taxes, most Vermonters – about two-thirds – do pay at least partially based on their income.

That’s because of something known as income sensitivity. Remember when Amanda was talking about people who encounter some kind of hardship that reduces their income but doesn’t change their property value?

Well, policymakers foresaw this conundrum when they came up with our current education financing system. So they tried to address it, by saying OK, if you make below a certain amount of money, then we’re going to lower your property taxes. So you don’t go bankrupt or have to sell your house.

“You know, the system has done a fairly good job of producing equity in terms of people paying somewhat based on what they can afford,” Kleppner says.

But, he adds, it’s impossibly complex. And, crucially, it’s still regressive. As in, the opposite of progressive.

Because if you or you and your partner make between $100,000 and $150,000, you’re paying about 3 percent of your income on average toward education taxes.

But…

“People with more than half a million dollars a year of income pay something like half a percent of their income, roughly speaking,” Kleppner says.

If we switch to an income-based system, Kleppner says we’d see wealthier people paying a similar percentage to middle-income folks.

We’re talking averages here, though. And those averages elide the reality for some working-class Vermonters.

Land rich, tax squeezed

Bob Fitch and his wife live in East Montpelier.

I’m a sixth generation Fitch to live on this family farm,” Fitch tells me over the phone. “And this is the house that I grew up in.”

Fitch grew up milking cows here, actually, until his grandfather sold off the herd when he was 12.

“It was a dairy farm, my grandfather was a dairy farmer. But now my father and I have about anywhere from 15 to 20 beef cows – Scottish Highlanders, the ones with big horns and long hair,” he says.

Fitch and his wife are in that class of Vermonters getting squeezed by the existing education funding system. A class of the so-called “cash-poor, property-rich.”

“But ‘rich’ is in quotation marks, because what is really the value of the land? It’s not really a farm anymore. We don’t generate income off the land that we’re using,” Fitch says.

They are paying property taxes on that land though, and the old house that sits on it. I asked if he would mind showing me the bill, so we could break down what his homestead is assessed at.

“I believe it’s $350,000,” he guessed. And then, after double checking …

“So I was close — $375,100 is the taxable value,” Fitch says.  

I asked what he is paying in property taxes.

“Just shy of $9,000 a year.”

Fitch works for the state, at the Department of Environmental Conservation. His wife is a high school teacher. Two public sector workers with a 1-year-old daughter whose household income puts them just a shade above the $130,000 cut off where income sensitivity kicks in.

I wondered if he and his family had concerns about locking themselves into a $9,000 tax bill every year.

“Yeah, it was certainly part of the conversation,” he says.

Nine thousand dollars is a serious amount of money for them. But they wanted open space. Wanted to keep roots on the family land.

Fitch says he started paying much closer attention to the local school budget once he saw his first property tax bill. Does he feel like we’re spending too much on schools?

“Um, jeez, with a spouse that is a high school teacher, no,” he says.

So they just figure out a way to make it work.

“Tight budgeting. Delay of home maintenance and looking to save wherever possible, right?” Fitch says. “You’ve got to really pay close attention to what you’re spending money on, knowing you have this big burdensome bill coming down the line every year.”

And Fitch says he and his wife worry about whether they’re going to be able to swing this over the long term.

“You know, are we going to have enough to fund our daughter’s future education? Like, what is that going to look like? I think we lose a little bit of sleep at night, yeah.”

Fitch isn't a socialist like our question-asker Amanda. But when it comes to education financing, he says he's seen enough to convince him that this part of the system, at least, needs to change.

So he's with Amanda on this one: Fund schools with an income tax, not a property tax.

I asked Fitch if he thought that philosophically we should be asking higher-income earners to be paying more than they’re paying right now toward schools so that families in financial situations like his can pay less.

“Yeah, absolutely,” he says.

The Act 60 inflection

Paul Cillo is one of the architects of the law that gave birth to the property-based education funding system we have today: Act 60.

I reached out to him because I figured if we were going to do a story about overhauling the education financing system, it might make sense to find out how we got here. Where should the timeline start for all this?

“You know, I was elected to the Legislature in 1988. So for me it starts in, well it started in 1986, before I went to the Legislature,” Cillo says.

If you think the school funding system we have right now is screwy, then you’ll find it hard to imagine how Vermont used to do things.

