 This is Senate finance. Okay. It's things are still loading slowly. I don't that we'd fix that problem, but it's not. Okay. So today we're going to go back. And take a look at s 212 in this is income based education funding. And first on the agenda, if I get this notice out of the way, is Stephanie, you deputy director of public assets. So Stephanie, the floor is yours. Thank you, madam chair members of the committee. Thanks for having me again. So I'm Stephanie you the deputy director of public assets institute and. Thank you. Just have a couple of points. I think I want to make when I. So when I came in a couple of weeks ago to talk about people waiting and. And cost equity payments. I mentioned that this month marks the 24th anniversary of the Brigham decision, which led to the transformation of our school funding system. So we currently have these two parallel systems for however, we're going to talk about that in a little bit more detail. And an earlier in that history in 1994, the house actually passed a fully income based school funding system for residents that was rejected by the Senate. But even before that we've had some form of income adjustments. So in 1970, we began a rebate program for older Vermonters with fixed incomes and rising property values. And in 1973, we expanded that program to low income Vermonters. And then we expanded that program to low income. More than tripling the number of taxpayers who are paying their school taxes based on income. So that now most Vermonters pay some or all of their school taxes based on income. So I think what you're talking about is really sort of the next step in the evolution of our school funding system that began 50 years ago. And from our, from our perspective. Moving to income based school taxes makes sense because it's fair. It's fair to say that we've had at least the same rate as low and middle income Vermonters. It's also a lot simpler. It would eliminate a lot of what makes the system complicated now the common level of appraisal, the lag in the property tax adjustment, the two rates, the two yields. And it would allow taxpayers, many taxpayers to spread out their school taxes over the year rather than being faced with one big bill, one or two big bills. A couple of times a year. So the two, you know, the way we see that the two big bills that we see in our school system, the two big bills that we see in our school systems with the system now are that it's complicated and regressive. Trying to force a property tax to act like an income tax means that we're adding a lot of, a lot of tweaks and making it more complicated, both for voters to follow and for local and state government to administer. One of the strengths of the school funding system I think is the direct democracy decision making system, which means that voters in each community are deciding each year how much to spend on their schools. And that's what we're trying to understand. But right now they really aren't. And the regressivity of the system is an equity issue. People with the highest incomes are paying the lowest share of their income in school taxes. Low and middle income. People are spending an average of about 2.6% of their income. Those making a million or more paying less than a fifth of that, about a half a percent. So income-based school taxes would go a long way towards solving both of these problems. And the tax structure commission took up this question, about how to improve the system and concluded that moving all residents to income-based school taxes would be the fairest system. I think, and I think they started from the premise that, and Commissioner Brighton can speak more to this, but started from the premise that, that one system was better than this hybrid system, that moving to all one or all the other made sense. And they really wanted to understand which one was the better idea, the property, a property-based system, or an income-based system. And again, I think what we have now started as a property tax, and then we sort of layered income sensitivity on top of it, which made it messier and messier. But it's essentially an income-based adjustment so that people can afford their school taxes. And I think one of the, one of the most important things that the commission dug into, the findings that they had, was that home value is not a good measure of ability to pay. At the low end, what you have is that property values might exceed a family's net worth because they owe a lot on their mortgage and they have few other assets. And then at the high end, the primary residence is a small slice of their total net worth. So in neither case is property value a good measure of their ability to pay. And ultimately you're paying your taxes out of your income and not your property. That's sort of our, our sort of high level, conceptual sort of ideas about why it makes sense to move to income-based taxes. But I think there's also some process stuff in this bill that's really important. The Education Fund Advisory Committee is a good idea. I think a lot of the issues that create confusion and frustration with the school funding system, both for policymakers and for voters, are kind of the result of a lack of coordinated system management. As you are all too well aware after the last few weeks, school finance has many moving parts that affect the taxes that Vermonters pay in each school district. And so changing one part of the system is going to affect the other parts. So it's helpful to have that technical analysis of the Education Fund performed outside of the political process gives you the information and analysis you need to make timely decisions. And I think across the board it increases trust in the system, both again among the information that, that legislators are getting, but also for voters. And it allows for a more long-term view of the fund rather than sort of year-to-year updates and focusing on, you know, any given years at fund outlook. And I think it would make it easier for the legislature to go back to setting the yield in January, which would also make things clearer and easier for school districts as they're finalizing their budgets and for voters to decide on them. So, you know, we, I think we have this, this solid education funding system with this baseline level of statewide equity, both for students and taxpayers, and we balance it with local control over school budgets. It's definitely complicated. It can be made simpler, but it is a lot more equitable than those of other states. And I think this is another step in sort of improving that equity. There's a lot of overlap in these two issues and, and how you're in, in both the pupil waiting and cost equity discussion and the income-based school taxes because of how they both impact students and voters. There's a close relationship, right? Between what, what towns pay, what voters pay and what they get out of the system. That being said, I think a useful way to think about this is that income-based taxes are correcting a current unfairness in who pays instead of higher income Vermonters paying a smaller share and lower middle income. Everyone would pay at least the same, but then the pupil waiting and cost equity discussion is really about where the money goes. Making sure all kids have the, the resources that they need through whatever mechanism you land on. But, but again, those two things are tied closely together in our system, but that is sort of the two aspects of the system. I think that you're looking at. So I think they're both important improvements and, you know, it would be great if we could make progress on, on both of them this year. Okay. Do you have any backup data for. That you could share with the committee. So we did put together a, a, a lot of analysis in terms of sort of the, the regressivity of the system and terms of the sort of steps you need to go through. I'm happy to share