by Paul Dame
This week, life will get just a little less affordable for hundreds of thousands of Vermonters as the new payroll tax, effective July 1st, will become more evident when they look at their paystub this Friday. One estimate indicates we are garnishing the wages of Vermonters to the order of nearly $120 million per year. Both employees and even self-employed individuals will take home a little less starting with this week’s check.
The pitch made by the Democratic supermajority was that a new tax could subsidize child care workers, making it easier for parents to find child care and get back into the workforce. However, several problems with this plan mirror the issues we’ve had with higher education over the last 30 years. Like so many other times, Democrats are trying to make a problem go away by just throwing some money at it. But if university funding has taught us anything, it’s that if you just partially subsidize something without making other changes, you end up putting higher and higher costs on the student’s family instead of reducing the cost of providing the care.
It will cost just as much to provide care this month as it did last month. But parents will have a little less money to pay the bills, and child care providers are going to start taking home a little less money as well. Meanwhile, the child care center’s administrators have a little extra fluff in their budget, which they can spend on themselves or other programmatic or administrative costs. Nothing will prevent them from raising daycare costs to match the subsidy. Even if prices stay level, nothing in this bill will make new child care slots available, leaving many families still locked out of the benefit for a few years. And if there was expansion, many families who qualify for the subsidy will have their kids age out of eligibility for pre-K by the time there is enough net growth. Then those parents will be paying new taxes for the next 30-40 years for a service they no longer need and never used.
The Republican approach was to reduce the regulatory burden to make more care available. More competition will immediately create more openings and can put downward pressure on price and/or upward pressure on the value of the services. A few years ago, the legislature made changes that effectively ran rural care providers out of business. This is a common problem among regulatory-inclined Democrats from the Burlington-Montpelier corridor who don’t understand that both providers and parents from other parts of Vermont can’t afford to compete with the wealthiest parts of the state and that more informal care in a more decentralized setting is a better fit for places with a less dense population.
This is one of the reasons that Governor Phil Scott vetoed this legislation last year. Like so many other times, Republicans have put forward solutions that focus on controlling costs, but Democrats just want to increase taxes and do more spending to help their lobbyist friends. One of the reasons stopping a payroll tax was important is that once a new tax gets levied, it will never get eliminated. Today’s payroll tax of less than half a percent could easily grow to 1%, 2%, or 3% in a few years thanks to the inflation we’ve seen under the Democratic presidential administration. This single-digit tax might not feel like much, but when you stack it on top of our very high and progressive income tax, and you are using a smaller net income to pay ballooning property taxes that just grew by double digits, it all adds up.
Every new tax and every new regulation are like a barnacle that attaches itself to the hull of a ship. One or two don’t make a difference. Even a larger number may not make a big impact while there is plenty of water below. But when things dry up and we’re not as flush as we used to be, it gets easier and easier to run aground.
The author is an Essex Junction resident and chair of the Vermont Republican Party.