Back then, school districts raised money for schools locally; there was no statewide education tax. Which meant towns with lots of valuable properties could raise a ton of money with a tiny property tax rate, and towns with less valuable properties had giant tax rates that raised very little.

Take Hardwick, where Cillo lives. The property tax rate there was $3 per $100 of assessed property value. On the other end of the state, in Stratton, with its ski resort and pricey second homes, people were paying 3 cents.

“And, everybody looked at that and said, ‘This is crazy, you know, that the mountain happens to be in one town or IBM happens to be in one town, and just the kids in that town get the benefit of that plant, or that ski area, or whatever,’” Cillo says.

Elected officials had been trying to solve this problem for decades, by creating a statewide education tax. To make the funding more equitable, and make sure the quality of a kid’s education wasn’t a function of where she lived.

But it was a brutal lift politically. And wouldn’t come to pass until 1997, when a famous Supreme Court decision said the existing funding structure violated students’ constitutional right to equal access to education. And basically forced elected officials to do something about it.

As chair of one of the Legislature’s big tax committees, Cillo ran point on drafting a bill.

And this was an inflection point – a time when Amanda’s vision for funding education differently almost came to pass.

“We recognized or acknowledged that there were really two forms of wealth that were taxable in towns,” Cillo said. “One was property, in other words, assets. And the other was income.”

Cillo and his colleagues in the House of Representatives wanted to go with income. Mainly because they thought it was a much better measure of residents’ ability to pay.

And so they did. They passed a bill that based school taxes on people’s income instead of their property. There was one big problem, though: the governor at the time, Howard Dean – a Democrat – wasn’t a fan.

“The governor had been clear that he would veto an income tax. He would veto an increase in the income tax,” Cillo says.”

Did Dean simply did not like the optics? Or did he have more substantive concerns with what an income tax would do?

“I couldn't say,” Cillo says. “You'd have to ask him.”

So, I gave Dean a call, and put the question to him directly.

“Yes, absolutely [I opposed it], for three reasons,” Dean told me. 

Howard Dean was successful in blocking the income-based framework. And that’s ultimately why we have Act 60, the property-based system we use today.

The three reasons Dean opposed taxing income? He says the first, and most important, is that the property tax is a much more stable funding source.

“And if you went by the income tax, every time there was a recession, certainly school funding would’ve been plunged into an abyss.”

There are some who say Dean’s wrong about that, and we’ll hear from them soon. But for now let’s skip to reason two that Dean opposed basing school taxes on income, which is fear that it would scare away wealthy residents.

“And there’s some limit, I don’t know what it is, but there’s some limit at some point where tax avoidance kicks in in a big way,” he says.

And the third reason Dean lists is that the Legislature came up with an elegant compromise, in the form of that income-sensitivity provision we talked about earlier, that makes it so most Vermonters’ education tax bills are tied to their income anyways.

“So that the property tax bill you get is not the one you pay, for a large majority of Vermonters,” he points out.

Howard Dean talking into a microphone at the VPR Studio
Meg Malone
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VPR
File photo of former Vermont Gov. Howard Dean, pictured Feb. 1 2019, during a VPR debate with former Gov. Madeleine Kunin about gubernatorial term length. In 1997 Dean was successful in blocking an income-based tax framework. And that’s ultimately why we have Act 60, the property-based system we use today.

Howard Dean doesn’t hold public office anymore. But as a private citizen, he says he still thinks it’d be a terrible idea for Vermont to move to an income-based system now.

And what’s interesting is that he entirely rejects our question-asker Amanda’s concerns about wealthier Vermonters not paying their fair share under the property-based system.

“If I were making a billion dollars a year, my property taxes would be a much smaller percentage of my taxes than if I was making $100,000 a year, so it’s kind of a ridiculous argument,” he says.

Dean says there aren’t that many super high-income households in Vermont anyway. And that the tax-the-rich mentality functions much more effectively at the national level than in tiny states like ours:

“I think this sort of grievance politics of people who make a million dollars a year is silly, because there are very few people who do in this state.”

_

It is true that only about 1 percent of all tax filers in Vermont report more than $500,000 in annual income.

“I just think it’s silly to make a big deal out of a small handful of people and say they should pay more, they should pay more when the money doesn’t exist there either,” Dean says.

He says he’s open to the argument that working-class Vermonters are getting pinched by the current system.