a handouts that we presented. That would be helpful. Thank you. All right. The other question I have my concern is right now. The income tax. Is the only source that the general fund has to go to. So if we essentially do away with the property tax and pay for schools. On the income tax, do you have any research as to what. How much of it would this proposal use up? So I think there's a couple of different questions in there that I can, that I can kind of split out if you don't mind. So the first one is what is, what is the excess taxing capacity. If we do this. Unless we want to raise taxes on, you know, income for all Vermonters. What's. What's the excess taxing capacity at that top end. That we're all going after and how much of it. Would. This proposal. So the first one is what is what's the taxing capacity at the top end. And you know, the way that we think about this is so personal income in the state. Total personal income. Grows pretty much every year. Right. This is sort of another big measure of. Big sort of macroeconomic measure of what's happening. And so we're at, I think around 35, 36 billion. Now some of that growth in the last year had to do with some of the COVID relief transfer money and that kind of thing. And so that's what we're looking at. And so that's what we're looking at. And so that's what we're looking at. And so that's what we're looking at during the great recession, even during economic downturns. What we saw is that total pot. Keep growing. Right. And, and so when we think about that. So right now we collect. Around. 11, 12, 13%. Of total personal income. In state taxes. State and local taxes. So for every percentage point. It's about give or take $300 million. Right. So, so I think the question is, you know, at various points sort of in the state's history, we've collected a larger share of that total personal income. So if we went to 14, 15% of that total personal income. You know, that again, for each percentage point somewhere in the neighborhood of 300 to $400 million. So, so I think that the question is less about what's the excess capacity at the top and more about how that collection is distributed sort of overall. So I think the capacity is there, it keeps growing. Right. Personal income keeps growing. The capacity is there. So again, another percentage point buys you a fair amount and you're still talking about 14, 15% of total personal income. But the distribution of it, which is sort of what this proposal gets to, I think is the key part. You know, right now, higher income Vermonters are paying a lower share than lower middle. Property, but higher income Vermonters are paying. A much larger share of the income tax. Is it because they have a larger. Is it something like 4% pay 50% of. The total income revenue, or maybe it's 10%. Pay 50% of the total. So they're paying a higher percentage in income. And we're the second most. Graduated, you know, progressive tax system. So that's what I'm talking about. I'm just wondering how those balance out. Right. And I think, I think. Commissioner Brighton is going to get into some of the, the detailed analysis of some of this stuff, but I will say that it's because they have a larger share of the income that that total personal income is obviously not evenly distributed per capita. Right. A lot of it is concentrated at the top. And so the total share of income that that group has. In the budget, is not equally distributed. As well as the value of income in that group. But the, but the other point I think, I think the other part of your question that maybe I didn't get, get to was this question of sort of the mix of revenue in the state. And I'm, I'm happy to show. We presented in the task force. You know, moving to income based school taxes only shifts a small share of the ed fund to. From a property base to an income base, you know, of a 1.5, 1.8 billion dollar fund. So overall, the mix of state revenues doesn't change that significantly. I can pull up the exact numbers, but I think it went from, I don't know, 28% to 31% somewhere in that ballpark. It's not a huge difference in terms of the overall mix of revenue in the state and what the base is for those types of, for the revenue. Has any other state done away with the property tax and gone all the income? Well, there's still property taxes. First of all, a lot of other states don't have a statewide property tax. They're property taxes. We're the only one that does. Right, so we'd still have local property taxes, right? We'd still have the municipal side of the property taxes. We'd also still have all the non-residential property taxes. This is just the residential slice. So we still have a significant amount of property taxes in the state, but to your question, I don't think that there's any other state that bases school taxes entirely on income for residents. Okay, so know where we can look. All right, Senator Pearson. Thank you, Madam Chair. Just a couple of questions, Steph. There's no other state that has a statewide funding system of any kind, right, in terms of schools? Hawaii does, but they're the only other one and it operates a little bit differently. Okay, and then you said something that I hadn't heard of before, that doing this kind of proposal would eliminate the CLA common level appraisal. Is that true or is that only for residents? Does the CLA apply to commercial properties? Right, so because it's a town-by-town adjustment, it's not gonna apply to the non-residential statewide rate. So it's only that residential piece, right? But would it still exist for valuation of commercial properties? That's what I'm trying to ask. I don't know the answer to that question. That's a good question. I'd have to look into it. It's not something I think. I see Deb Brighton nodding, so we'll ask her for that. The last question I have is sort of, I'm curious about the points the chairs brought up and I think it's probably widely held while I don't mean to speak for her, but that it would be a fairly common sentiment in the legislature is this capacity question and if we sort of make this leap, do we therefore limit our ability to generate revenue if we have some kind of downturn or need revenue in the future? And I think that's, of course, a very important question for us to understand and also we have to balance it with whether or not what kind of tax structure we have. Do we want a regressive tax structure, a progressive tax structure or something in between? We have as a policy set an admirably progressive income tax. But, and I think usually that's celebrated, but when it comes to the school tax, it's not the case, not at all. It's quite regressive the way, even though we've income sensitized it. And so when we, were we to make this change, could you talk about the tax burden that Vermonters are paying? Would this go all the way to saying our tax burden is progressive or does this say after we do this with the income tax and this, but you still have the sales tax, so the tax burden would be still mixed or I'm trying to understand, I'm interested in a progressive tax system across the board. I don't think it's a principle that we should apply to some of our tax burden, but not others. But I don't think as important as I think this changes, I guess I'm curious to know what it means overall to our entire tax burden that Vermonters face. Does it get us just better? Does it get us to an entirely progressive system or what's your reaction? So I think, so it's a good question. So you're right in saying we have this very progressive income tax, a sales tax that's flat ends up being regressive, right? Because people have to buy a certain amount of goods. And so lower income people end up paying a larger share in sales tax. And then the property tax is kind of bumpy because we have this income sensitivity, because we have this income-based adjustment, it's not regressive all the way