The Potential of Limited Self-GovernmentBack to Issues Page
Like many others in Brattleboro, I support self-government for Vermont towns. One of the other articles on my website addresses the issue and the Vermont League of Cities and Towns proposal to try a self-government pilot program in the state. But whenever I discuss self-government, I’m asked one question over and over again, summed up by this eloquent iBrattleboro comment by Steven-K Brooks:
“Oscar, you have done well explaining the problem. But about the solution, you have only said that Brattleboro needs more freedom to find other sources of revenue. A real solution must be more than an abstract principle: There must be a practical idea that we can develop. I think that the missing piece of the puzzle in your discussion is that you have not mentioned even one alternative way that Brattleboro could raise revenue. I think it is important for you to offer sound and practical ways that — if unimpeded by restrictions on home rule — Brattleboro could raise needed revenue.”
Below, I explore some things Brattleboro could consider if it attained limited self-government capabilities, based on my research into what other small towns have done across America.
The Current Problem
To restate the problem: most states have a home rule structure, which means that towns have all rights and powers not specifically prohibited by state law. Vermont, by contrast, is a Dillon’s Rule state, which means that Vermont towns have only the rights and powers specifically granted by state law. This is a much more limiting construction, from a town’s perspective.
This is most important when it comes to taxes. Brattleboro can raise funds only by a few mechanisms. Property taxes make up 85% of Brattleboro’s revenue, and thus its budget. The state also allows towns to apply a 1% rooms, meals, and alcohol tax, which Brattleboro does, and a 1% sales tax, which Brattleboro does not.
This morning I spoke to a Brattleboro resident and town meeting representative who was frustrated that Brattleboro’s revenue comes from such an unbalanced tax system, and hoped that the town would move to a blended system that combined property tax, income tax, and sales tax in equal parts. He felt that not only would that be fairer, but that it would provide a better tax landscape for small businesses, many of which – like his own – are deciding that staying in Brattleboro is a bad financial decision. Under current conditions, the town literally can’t make that kind of change. Property tax + 1% rooms/meals/alcohol + 1% sales option is the only way the Vermont state government lets Brattleboro raise revenue.
But the question remains: if Brattleboro did have limited self-government rights and was able to legislate its own methods of raising revenue, what options would it have? Which of those options would be the best?
This is not a question that will be answered in one essay by one Selectboard candidate. All of the policies below would have far-reaching effects, some positive, some negative. Some were successful in the towns in which they were implemented, but every town is different. A tax that succeeds in one place can fail in another. Any one of these policies would need to be studied in depth, discussed by the community, modified to fit Brattleboro’s specific situation, and carefully implemented. “The power to tax,” as John Marshall wrote in McCulloch v. Maryland (1819), “involves the power to destroy.”
For that reason, I am not specifically endorsing any of these or policies. This is a starting point for discussion, and a look at some of the possibilities that might be available to Brattleboro in the future. The devil will always be in the details and the specifics of our lives in Brattleboro.
It’s also not a guarantee that any or all of these tax options would be made available to Brattleboro by the state even if some limited self-government rights were granted.
Finally, I’m not an economist and I’m not a tax lawyer. I’m an interested Brattleboro resident doing his own research and analysis. I’m sure that for every study I’ve read, there are some I haven’t. Some of my conclusions may be incomplete or contradicted by other evidence. If that happens, tell me! This needs to be a public debate. I’d rather someone correct me or change my mind than to go on in ignorance.
Property, Sales, and Income Tax
Property, sales, and income tax are the three pillars of American taxation. A first option would be to diversify taxation between the three. Instead of exclusively collecting property tax, Brattleboro could lower the property tax and compensate by adding a sales tax and an income tax to make up the lost revenue.
What are the costs and benefits of the three types of taxation?
Property taxation exclusively charges residents who own real estate. Tourists passing through town pay no property tax. Businesses may raise their prices to cover a high property tax, but those businesses have to compete on the open market, and can’t raise their prices at will without risk. Plus, tourism is fluid. If I know that if prices in one town are very expensive, it’s relatively easy for me to choose to visit another town instead. This is particularly true in Brattleboro, which sees a lot of tourist traffic that’s passing through to winter sports destinations. You can’t ski at Smuggler’s Notch without staying near Stowe, but you can travel up I-91 without stopping in Brattleboro.
Property tax hits owners directly, and renters indirectly. Rents often go up with the property tax. This hurts landlords, who have a harder time finding tenants, but it also hurts renters and homeowners. In pure financial terms, the worst victims of rising property taxes are fixed-income, low-earning homeowners. A poor family that owns their ancestral farm may technically see their wealth increase as land values rise, but rising property tax payments might make it impossible for them to keep living in their home, since rising property values do not necessarily translate into cash to pay the tax bill. Those families can be pushed out of the community for good when property tax gets too high.