“And if that’s true, and middle-class people are struggling, then you make it more income sensitive,” he says. “There’s nothing wrong with doing that. The mechanism that the Legislature designed still works. You may have to fiddle with the numbers, but you shouldn’t have to fiddle with the construct of how you tax people.”

But what if that construct is structurally flawed?

Property vs. assets

The effort to overhaul education funding isn’t the first time the property tax has come under scrutiny in Vermont.

You might have heard of the Current Use program, which applies a lower property tax rate to farms and forestlands.

A person named Deb Brighton helped create that program, back in the late 1970s.

“And really that’s why I got interested in the topic … my background was forestry, and I was worried about losing forests because of property taxes,” Brighton says.

Before the Current Use program came into being, landowners and farmers were selling off large tracts of land because they couldn’t afford their property tax bills. Property taxes, Brighton says, were having a direct impact on the landscape in Vermont. She says it’s why she started working in the tax policy field.

“And then I began to realize property taxes were a problem for more than just the trees, and so I sort of moved into education finance.”

Three decades later, Brighton is a leading researcher on tax issues in Vermont. Remember that Tax Structure Commission that Bram Kleppner was on? The one that recommended to lawmakers that we move to an income-based system for education funding? Brighton served on that panel too.

“We looked at the property tax against the ability to pay, and we found that there’s really no connection. And if there’s no connection between the ability to pay and the tax, it makes you wonder how that affects what it’s supposed to be funding,” she says.

Property taxes are a vestige of a different era, Brighton says. A time when your physical assets were a pretty good measure of your wealth, and therefore a good measure of your ability to contribute to the public good.

I know we’ve gone back in time already in this piece, but Brighton told me some fascinating history. Back in the 19th century, she says, the property tax was more encompassing:

“Not just your house. Your land, your barn, your cows.”

Listers visited everyone’s address, calculated the value of everything you owned, and then the state assessed your taxes based on the value of all your stuff.

“If you had a wagon with a bench seat, it was useful, and it was in the 'useful' category. But if it was a carriage, and that was defined as it had a spring under the seats, then it was in the 'luxury' category,” Brighton says.

In the "luxury" category, and therefore subject to a higher tax rate. Because you could afford luxury, and could presumably contribute more to public goods. We’ve whittled that system down over the years, though, to the point where it’s now just a tax on your home.

Let’s go back to those two neighbors that live in houses worth the same amount of money. If one has a used Toyota Corolla in the garage (i.e., a wagon) and the other one has a $100,000 Porsche (our modern day luxury carriage) our property tax system doesn’t care anymore.

“Even though it is still a property tax, the original property tax was much more linked to ability to pay,” Brighton says.

A core ethos

Brighton has been running some numbers for the Legislature lately.

According to that modeling, if Vermont were to switch to the system that Amanda – and the Tax Structure Commission — are recommending, here’s what would happen:

People making between $90,000 and $175,000 would see modest decreases, on average, in their education taxes.

People making less than $50,000 would also enjoy a break – not a significant break in absolute dollars, but meaningful as a percentage of their income.

And the reason they’d pay less is because the highest-income earners – people making more than $250,000 a year, would start to see in some cases significant increases in their tax bills.

According to Brighton’s modeling, the average education tax bill for someone making half a million dollars a year would go from about $8,000 in the current system, to nearly $25,000 under the income-based proposal.

The Tax Structure Commission grounded all its recommendations in a core ethos: "The overall tax structure should impose a higher burden on people with greater ability to pay, and minimize the burden on people with low incomes."

“Somebody looking at the tax structure in ancient Athens, basically they had this principle that everybody should contribute what they can contribute to the common good,” Brighton says.

And Brighton says taxing income to pay for education hews a lot closer to this Athenian ideal than taxing property.

Former Gov. Howard Dean, if you recall, was concerned that relying on an income tax would make school funding too vulnerable to big swings in the economy.

Well, Brighton says there's modeling that shows that over the last 25 years, that wouldn't have borne out. And in any event, the commission’s proposal bases tax rates on last year’s income, so a precipitous decline in personal income would not, as Dean fears, plunge schools into an abyss.

“So essentially that removes big chunks of the volatility question,” Brighton says.

Then there’s Dean’s other concern – about tax avoidance.

I asked Brighton: Is there any empirical or quantitative method that allows us to know the point at which assessments on high income earners will compel them to leave for friendlier jurisdictions?

