Governor Would Take from the Poor to Give to the Poor

For the second time in recent weeks, Gov. Peter Shumlin has proposed balancing the state budget on the backs of some of Vermont’s poorest citizens. With the latest move, the governor who says he’s adamantly opposed to raising broad-based taxes would effectively raise income taxes on those in the lowest income brackets. Vermonters shouldn’t stand for this.

In his second Inaugural Address on Thursday, the governor laid out a series of proposals aimed at strengthening education of Vermont’s children. One of those proposals, which he described as “the largest single investment in early childhood education in Vermont’s history” would cut the state’s earned income tax credit by $17 million in order to fund expansion of Vermont’s program to support child care services for low income families.

The Earned Income Tax Credit (EITC) is a federal credit available primarily to working families with children. It reduces the family’s income tax liability. It is also refundable, which means if the credit amount is more than the family owes in income taxes, the family will get a refund. Vermont is one of 25 states that supplement the federal EITC. The Vermont credit is 32 percent of the federal credit amount, and it is also refundable. According to the most recent Tax Expenditure Report, Vermont’s earned income credit was estimated to cost $28 million in fiscal 2012.

The governor proposed to “redirect” $17 million—about 60 percent—of the earned income credit to increase the child care subsidy Vermont offers to low-income families. In other words, he’s proposing to increase income taxes on certain low-income families in order to increase support for low-income families needing child care.

In December, the governor said the state didn’t have the money to help low- and moderate-income Vermonters who will see their health care costs rise under Obamacare. Vermonters currently enrolled in two state-supported health care plans, Vermont Health Access Plan (VHAP) and Catamount, face higher out-of-pocket costs when Obamacare takes effect in 2014. The governor said the state couldn’t afford the additional cost, which means it will fall on those least able to pay.

In his Inaugural Address, the governor was right on the mark when he talked about the importance of investing in Vermont’s children. Such an important investment should be worth raising some additional money from a broad base of Vermonters.  After all, every Vermonter benefits from this investment.

But if the governor is going to insist on a zero-sum game and take from one group of Vermonters in order to “invest” in another, he should look elsewhere for the child care money. Vermont’s business tax credits would be a good place to start. The EITC was created to reduce poverty, and it’s been a great success. The same can’t be said about business tax credits and jobs.

Posted by Public Assets Institute on January 11, 2013