BRATTLEBORO — In its draft report to the Legislature this month, the Vermont Tax Structure Commission recommended shifting the education tax from a property tax to an income tax.
The commission isn't the first to suggest this change: The Public Assets Institute, a Montpelier-based think tank, agrees with this concept.
Last week, Rights & Democracy Vermont held a meeting for parents interested in school funding. Stephanie Yu, deputy director with the Public Assets Institute, outlined how an income tax would benefit Vermont's students compared to the current property tax.
According to Yu, the non-residential tax contributes 41 percent of the education fund. The residential tax makes up 26 percent, and other sources such as the lottery fund the remaining 33 percent.
Funds raised by the residential, or homestead, tax are effectively a hybrid of income and property taxes, she said. Households that qualify for income sensitivity pay based on their income, Yu explained.
Even with income sensitivity, however, the education tax is unfair to lower-income Vermonters, she said.
In general, poorer households tend to pay a greater percentage of their income than wealthier households when taxes are based on the value of property.
According to data from the Public Assets Institute, in 2008, households earning between $25,000 and $50,000 paid just over 2.5 percent of their total income in education taxes. Households with more than $1 million paid just under 0.50 percent.
Yu added that when considering fairness, income is often a more accurate reflection of someone's ability to pay. When people lose jobs, their financial well-being fluctuates. Property value, however, can increase independent of wages, she said.
The Public Assets Institute believes shifting to an income-based tax for everyone would create a fairer tax system. The move would also simplify the taxing structure and would reduce community members' frustration when trying to understand an otherwise-complicated education-funding system, Yu said.
On Jan. 20, state Rep. Laura Sibilia, I-Dover, introduced bill H.54, on Weighting Factors to Calculate Equalized Pupils, to the House Committee on Education.
Several Representatives have co-sponsored the bill, including Rep. John Gannon, D-Wilmington, Rep. Carolyn Partridge, D-Windham, and Rep. Kelly Pajala, I-Londonderry.
If approved, the bill would implement the pupil weights set out in the 2019 University of Vermont's “Study of Pupil Weights in Vermont's Education Funding Formula.”
Weights are one of the mechanisms the state education funding system uses to determine how much it costs to education students. Students with higher needs receive a higher weight. These needs can include living in poverty, speaking other than English as a primary language, or attending a rural school.
The $300,000 study found that the weights the education funding system used were not based on empirical information and required adjustment.
The report showed that the current student weights are inequitable and don't allow schools to provide enough opportunity for students, she said.
“This bill would put those weights into practice,” Sibilia said.
For fiscal year 2022, H.54 would temporarily suspend the excess spending penalty, which in Sibilia's opinion can exacerbate issues with implementing the new weights.
The proposed legislation also calls for the Agency of Education and the state Department of Taxes to report back to the Legislature at the end of 2022 on the effects of suspending this penalty.
The proposed legislation would also implement the new pupil weights with the exception of the poverty weight. This “pretty significant” weight, which the weighting study recommended increasing the most, would be rolled in over three years, she said.
The bill also has a provision to help mitigate the anticipated spikes in tax rates caused by the new rates.
Sibilia said that some “overweighted” communities have historically experienced low taxes because they had fewer students with higher needs or were located in a more urban area. When the new weights are implemented, these towns may see their education taxes jump, some more than 20 percent.
As the legislation is written, she said, the education fund would cover the amount above a 20-percent level in fiscal years 2023-2025 if a town's education taxes increase significantly.
“The study was quite some time in the making,” Sibilia said.
According to Sibilia, she and other members of the Legislature had advocated for such a study through several administrations. She anticipates lawsuits if the Legislature ends this biennium without adopting the weights in the UVM Pupil Weighting Study report.
Sibilia cautioned that the income tax discussion and the pupil-weighting discussion are two separate conversations.
An income tax is about how communities raise the money to educate students, she said. The weights dictate how the state accounts for the different cost of educating students with higher needs.