through, right? So we're sort of already making this adjustment at the low income end, but it becomes regressive once you get past that income sensitivity piece. So this would sort of lift up that other side and make the whole sort of the higher side and make that the whole school tax piece progressive. So I think a lot of the work, we work a lot with ITEP, who does this sort of big who pays report by state every year, you may have seen it and I'm happy to send you this. Can you tell us who that is? The Institute for Taxation and Economic Policy is what ITEP stands for. And they do a lot of this work at the state level. And every couple of years they released this report on state taxes, but it's looking at state and local taxes combined. So I think you're still gonna have sort of some of the regressivity effects of the local, the municipal piece of the property tax. But if you're just focused on the state system, I think overall, does it completely offset the sales tax regressivity? I don't know, I'd have to look closely at sort of those numbers, but it definitely goes a long way in that direction. So I think that was part of your question. I think there was another part of your question that I wanted to respond to and I'm kind of lost it for a second there, but you can remind me if there's a question. I think that's what I was after was that question. So I'm sorry, I bumbled through my question. So maybe that's why it's confusing. No, you're fine. I think I did want to get to the first part, which was the part that the chair brought up was this question of sort of, are we using up the capacity? And I think I come back to this question of personal income keeps growing, but it doesn't grow, again, it doesn't sort of grow steadily across the income spectrum, right? It tends to be concentrated and be growing faster at the top. That's true in Vermont. It's been true in Vermont for a number of decades really, but we've seen that sort of accelerate over the last 20 years. So I think the question is, does your system keep up with where the money's going? More than are we using up the burden? Are we using up capacity? The question is, are we where we need to be in terms of how the system is designed? Thank you. Okay. Any other questions? Senator McDonald. Madam Chair, we've been sort of in this area of discussion three or four times already this session, and I've asked each one of those these times if JFO would bring us up to date on what percentage of Vermonters are paying their school taxes based on income. And we have yet to get an answer back what it was last year, a year before and what it's projected to be next year. Such information would be helpful in these deliberations. Okay. We will send that. I thought we had heard that, but we will ask them again. Okay, any other questions for Ms. Yu? Senator Hardy. I just wanted to respond quickly to Senator McDonald. That's in the People Waiting Task Force report. We've had, they've answered that question before, but you can certainly ask them. Again, I think it's around 78% if I remember, but I can pull it up and get that. That is my recollection, but any other questions? If not, I'm going to move on to Karen Horne. Hello. Hello. I'm Karen Horne with the Vermont League of Cities and Towns. And thank you for having me this afternoon. We have supported moving from Homestead Property Education Tax to Homestead Income-Based Education Tax for quite some time. Our board, our board endorsed both the recommendations of the pupil factor waiting report and those of the Tax Structure Commission last year. The, I did write about this for our legislative report this week and the Public Assets Institute actually had a graphic that speaks to the issue of the number of homeowners who are paying Homestead income tax, Homestead taxes based on income, which is two thirds versus homeowners paying based on property value, which is one third. I think that's also information that's provided in the Tax Structure Commission report. We, and I see that you're going to hear from Deb Brighton in a few moments and she made a presentation to the Ways and Means Committee yesterday which contained a lot of information about what it would look like if you actually did move entirely to income taxes for Homestead education taxes. We don't think it's that much of a leak given the number of people who are already paying based on income. So, and we've, as I said earlier, we've supported it for quite a few years I think it might be a bit of a heavy lift to move there this year at the same time that you're implementing the pupil weighting factors, the new pupil weights, but that's where we are. And I have relied on the analysis done by the Tax Structure Commission and Deb Brighton for my information on these issues for quite a few years also. There isn't anybody better than Deb Brighton to do that analysis. Okay, Karen, unless things have changed, I remember fighting the statewide property tax and unless things have changed a lot, towns have always had a difficult time. I think the standard breakdown was two thirds of the tax money went to the schools that may have changed, but what's the likelihood that towns would hold their tax rates steady if people are used to paying a certain amount and suddenly two thirds of that cost is taken away what is the likelihood that the municipal governments, which I think we've said a regressive or aggressive taxation would increase their spending? Well, I think that to be realistic, municipal governments likely would increase their spending somewhat. It's the only revenue source that towns have unless they have a local option tax and I guess we don't want to talk about that today, but thank you for- Well, that might go away too. Thank you for your supportive local option taxes in the past. Not that battle, so. Right, if you look at what's happening with municipal budgets this year, given the increase in costs for supplies, for materials, for retaining qualified personnel, budgets are going up at the municipal level and I think that's just a fact of life when you've got one revenue source. Right, and there are some towns where the municipal actually is larger than the school budget. I have- Yeah, there's all- It's generally speaking the cities and I don't know if it's all the cities, but because you provide those, a wide variety of services that most municipalities don't. Okay, questions for Deb. I am not seeing any. I'm going to go on to join Gianconia from My Business for Social Responsibility. Welcome, I know that you've been to the committee before, so just introduce yourself for the record and the floor is yours. Thank you, Madam Chair, and great to see y'all. I've been in front of this committee, but one time and it was pre-COVID, which feels like a small lifetime ago, and I think- I was going to say that was pre-history. Old history, and I was on crutches back then too, so it's a different ball game, but well, thanks as always. Thank y'all for the opportunity to offer comments on S212 and certainly appreciate the efforts of this committee and your clear recognition of just the critical role that quality education plays in creating a just, equitable and Vermont economy. So for the record, I'm Jordan Gianconia, Public Policy Manager of the Vermont Businesses for Social Responsibility. We are a statewide nonprofit business association with a mission to leverage the power of businesses for positive social and environmental change and to give you a sense of sort of a breakdown of our membership. In total, we typically fluctuate between about 650 and 700 members on an annual basis. About 35% of those employee, 10 full-time employees or less, 65% employed 50 full-time employees, about 6% employed 300 or more. So for years and years, Vermont, or VVSRs really held that a strong education system is essential for a strong economy and there's a host of, and there are very few