“Not that I know of,” she said. “But nevertheless, your question is at what point would people decide to live somewhere other than this brave little state. Why would they do that?”

_

At the beginning of this piece, we talked about how a lot of people think this question about education taxes is as much about the future of schools themselves as it is about how we pay for them.

Don Tinney is one of the people making that argument. He’s the president of the Vermont-NEA, the union that represents most Vermont educators.

“The property tax is universally unpopular,” Tinney says. “And often can lead to eroding support for Vermont’s children.”

And our question-asker Amanda Calder makes a really interesting point about this.

“We don't vote on the defense budget, you know, we don't vote on if we're going to spend trillions of dollars on F-35s or on having military bases in 5 million countries — [I’m] slightly exaggerating but like, you know, we don't vote on that, we don't vote on a lot of things. What we vote on are school budgets,” Amanda says. “And so that's where I think a lot of people’s … [concern about] affordability … comes out.”

“What we have noticed in various communities is that sticker shock leads to a disgruntled taxpayer come Town Meeting Day,” adds Don Tinney. “And they decide, ‘I have to save money somewhere, I have to cut back on property taxes, I’ll vote against the school budget.’”

It needs to be said here that the vast majority of Vermonters do support their local schools: Well more than 90 percent of school budgets get approved on Town Meeting Day. But Tinney says the fact that budgets are getting approved doesn’t mean they’re getting the money they need to educate kids:

“Our school boards sometimes are more austere than they need to be, because they fear presenting a budget that will be voted down. I think if we had a more even revenue source, we had a consistent source of income tax revenue, that we wouldn’t have those same austerity measures in some of our districts.”

A push for change

The question we’re talking about today – "What would it look like if we paid for schools with an income tax, instead of a property tax?" – is a question that Vermont lawmakers are pondering as we speak.

Reps. Mari Cordes and Tanya Vyhovsky introduced legislation last year called House Bill 388, that would adopt, with some alterations, the proposal outlined in the Tax Structure Commission report.

Here’s Cordes to explain the general concept:

“All Vermont house sites would be exempt from paying school property taxes. That would be replaced by this state education tax, which is a form of income tax, but it's not like the regular state income tax.”

This proposal would only affect primary residences. Second homeowners, businesses and out-of-staters with vacation homes in Vermont would still pay education taxes based on property values.

But Cordes and Vyhovsky say overall, their proposal would simply the tax code, raise more money for education and help smaller schools stay afloat. And most importantly, they say, it would mean middle-income Vermonters would no longer pay more, proportionally speaking, than wealthier residents.

“As we know, people who are able to buy higher cost property, it's often a much smaller percentage of what their actual income is,” Vyhovsky says.

The legislation is definitely not getting fast tracked this year.

Cordes, a Democrat, says that’s not for lack of support. There are even some prominent Republicans who think switching to an income tax is a good idea.

But these changes like this take time, Cordes says. And the fact that they’re being talked about counts as progress.

“Often, bills like this that make major changes are a multi-year process,” Cordes says. “And this is how we start the conversation, how we maintain the conversation and pull more people in.”

It’s been 25 years since the last major education financing overhaul brought us Act 60. I asked Deb Brighton, the tax expert we talked to earlier, about whether it’s outlived its useful life.

“Thomas Jefferson said that one generation shouldn’t bind another generation, and he calculated a generation to be nineteen and a half years,” she says. “It’s been more than that.”

Closing credits

Thanks so much for listening to the show, and to Amanda Calder for the great question.

Peter Hirschfeld reported this episode. Lead production, mix and sound design by yours truly, with additional production and editing from the Brave Little State team: Josh Crane, Myra Flynn and Marlon Hyde. Ty Gibbons composed our theme music; other music by Blue Dot Sessions.

Special thanks to everyone who reached out to share their thoughts on this topic, including Maggie, Jonathan, Bob, Caleb, and Michael.

You can send us a note any time at hello@bravelittlestate.org.

As always, our journalism is better when you’re a part of it:

Brave Little State is a production of Vermont Public Radio.

Updated: February 23, 2022 at 1:14 PM EST
This post has been clarified to address the impact of House Bill 388 on second homeowners, businesses and out-of-staters with vacation homes in Vermont.
The Vermont Statehouse is often called the people’s house. I am your eyes and ears there. I keep a close eye on how legislation could affect your life; I also regularly speak to the people who write that legislation.