Last week when legislative leaders announced they would seek major tax reforms next year, they were bowing to the inevitable. Now positive revenue numbers suggest that, if economic trends continue, next year may be an opportune time for reform.
The Shumlin administration announced Monday that revenue for April was 6.3 percent above projections. At the moment the state is running a surplus of about $3.9 million, and Administration Secretary Jeb Spaulding estimated that by the end of the fiscal year in June, the surplus could reach $8 million to $10 million.
After four years of depressed revenues and slashed budgets, it appears the state’s economy may be ready to breathe a bit more easily. During a major recession, when a crisis mentality takes hold, it becomes extremely difficult for lawmakers to take on major reforms that risk hurting the interests of one sector of the economy or the other. But if the economy continues to grow, the Legislature may be emboldened to take up the challenge set out by Democratic leaders last week.
The tax system is like an old farmhouse, always undergoing repair and modification to meet specific needs. Over time, even the sturdiest farmhouse becomes so cluttered with quirky repairs that the owner has no choice but to strip off the old wallpaper, chip away at the old plaster, remove that cumbersome old cupboard, tear down that useless partition, raise the ceiling and make the place new again.
In recent years the Legislature has wrestled with piecemeal changes to the tax system but has fallen short. It has declined to tax Internet retailers such as Amazon.com. It has put off a tax on services offered via the Internet. It has neglected to take up the far-reaching recommendations its own Blue Ribbon Tax Structure Commission offered more than a year ago to broaden the tax base in order to lower tax rates.
Making any individual change to the tax system is difficult because change always hurts someone. Taxing Internet retailers such as Amazon would level the playing field among retailers, but Amazon has threatened it would withdraw affiliated businesses if the state were to impose a tax. Companies that offer cloud-based services don’t like the idea of a new tax any better. The commission’s proposal to extend the sales tax to a variety of services has met resistance from businesses offering services.
The best way to push through major reforms is usually as a package whose many parts are judged to be fair when taken as a whole and judged to be effective in providing revenue and stimulating the overall economy. Yet putting together a major package is difficult, too, because so many different interests are involved. Major reform usually requires some sort of “grand bargain” between the parties, which decide that cooperation for the larger good is in everyone’s interest.
Next year there will be an added incentive for taking a comprehensive look at the tax system. That will be the need to finance the state’s new health care system. It is possible that the officials devising the financing of the system will find it necessary to employ some sort of payroll or other broad-based tax. Any new state health tax would be offset by the elimination of health care premiums, but whatever tax or fee is used to pay for health care will have to fit into the larger state tax system.
House Speaker Shap Smith has promised to “take a deep dive” into the tax issue next year. The ultimate goal will be tax and health care systems that all segments of society judge to be fair, if not pain-free. We can’t get out of paying taxes. But we can strip out some of the antiquated renovations of yesteryear and make the structure sleeker, more modern and more workable for today.MORE IN Editorials
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