mechanisms that are as effective as the public education system, increasing personal and intergenerational wealth, addressing poverty and crime, and also equipping the future workforce with the skills and knowledge that they need to succeed. So across the board, states that have made significant investments in education as workforce development to have much higher median family incomes, higher employee productivity, and also continues to help create a longer-term effect in terms of increasing state tax revenues through boosted wages and opportunities for workers. So the current numbers right now in the national level US worker with a high school diploma, they earn about $20,000 a year, which is about $10,000 less than someone who graduated high school and then workers with bachelor's degrees earn about $55,000 a year. So increased worker earnings grow our tax base and as a result, reduce pressure on our tax rates. So overall again, maintain that a strong educational system strengthens Vermont businesses as well, trains highly qualified workers with skills that match the needs of their employers and allows our businesses to really succeed and grow and relate and again, lead to the creation of additional high-quality family-sustaining jobs. So there's really a positive feedback loop there. Now how to fund Vermont's education system adequately and fairly is a very, very difficult question, a challenging one that's been facing our state for some time. It's one where BBSR has done a host of research on, issuing a 2015 white paper detailing some of our positions as it relates to our financing structure. And in voting on school budgets, voters and officials both will consistently reference the growing burden of property taxes as their primary driver for opposing school budgets. Granted, we had some pretty reasonable votes this past year and had some pretty strong turnout. But again, Vermont's current financing system also pins municipalities and school systems against each other with limited funding pool and a fairly complicated tax scheme. So first and foremost, want to address really the crux of this bill, the income versus property-based education taxes. So historically our over reliance on property tax means that Vermont's more rural, sparsely populated regions with disproportionately small tax basis couldn't generate the income necessary to provide residents with quality education. And of course, as you all well know, we did a lot of efforts to reduce these disparities and that ranges anywhere from creating, taxing on non-hospitable properties at a uniform rate, tying education to tax to districts for voted supported spending per pupil and adjusting education property taxes for homes with up to two acres to better reflect household income. So while VDSR recognizes the critical and hard fought advances that we've made in reducing disparities between Vermont school districts and keeping our education tax from being over the regressive, property taxes just simply aren't, they're not an adequate method of funding Vermont schools. Property taxes are regressive and the burden of paying for local schools largely falls on lower to middle class Vermonters. And of course you'll hear a lot of really common themes as to what staff has mentioned and others. But ultimately property taxes just don't reflect a household's ability to pay taxes and afford other critical goods and services. So the most I'm relying on the Federal Reserve's 2017 assessment that low net worth households typically own homes that exceed 100% of their net worth. And as Steph mentioned, that's largely because they don't have many other assets and they're also mortgaging their homes. So still have to chase down that debt. For middle income families, their home typically runs about 88% of their net worth and then 25% of the net worth of higher income families. So under current Vermont law, a family making about 125,000 a year would pay roughly 3% of their total household or total income in homestead school taxes. Family making more than a million dollars each year pays about 0.5% of their total income taxes and this largely mirrors national trends. To give a more practical example and recognizing we now have a lot of cost containment mechanisms and a lot to address disparities, but ultimately if you took those away, a taxpayer who suddenly found themselves unemployed wouldn't see a change in their property tax bill even though their ability to pay has greatly diminished. So to draw things back to look at, really at the 10,000 foot level, VBSR developed or held a tax and fiscal policy statement and that really calls for a tax system that's fair, that's simple, transparent, accountable, sustainable and also competitive. And we really feel that sort of this overly complex use of an amalgam of property-based and income-based taxes to funder school system fails to meet these marks in the changes as proposed in S212, namely to move from a predominantly property-based tax to an income-based tax would really simplify the education funding system that will allow for more participation in school budgeting across the state. Again, because of that simplicity. One, address the non-homestead education property taxes as well. So right now property taxes contribute to about two thirds of all the revenues to the state's $1.8 billion education fund. And of that, the homestead tax provides, it's about a quarter of all the revenues and non-homestead tax, namely those applied to homes, rentals and commercial properties, they bring in about 40%. So we strongly support retaining that non-homestead tax, especially considering Vermont's abundance of second homeowners in the booming short-term rental market. That being said, I really wanna, cannot stress enough the significance of the tax credit for renters to offset the costs that will continue to be passed down to them by their landlords. We do have some concerns at these expenses in concert with a new income-based tax. Education tax will create an undue burden for Vermont's renters at a time when rental prices are an all-time high. So, the quick stat there, the out-of-reach report from the National Low Income Housing Coalition reported average Vermont earnings to earn about $24 an hour to afford a safe decent place to live in Vermont, but the average renter makes less than $14 per hour. So that marks the sixth largest affordability gap in the nation. So we appreciate some of those cost containment measures for those who have lower AGI's, but really urge this community to consider both circuit breaker credits and more robust withholding options as well for Vermont taxpayers to ensure that these changes are not overly burdensome on renters. So more of a concern than a hard stop or more on the hard line in that space, but just a flag. And then lastly on the Education Fund volatility, I appreciated your comments, Madam Chair and others. So presently, our property-based education tax funding systems, it's fairly stable and predictable. Our budget informs the property tax rate, required to raise the funds that we need, and the property tax base is a fairly known quantity going into this process. The shift to that income-based model means that there's some volatility passed on to the taxpayer, but to avoid some of the really major shifts in tax rates and to increase predictability, we would encourage y'all to create, consider creating more robust Education Stabilization Fund and other cost control mechanisms as recommended by the Vermont Tax Commission's most recent report, and that includes the creation of the Education Tax Advisory Committee to support both coordination across the board, also accountability and transparency. So with that, I wanna thank y'all for the opportunity to offer comments and happy to field questions. Okay, any questions? I'm not seeing any. So thank you. And if you haven't, can you submit that white paper so