Brattleboro, as a regional economic hub town, has a particular problem with property tax. Brattleboro is surrounded by other towns that have 30%-80% lower property taxes . You can live in Guilford or Putney or Dummerston, commute ten minutes to your job in Brattleboro, go to Arkham and the Whetstone on the weekends, shop on Main Street, patronize the Brooks Library, and go to Brattleboro Memorial Hospital when you’re sick, and enjoy low property taxes into the bargain. This isn’t a criticism of people who do that – our tax structure encourages it!
Sales tax charges consumers. If you spend money in Brattleboro, you’ll pay the sales tax. This can help with the regional economic hub town problem. People who shop and eat in Brattleboro will contribute to Brattleboro’s budget no matter where they live. Plus, a sales tax might let Brattleboro decrease its property tax, which would stop pushing people to live in neighboring towns instead, broadening the property tax base again – and perhaps raising overall revenue.
The first downside of a sales tax is that it’s regressive. Taxes on consumption generally hit poorer people hardest. If an extra 1% of my budget goes to a sales tax, that matters much more if I’m hovering around the poverty line than if I’m a millionaire, or simply doing well. Many essentials, including groceries, are always exempt from sales tax in Vermont, which helps, but it’s still a concern.
The second downside is that raising the sales tax could drive consumers away. Brattleboro already contends with New Hampshire’s 0% sales tax as a constant challenge. Raising the sales tax could cost a town more consumer business (and thus tax revenue) than the extra tax revenue is worth.
Income tax charges the earned wealth of its residents – tourists wouldn’t pay a Brattleboro income tax. A properly structured (e.g. progressive) income tax is not regressive, since tax brackets mean that everyone who makes more money pays a higher percentage on that additional income. You could still see a similar effect to property taxes, where a Brattleboro-specific income tax could drive higher-income people to live outside Brattleboro while still using all of the town’s services. But an income tax wouldn’t hurt poor families who are lucky enough to own their homes. This ITEP study says that “a progressive graduated income tax is a characteristic of the least regressive state tax systems.” I’d like to note that the same study ranks Vermont as the state with the second most equitable tax structure in the country, behind California (and the District of Columbia).
I don’t have an answer for what ratio of property, sales, and income taxes would produce the best economic and social outcomes for Brattleboro. That’s the kind of question economists study and debate to this day. But the flexibility to blend the tax rates would let our town government experiment with tailoring its tax system to Brattleboro’s needs. The rooms and meals tax is an example of that kind of experiment, and so far it’s been a rousing success. The 1% sales tax will be another experiment. And if the costs prove too great for the revenue realized, we can modify our tax structure and continue to learn with no long-term damage done.
A tax on gasoline at the pump would both increase revenue and provide a (probably minor) environmental benefit by incentivizing fuel efficiency. A small-scale gas tax could also risk simply driving consumers elsewhere to buy gas, but since you have to burn gas to travel to a cheaper station, this effect would be mitigated.
This Oregon study gives some interesting examples. Tillamook, OR raised $120,805 from a 1.5 cent gas tax despite a population of only 4,675. Sandy, OR raised $126,850 from a 1 cent gas tax despite a population of only 7,070. Brattleboro might do even better per capita because we sit at the crossroads of Route 9 and I-91.
An obvious downside is that a flat consumption tax like a gas tax is, like all sales taxes, regressive, although it might shift some of the tax burden off the poorest and youngest members of the community, who are less likely to own cars.
A commuter tax is essentially an income tax on non-residents. It’s based on the idea that people who work in Brattleboro but don’t live here still use our services and should contribute to our budget. This directly addresses the regional hub town problem, but makes the most sense in a world where Brattleboro also has an income tax for its residents. The New Hampshire and Massachusetts borders could also complicate a commuter tax, because states have to credit their taxpayers for taxes they pay in other states.
A commuter tax faces all the problems of a regular income tax. It’s also harder to collect, unless laws require employers to withhold local taxes along with state and federal taxes. Otherwise the town faces the extra burden of tax collection. There’s also the moral question of taxing non-voters (like in Washington DC). It will always be easier for a town to approve taxes on people who don’t live there and don’t vote there, but that doesn’t make it right.
Rooms, meals, & alcohol tax
The rooms, meals, & alcohol tax has been a strong success so far to the town. It charges tourists and non-residents; it’s mostly paid out of their disposable income, which helps it be progressive; it’s not as vulnerable to driving business out of town as a sales tax might be; it doesn’t face the New Hampshire problem, because New Hampshire has a rooms & meals tax of its own. I would be interested in exploring an increase to the rooms, meals & alcohol tax if we had the opportunity.
This article is about 2,200 words long. Despite that, it can supply very little detail, has no space to include data, and – this is intentional – comes to no hard conclusions. That’s a good marker for how complex this topic is, and how uncertain the economic science around taxation is. If we’re lucky enough to have the opportunity to diversify our tax base, we’ll have a lot of due diligence to do before making a move.
However, I’m confident that whatever the optimal tax structure is, it’s not the property tax + local option structure we happen to be stuck with now. Flexibility is always good, and for a town on the New Hampshire border that’s also a regional economic hub, it’s vital.
If you want to lend your voice to the Vermont League of Cities and Towns proposal, contact your state representatives and senators today.
Senator Becca Balint