Lawmakers, analysts debate replacing Vermont school property tax with income-based levy

Members of a Vermont legislative committee spent more than two hours on a policy proposal to replace the current homestead portion of local school property taxes with an income-based education tax, hearing detailed analysis about distributional effects, revenue volatility and implementation hurdles.

Patrick Tidderton, of the Joint Fiscal Office, told the panel that the bill under discussion would calculate the proposed education tax on adjusted gross income (AGI) and that the draft language treats some business income as part of AGI. "The brackets introduced are based on just AGI," Tidderton said, and he walked members through tradeoffs he labeled under the pillars of a high-quality tax system: sustainability, reliability and fairness.

The proposal drew sharply different reactions. Supporters and some education advocates said income-based funding could better align school financing with ability to pay; business groups and tax analysts warned the change could increase year-to-year revenue swings and complicate administration. "No other state has or is considering an income tax to replace school property taxes on homeowners," Jake Feldman of the Tax Department told the committee, urging caution and more study. "If someone comes to the committee with the tax policy idea and it's not anything that anybody is doing, some red flags should go up."

Why it matters

The committee was presented with two core trade-offs: (1) progressivity and perceived fairness — who pays — and (2) revenue stability. Tidderton and other presenters highlighted that personal income taxes can produce sizable surpluses in good years and steep shortfalls during recessions, while property tax bases are comparatively stable year-to-year. Tidderton described the 2008…