we can read it? Absolutely, Madam Chair, I had a hard copy only that I had pulled out of our storage unit, so I was looking either standard to get a digital one before I got it to you, but I think I found the digital one, so I'll have that to you. Okay, good, then we can get it up on our website and folks can read it. Sounds good. Okay, now we're gonna go to Deb Brighton. So Deb, the floor is yours. Thank you very much, Deb Brighton, and I'm consultant to the Joint Fiscal Office. And what I wanted to do now was get back to you because when we spoke before, I hadn't been able to actually run the numbers on S212, and I have been able to do that now, although I ran it for FY20. So I'm using actual numbers, but FY20. And so I wanted to give you just some of the results. And before I start, I wanted to make sure that we are all on the same page that basically the plan is to replace our current house site education tax and our property tax credit with a tax based on residents' adjusted gross income. And that's the only part that we're changing. Okay, we're not changing the non-residential tax or the other taxes that go into the education fund. And we're also maintaining the yield system, which is what makes us rig them compliant now. It essentially says that for the same spending per pupil in any district, you would have the same tax rate. It's as if we shared the tax base. Everyone had the same tax base per pupil. We would do the same thing with the AGI. So everyone would still have the same access to the tax base that comes from like combined revenue sources that go into the education fund. And I wonder if I can share my screen as- Yes, I think it would be helpful to- Okay, I've got some charts for you. They're also on your website. Okay, I think it's easier to look at them straight in front instead of looking up and down usually. Okay. I mean, yeah. You can tell me when you see something. There it is. Okay, great. So I wanted you to start off with the very basics, which is the way we're gonna set the rate. And it's the same thing that we do now. Basically, we take the spending per pupil, we divide by a yield, and we come up with a tax rate. And the tax rate would be a percent of a just gross income. And so it would mean that in any district, it would have access to the same tax base essentially. It wouldn't depend on the AGI of the residents in their district, it would be statewide. So I just had an example here of district A, this spends $15,000 per pupil. And district B, this spends $17,000 per pupil. In either case, you'd take the spending per pupil, divide by the yield, it's set by the state, and you come up with a tax rate. Okay, so the tax rate would be higher in district A than in district B. So we keep the local control, the rates would vary from district to district, but they would vary depending on spending per pupil rather than depending on the AGI of the residents. So this chart is just showing you two things. District A and district B, district A spends less. And so the height of the bar, which is showing you the tax as a percent of a just gross income by income category, household income category. So you can see that district A, the bars are consistently lower than the bars in district B because their spending per pupil is lower. And you can also see that in both districts, after you get to an income of $50,000, the height of the bar is the same for all income categories. In other words, no matter what your income category is, you're gonna pay that percentage of your income. The same percentage that was set for your whole district. For the same level of spending, right? I'm sorry, I missed that question. For the same, you paid the same percentage for the same level of spending. That's right. That's right. Okay. Madam Chair. Yes, Senator McDonald, you have a question. Is it, what I look at is a complicated bunch of bars and graphs, but have you essentially simply applied the same rules we use to the property tax base now under current law? Have you simply applied them to the new income tax base and then allowed the masks to perform the same tasks? Yes. So it's just a switch. Essentially. The basis, not a whole new convoluted system that we have to relearn, it is simply a substitution of tax basis for the purposes of comprehending this. Is that fair, Alison? That's correct. It's based on spending for people and it's sharing a tax base. It's just stripping off the credits and all the caps and things like that. So it's much simpler. Thank you. Thank you. Okay. So this chart is comparing, the same chart that we just looked at with current law. So you've got the income categories across the bottom and the height of the bar is showing you the tax or the tax bill as a percent of income in each of those income categories. And so as you would expect, the purple line is straight. And maybe I should point out actually, the first chart that I showed you was just conceptual. Every chart I'm gonna show you after this is based on the actual numbers that we have from FY20. So it's actual people with their mix of house value and income. And the categories at the bottom are household income as we currently know it. And we'd be shifting not from household income but to AGI. So there is a difference in the way we're measuring income. And they track pretty closely but there's some definite glitches. But anyway, what you notice here is that the purple line is pretty much straight across because as we said before, you're paying the same, everyone's paying the same percentage of their income in each district. And when you multiply it or bring it up to the state as a whole, you pretty much get a straight line. But because there is a variation between districts, if you find more high spending districts in one income category than another, you might say a little blip. So, but the height of the red bar is current law. And so you can see that it's higher in certain income categories but it's definitely not an even percentage of income. Okay, Deb, I've got a couple questions, I guess. If I am a very wealthy person and I am living in a low spending town, am I going to pay the same percentage of my income as the wealthy person living in the next town that is low spending? Or am I just paying a statewide flat rate that's equalized? No, you're paying your town's rate. Okay, so if the town next door, if you were paying $15,000, if your town were spending $15,000 per pupil, and the next town was, you'd be paying the same rate no matter what town you were in. Okay, but it does fluctuate. It fluctuates, yes. So, all right. I'm trying to figure out why towns with a lot of rich people wouldn't find it easier to spend more. But the one thing that's missing on your chart, I see the percentage of your income but what's the dollar change there? Okay. I mean, to say that's a pretty big, how much more? And again, I'm going to ask you the same thing about the taxing capacity. How did you figure out how much we can tax certain groups before they revolt? And we spent the last blue ribbon tax commission being very focused on our top marginal rate because that was the one that showed up in every national study and made us the highest income or second highest income tax in the country. So what's this going to do to that top marginal rate we've been trying to get down? Okay, I can't answer all of your questions. Okay. But I can show you as far as I've gotten in terms of modeling what would happen. Then we have to dig deeper into what this means in the bigger picture. But this is showing you this is, so the other charts that had that straight line, that was as a percentage of income. And I think this is getting to Senator Cummings question about what's the difference in the bill. The chart looks quite different. And this is showing you that the purple lines are showing you that under the resident education tax, the bill would go up because it's a