I wanted to write to you about the Blue Ribbon Tax Commission report and the role of the Legislature.

The so-called Blue Ribbon Tax Commission was brought to life by the Legislature during the veto-override special session in 2009.  It called for a three-member panel to provide a structural analysis of the state’s revenue system and to offer recommendations for improvements, modernization and a long-term vision for the state tax structure.   Governor Douglas appointed Bill Sayre, Senate Pro-tem Shumlin appointed Kathleen Hoyt and House Speaker Smith appointed Bill Schubart.  The tax system was to be easier to understand, sustainable, equitable, economically competitive and “revenue neutral.” In other words, revenues added would be in direct proportion to revenues reduced.  The desire was to create a 21^st century tax system with a big picture perspective rather than picking away piecemeal at incentives and taxes.

On January 12^th, the Commission unveiled its 175 page report to the Legislature.  The report focuses on core concepts and purposefully does not get into specific detail.  The job of the Legislature, beginning with the House Ways and Means committee, will be to go through each concept and flesh out the details.  During this time, the committee will take testimony from experts, advocates and citizens and this can include you. .   I encourage you to go to the website: http://www.vermonttaxreform.org/library/ and click on “Final Report.”  For a quick summary go to page 15 to read the 3-page executive summary.

An interesting part of the report includes a review of our current tax structure.  They found that much of the conventional wisdom regarding Vermont’s tax system did not hold up under scrutiny.  These misperceptions were felt to have a deleterious effect on public debate resulting in recommendations for change based on misconstrued information.  In order to move the debate forward, the Commission needed to demystify these assumptions and focus on real vs. imagined facts. For example, the assumption that ‘some people don’t pay taxes” was not correct.   If total tax contribution is considered, lower income earners pay a greater percentage of their income on sales taxes while upper income pays a great percentage on income taxes.  Middle and upper-middle income taxpayers pay a greater percentage of their income on property taxes.

Over an 18-month period, the Commission held public hearings, completed careful study and participated in thoughtful deliberations, critically questioning every assumption in the tax system.  Though all three members found the process respectful and on the right track, they did not come to full agreement on all of the recommendations.  A dissenting view by Bill Sayers is in the report.

Over the coming months, and likely years, the Ways and Means committee will begin to look at the recommended changes to the sales tax and personal income tax.  As we move from a goods industry to a service industry, what are the implications of decreasing the sales tax rate from 6% to 4.5% but expanding taxes to services such as lawyers, landscapers, hairstylists?  Can we work with other states to change federal law to collect revenue on burgeoning Internet sales competing with our state-taxed merchandisers?

The Commission was in unanimous agreement that we should restructuring the personal income tax to align with surrounding states. By switching from Taxable Income to  Adjusted Gross Income, Vermont’s tax rate would compare more competitively to other states, simply by comparing apples to apples.  Does it make sense to take away deductions like the home mortgage tax and instead use a “residential tax credit?”

These questions and many more are likely to spur lively debate and certainly trigger anxiety as Vermonters wonder how they will land in the final package.  I trust that the  tri-partisan committee will do a thorough job in sorting this out.

Please join Joan Lenes and me at Bruegger’s on Tuesday mornings between 7:30-8:30.  I am also available by appointment.  Contact me at 802 233-7798 or klwebb22@mac.com

This next legislative session poses many challenges for our small state.  We face a $150 million dollar deficit in FY 2012. Our state population is the second oldest in the country (median age 40.4), preceded only by Maine (40.7) and we struggle to figure out how to retain our adult children or entice them to return.  Although we are making progress repairing our roads and bridges, many are still crumbling from years of deferred maintenance, and we are behind in broadband infrastructure so vital to today’s economy. We struggle to maintain funding for quality education and health care in a way that feels fair and equitable.  Our state agencies have been pared down making some legislation difficult to implement.   Our tax burden is high in comparison to other states and we continue to hear that this is a deterrent to business.  Even though our unemployment rate of 5.6% is the 5^th lowest in the nation, this offers little consolation to those unemployed or underemployed particularly outside of Chittenden County.

It is essential that we honestly face these challenges.  It is also worthwhile, however, to look across the country to see how other states are faring in comparison.  Here are a few areas where Vermont is doing well:

Vermont is the “greenest state in America” according to 24/7WallSt. The study analyzed and compared environmental problems across the country, then looked at how effectively each state was addressing these problems.  We earned high marks for having the smallest carbon footprint in the nation and the fewest carcinogenic toxins.  In addition, we have developed policies to promote efficiency, alternative energy, and reduce pollution and so far have succeeded better than any other state.

Vermont is the “healthiest state” in America according to the United Health Foundation having risen from 20th in 1990 to 12th in 2000 and to 1st in 2009 and 2010. We are tops in clinical care, particularly prenatal; have comparatively few cases of infectious disease and less air pollution.  Our poverty rates for children are comparatively low and we have the first or second lowest violent crime rate in the country depending on information source.   Although about one-quarter of us struggle with weight issues, we are doing better than 45 other states on obesity measures.

Vermont is the “smartest state” in America according to Morgan Quitno Education State Rankings.  Our children are the best educated with our 4^th and 8^th grade math and reading scores ranging from the 2nd to the 5th highest in the nation. Over a third of us have a college degree and we read more regularly to our preschoolers than any other state.  Our high school graduation rate of 89.3% is second only to Wisconsin at 89.6%; all this in a state 15^th from the bottom for median teacher salaries.

We win in a few other areas as well.  Our foreclosure rates are the lowest in the nation likely due to our honest lenders sticking to policy and long-standing guidelines for making loans.   We rank 3^rd in Morgan Quitno’s overall  “best state to live.”

As we face this next legislative session, we must honestly address our challenges with fortitude and courage and capitalize on rather than sacrifice those assets which have made Vermont an incredibly special place to live.  We have clear challenges as well as many, many blessings.