percentage of income. And as the income goes up to 0.5% of the income goes up as well. So the bill goes up. And the red bar is showing you the actual bills. So you can see there's significantly higher at the high end. And this red bar jumping up here is just actual data, actual people that ended up in that category. It's nothing structural about our current system. Okay. So right now, somebody that's paying looks like six or $7,000 in, which is pretty low. I'm paying a lot more than that. What town are they getting away with? But they're paying somewhere a little bit, maybe eight, but less than 10,000. They're going to be paying about $25,000 in property tax. So the property tax is going to triple. Yeah. Well, it wouldn't be in property tax being school tax. It would be an income tax, whatever. Education. They're going to be paying. Three times as much next year as this year, right? At least more than twice. Yep. Okay. All right. So, and I just asked Deb quickly before you go away from that, from that chart. I'm intrigued and this comes back to what I asked Steph earlier. This is, this is a flat tax. So while it has a, it has a straight line, I guess you would say, it has a straight line. But that's not what we think of as a progressive tax structure. Right. And can you just talk quickly about the difference there? You know, for instance, I don't know if you have it yet, but, but the same structure here with our income tax. Overlay would be, would be maybe interesting or surprise people. Yeah. That Massachusetts has a flat tax for income. What do they do for school taxes? Madam chair, would it be all right if she answered my question? Oh yeah, I didn't know you. I answered one. I'm sorry. I really don't know the answer. Except that. We did talk about on the tax structure commission. We spent a lot of time talking about should, should this tax be progressive as well. And I decided partly for simplicity. And partly because of the change to just keep it as a flat percentage of a just a gross income rather than to make it progressive. And that also helps with volatility issues. So the next step, I think one of the things that we were frustrated with is the same question that you asked earlier. And that is the tax incidents. Figuring out, compiling everything and trying to figure out my income category with all the different taxes. Where are we in terms of the different income categories? And I think that will help us understand whether the system is progressive or not. And also what the capacity is in the different income categories. And I think that's a good point. But at this point, we don't have that collected. So that's sort of our next step. And one of the recommendations that we made about setting up this education. Finance advisory committee, ongoing committee is to be able to. Take a look at this sort of stuff. The combinations and where the school tax fits in. And I think that's a great update on that. I think that as ability to pay. Changes over time. We want to keep up with it. I think that's sort of what Stephanie was saying. We want to make sure that our tax structure is keeping up with it. Sometimes it wouldn't automatically, but sometimes we need to make other changes too. And we don't catch it because we don't. We're not measuring. This in any ongoing way. I don't want to answer your question, but I want to. Thank you. You just totally lost me. What. Aren't we measuring or can't we measure now? Okay. So what would be nice to answer your questions and to answer Senator Pearson's questions would be to. Compile the incidents. And then take a look at the tax structure. All our taxes. Okay. And it's not just taxes. It's also. Our tax structure is taking taxes and it's also giving. Giving revenue back. Right. So looking at those in steps, you know, where we're taking the taxes from where it's going back to. And where we end up. But right now. We don't have that. We don't have that. We don't have that. We don't have that. We don't have that. But once and then to do it periodically. So we could see what's changing. Okay. And you've chosen an outside committee rather than joint fiscal. Working with tax and ed to do that. Well, we wanted. We definitely wanted an education finance committee so that more people would be able to do that. The tax structure commission didn't say who should do the incident study. That was sort of a separate recommendation. Okay. Cause I think we've got three people working on it and joined fiscal right now working on. School taxing. So that may be. Something we need to work out. Okay. Okay. Next graph. Okay. So we're going to look at the next slide. And then we're going to look at the next slide. And then we're going to look at the next slide. On the people in the lower income ranges. Where the, where the lines start to diverge. The purple line is the residential education tax that we're proposing. The red line is current law. And the income categories across the bottom. And the. Line goes up according to what the median tax bill is in each of those income categories. And the median tax bill. Tax bill that we're planning to go to would be. Result in a lower bill. Up to about. Somewhere around 40 or 50,000 income. Then they're roughly the same. And this. Going up here. The red line is much higher. Over 90,000. Cause there's that house. I kept. At 90,000. So we have this. That's a higher percentage of their income. Than at lower incomes or at higher incomes. Under current law. And then the. The purple line, the residential education tax. Continues pretty much as a straight line, but somewhere around. This was between. 200. 225,000. In FY 20. They diverge. In FY 20,000. That's when it starts to get higher. If you go to the residential income tax. So. The next chart is just sort of layering on the questions. We get a lot of questions about. Are we paying our first share? Or are we just shifting everything to wealthy people? And what are people. Who's paying their share? And what are the payers we have per income category? So you can see that the bulk 40% of our tax payers. And this is just again. Homeowners. Okay. So about 40% of them are in the 50 to 100. $1000 income category. And they're very few up in the higher income categories. And so then if you did the same idea, but instead of looking at the share of households. In each category, looking at the share of the total taxes that are being raised. The height of the bar is showing you what share of total. House side education taxes. Are being raised in each income category. And so the red bar again is current law. The purple bar is going to income. So you see that that same income category. That had the most filers is definitely. The total taxes raised. The total taxes raised. I share. High proportion. Of the total taxes raised. Other thing to notice is that that at the very high end. The. The residential, the income version that we're going to, the residential tax would be a lot higher than current law. Yeah. Not to put too fine a point on it, but. But this is. What we're looking at here. Proves the slogan, I guess that this is. A strategy to offer middle class. Tax relief. Right. I mean, this is the people between 50 and 150. Are seeing a significant. I just want to make sure that's what I'm looking at, but it's a, they're, they're seeing. The benefits in that sense. And the people at the very high end. Are furnishing that benefit. Yes. Yeah. So the next chart sort of compares the two. Those overlays, the two charts. To see that. And that the gray bars are showing you where the people are. And then the blue line is the percentage of. Education tax that each group would pay. Okay. So the red line is under current law. And then the blue line. Is under that. Income. And so. What happens is you get a drop in that percentage. In. In this category. The. 5,200. Income category. You see a drop. Income category. You definitely see an increase over here where you have. Less than 1% of the, of the filers. Are in this category. And they pay. 8.6%. Of the education taxes under the residential. Education rate. That's the biggest difference. Okay. That's the biggest difference. And so this is showing you the shares. And so this is showing you the shares. Of taxes raised again, but by the share of adjusted gross income. Compared by. Compared by income. Yeah. So the gray bar is showing you how much of the state's total. Household adjusted gross income. And so this is showing you the total. Income category. And then that a high amount of it because there are a whole lot of filers, not because they have high AGI necessarily, but a whole lot of it is in. That 5,200. And thousand income category. And then you also see there's a big jump up here in the category. Of over a million. And you can also see that the purple line, the red line, the red line, the red line, the red line, the red line is perfectly. Because that's what we're doing. Because it reflects your ability to pay. That's right. Yeah. Okay. Okay. That, that is the purpose. And, you know, I've. This next one shows. Basically the same chart, but it also shows you where, where we are. The red line being current law. So you can see the same differences that you saw before. And you can see the difference between the two. And you can see the difference between the two. And you can see the difference between the two. And I, as, as well as the way we would be going to. So it's not a huge change that we're making. But you can see where the differences are. Okay. I, there is a table there. That I don't want to go through. But it shows you. Where. In which income categories, how many people would see an increase and how many people would see a decrease in their tax bill. And so we're, we're dealing with this so many times that. We look at that and we focus way too much on. The change from where we are now. And instead of focusing on where we're trying to get to and whether it's fair. So. You're welcome to look at it. You've got it up on the website, but in the interest of time, I wanted to spend a little bit more time on where we're trying to get to. And so this last chart is just showing you. A town. And this is a real town. And. There are people in higher income categories, but I'm not allowed to show. Data for small. Numbers of people for confidentiality purposes. And the reason I'm showing you this is. Because the. Change. Some people ask where the big change is going to be, what towns are going to be winners and what towns are going to be losers. And essentially it's not a. Town by town. Change is not a district by district change as Senator McDonald said, we're doing the same thing. As we did before. We're setting our rate exactly the same way. We're setting our rate exactly the same way. And so the high spending district. Will be still be a high spending district. And a low spending district will still be a low spending district. And so that. That won't change. But what does change is within a district. The bills will depend on people's. The relationship. Well, it'll be based now on there. And it'll be based on. The relationship between their income and their house value. Okay. Because that's what they were paying on before they were paying on some combination of income and house value. And so. In this town, which is Middlebury. You can see where the purple bar is lower. That's the income category. And that's where the purple bar is higher. In that income category. Where the bill would go up. Okay. So it's. Not going to change things in terms of what's a high tax. District and what's a low tax district. We're still basing that the same way. It's just shifting it around. I'm going to ask you a question. Senator Brock. Head on you. I can see. I can see that. Excuse me. That in this particular case, if you move over to the right side of the chart, there's some people who it looks like would effectively have their taxes doubled. During the course of the year. Others, you know, the changes is much more modest, but it's much more obvious at the, at the large N. In terms of tax reductions, though, it is, it is less significant again until you get to the, the very high end. So what I've got is as you look at the very, very, very wealthy people in Vermont who probably aren't on your chart, the person who had 20 million or 30 million a year, you know, huge amounts of income. Their taxes would go up exponentially. And is there any thought as to whether or not that might have an out migration. Impact on those higher end taxpayers. And what would be the impact on those higher end taxpayers. Who would have a disproportionate impact on the rest of the system. Right. It's a kind of question that I really can't answer. And, you know, I think that it's one of the things that we've thought about is just trying to figure out. What the combined tax burden is. On different incomes, particularly on high incomes now. And I think that's one of the things that we've thought about is how that compares with other states. But in terms of at what point it's too much or whatever, I don't exactly know how to get it. But it's definitely the next step to look at $30 million a year. And you took a 2.5%. You've got what $750,000. In taxes. Whereas if they had a very expensive home. Under the system we have right now, $30,000. And that's a big, and you know, Is, are there any studies as to what motivates. Out migration. Among the wealthy. It's a good question. I can't answer it. I'm going to try to dive into it. Okay. Thank you. And if I could just sort of finish up on the things that you don't really see in this chart. About where we're going. That what this also does is it makes it very simple and very direct. So that when people go. To school meeting to vote in the budget, they would know. They're in the process of preparing their income tax. They know what their income was. For say, 2021. They could. Would therefore know what. Like a 2.5% rate. If that's what they're voting in. Would do to them. There would be no. Pay one tax first and get. A credit in the next year. So it would be pretty clear and pretty direct. I think. Also, we would start thinking of. This tax as. What you should pay. And right now, what we're doing with this combination of property tax and education tax is we're sort of looking at property tax is the right thing. And this education credit is like a subsidy. And so it's, it's shifting our thinking, I think. To saying. This. We want to make sure that our tax is fair. And this is what we're doing. And this is what we're doing. And I think basically it's an attempt to move to the ability to pay. Okay. Yeah. Couple questions. I lost my train of thought on one of them, but. We've always tried. To limit major impacts on your tax bill. We do most things in three to five year. I think we're looking at waiting in five year. Increments. To go from 30,000 to 750,000. To go from 30,000 to 750. It's more than a 3% job. Have we thought about how we're going to phase this in? No, haven't gotten to that yet. Okay. And we haven't done the research on the total. Tax burden, right? When we look at different categories. Right. And those are things we probably should know. How does Massachusetts that has a flat tax on income? How does it fund its schools? Do you know? I don't know. I'll check. Thanks. I think it's just worth saying. I know the answer, but. What we're talking about eliminates. Homeowner's property tax for school tax, right? I mean, it's, we've been talking about what it means to income taxpayers, but it, what it means to homeowners is. They no longer get a property tax bill that has their eyes popping. Other than municipalities as we heard. We've been talking about that for a long time. We've had many years of sort of stagnant income. What. I think it was you said that people would be able to, maybe it was Steph, Stephanie, that people would be able to pay this over time. And there are some towns where your property tax bill is due once a year. Most towns, I think you're four times a year. Can you just talk about mechanically? Um, and is that complicated because the business has to figure out where you live or would there be a, you know, a placeholder withholding and then it would get trued up. Can you just talk about some of those mechanics, please? Um, well, right now the way the bill is written, it's assumed that it would be withholding if that's. What you have or estimated payments. If that's what you do. Um, but. Um, I don't know. Um, I don't know. Other people have said it may be better to just have. Um, to keep it separate from the personal income tax and to have. Four installments or five installments. And closer to what some towns have done for property taxes. And part of the reason for that is. As you said. We're shifting. We're shifting. We're shifting. But we're totally replacing your property tax paid on your homestead. And so in a sense, we don't want. It to get confused with the income tax. We have a personal income tax and we're calling this the residential education tax. And so maybe it should be kept separate. Also in terms of. Uh, the withholding. Or the estimated payments. But the idea is just basically. One on some payment. Okay. And what, what does it do? There's, there's a plenty of people that. Fill out their taxes and get a, get a refund because maybe the, the herd income tax credit. Um, or other things. How does this. Fit on top of that. And some of those existing structures in our income tax. And it would be. If you pay in, particularly if you. The way it's written now is, is that there would be withholding and it would just, you'd have like three choices of. Of. You know, percentages. And there wouldn't be any penalty if you chose the wrong one, but you'd reconcile at the end. So you might get a credit if you chose a high withholding amount. But it could be done that way. I guess what I mean is, is, um, you know, it's ironic, but, but there are. Tens of thousands of Vermonters who are quite eager to fill out their taxes every year because they get a refund. Because of our refundable tax credits. I want to make sure that I'm right. I don't believe. This, this, there's no getting refunded out of this one. I don't think it's going to work. I don't think it's going to work. Like, this is a hard obligation. That the earning income tax credit might, might work against, but, but there's no. Right. In other words, somebody that. Today gets gets a refund and effect or it would seem like their tax bill is zero in April. There's no way they still get zero. They're going to have to pay this. They're going to have to pay this bill, right? Right. So that's a good point. Um, it would be independent of it's not going to lower your earning income tax credit. Um, you know, it's, it's not going to change any of that. You have to pay this bill. Okay. And then the other question I have. Cause it's another. Complexity that we have is, and, and I might, when I first started. When I first started talking about this, I stood with bud Otterman and enjoy Donovan and which, which dates me because. But Otterman's being in the ground for a while. May he rest in peace. And he was a principle. Bullish conservative. I liked working with him. But, uh, he was from Topschirm, I think, and, and he liked this because it had a real impact on rural communities. And that had to do something. And I think that's what I would say. I think that's what I would be happy to explain. With the home site and two acre kind of. Division is that. Can you. Can you, am I right to still be granted in there? And I guess really the question is, what does this do for rural communities where. Um, you know, you're, you're, you have a lot of acres in your home on your lot. You have a lot of acres on your lot. So. So, um, I think there's a lot of different sorts of that acres. And maybe it's only for folks in current use, but can you, can you walk me through that? Cause there are implications for rural communities that we should understand. Yeah, I would say. Rural communities. If you have. 10 acres. Or something. Um, It's, it's not as helpful. Because. Um, It's not as helpful. Okay. And the current use program. Won't pick up. That until you have 25 more acres. So you have to have a house of 27 acres. Before you can get into current use. So we've got that odd. Um, Bubble in there. Where. Um, you're. So if you had a house and 17 acres. If you had a house and two acres. Would you switch and pay on the income, but the 15 acres. Would be subject to the tax, the non homestead tax. Okay. That's all there would be. There wouldn't be a homestead. Property rate the way we have it now. So it would be as if it were non homestead. Um, The, But it is true that the, um, The. Listers are directed now to valley the two acres around your house. That's sort of a separate. How something to acre a lot. So the, The 15 extra acres would be low value. That hasn't always been true. And so am I hearing you say that wouldn't be, there's not a big difference to what it means. Depending on the size of your lot. Or if you live in a town or, or, or a city. You're just, you're just getting this applied to your income. Yeah, I mean, the difference is if you have those extra acres and you're not in current use, you would have to pay the non hopes and tax on that. If you were in town and you only had a house in two acres, you wouldn't have that extra acreage to pay anything on. Okay, so a rural person of low income. You could pay on their income for the first two acres. But if they owned 20 acres, they were going to pay the, the non residential property tax, local property tax on that additional 20 acres. It's virtually the same as it is today. That's correct. Except that they, there's a, I think it's guaranteed that the local resident property tax will go up because I don't know a community that if they could get any tax flexibility doesn't have really good things they could use it on so we're getting our next group in but when you I remembered what I wanted to ask you when you figured the overall tax kind of burden on different groups. Part of the Trump tax credits was. I think we're trying to find a way around it but two people, you know, a couple household that works for salaries and you get to advanced practice nurses a doctor and advanced practice nurse. And they own a nice house, they can't deduct those credits from their federal tax anymore. So if we are in fact raising your tax bill 750,000 for one person. That's also 70 750,000 that can't be deducted from your federal taxes so it is something about it's a double hit there. And you know just when we're figuring that figure out that impact. That's a good point to Pearson one last one because I've got my yeah, I know we've only got one minute Deb are there. Could you just tell us what pieces do we still need to work out here if we if we want to advance this because I know we're late but I'd love to give it a shot I mean, yeah, to really enact this and we need something around a phase in period. You know I believe we need to figure out some of the mechanics for renters. So I'm looking for and you can you can answer me offline if you want. Okay. I think it is important. If we, if we're going to have a prayer here. All right, I need to have a lot more information on the total tax burden. Madam chair, I'm going to work on this since early January. Yes, and we've been waiting on it since early January and I have been asking for it. Senator Bray. I know we're short in time and we're moving on, but I just wanted to speak up in support of it because I think there's a lot of merit and it seems like at heart it tries to come back at a definition of fairness that I think many people share. So I'll just stop there. Thank you. Okay. All right.