Listen up, everybody. This is going to get a little complicated.

It’s crunch time on this budget-tax stuff, and here’s the lay of Vermont’s fiscal land:

–The House of Representatives proposes minimal cuts in a few social programs,  a small income tax surcharge ,and a few more new taxes;

–The Senate proposes a little more in the way of cutting, and then raising $24 million by raising some income taxes (while cutting others) and raising “sin taxes” on alcohol, tobacco, and satellite television service (not heretofore considered a sin, but it’s a new world).

–Gov. Jim Douglas proposes deeper cuts and no – as in zero, zip, nada, bupkis – in the way of any and all tax increases.

Or as his Secretary of Administration, Neale Lunderville, said, “I am firmly unconvinced that we need revenues to address the challenges that we have.”

Not much ambiguity there. But the Democrats who are in charge of the Legislature have their doubts. Don’t listen to what the Republican governor says, they say; instead, add up his numbers. The numbers point to a big tax increase, though very conveniently for Douglas, it wouldn’t be an increase in state taxes. It would be an increase in local property taxes.

Not if you would do what we suggested, say Douglas, Lunderville, and the rest of the Administration.

Yeah, but what you suggested is not going to happen and was never realistic to begin with, so the result of your policies will be a big property tax hike, say the Democrats.

OK, the exact words in those previous two paragraphs were never uttered by either the lawmakers nor Administration officials. But in effect that’s what they said, and it’s worth examining who has the better case.

Maybe both?

Or maybe neither. It sort of depends on one’s assessment of the relative impact of taxes, layoffs, social programs, and school spending.

Today’s account will not be comprehensive, because a comprehensive account would be as long as War and Peace and be much less interesting. So we won’t get into whether raising the auto registration fee is really a tax increase ,or even whether cutting state aid for town road work is a de facto property tax increase. (It is, but here Douglas and the Democrats seems to be thinking alike). Instead, we’ll concentrate on where the big bucks are – school spending.

In his budget address last January, Douglas proposed paying the annual teacher retirement contribution ($40 million in Fiscal Year 2010) from the Education Fund, instead of the General Fund, which had been financing the retirement plan since its inception. On top of that, he proposed shifting another $23 million from the General Fund to the Education Fund. (No, he didn’t arrive at that figure arbitrarily, but explaining how he did it would take too long here; the curious can find his budget address via his web site).

That’s still the Administration position. And according to the most recent assessment of the Legislature’s Joint Fiscal Office, “these proposals would

increase education property taxes by $63 million in FY2010.”

At last count, every $8 million represented a penny on the property tax rate. Adding $63 million of tax obligation to the Education Fund could cost the owner of a typical $200,000 home about $150, almost surely more than that owner would pay under the House income tax surcharge.

But that’s only because the Legislature refused to do what Douglas asked it to do last winter, which was to force all the state’s school districts to slash spending.

Again, that’s not exactly the way Douglas or his associates put it. What the Governor proposed last winter was that schools spend no more per pupil next year than this year. Considering that the number of pupils statewide is going down, that would have meant deep budget cuts.

But in an interview yesterday, a candid Lunderville came pretty close to acknowledging that the plan was for the state to give the districts little choice.

“The Governor’s plan was not predicated on the assumption that the school boards would voluntarily make the cuts,” Lunderville said.

Instead, he said, the state would require the school districts to “level fund in Fiscal 2010 “based on the (number of) students they’d have (next school year).” The state, Lunderville said, would be “imposing a measure of fiscal discipline above what many of the districts were already doing.”

Had the Legislature agreed to force these budget cuts (and a few other fiscal changes), he said, the state would have been able to shift that $63 million into the Education Fund without causing a property tax increase.

But the Legislature did not agree. In fact, the Legislature never really took the “level-funding” plan seriously. Neither, it seems, did anybody else. The school boards did not heed Douglas’s suggestion to delay finalizing their budget proposals. They presented them on time to the town meetings, where almost all of them were approved. Essentially, the governor  called for a major change in the way the state financed its schools, and the state…well, it didn’t reject the change, as much as it paid it no heed.

Nor did Douglas do much to try to get anyone’s attention. He got the State Board of Education to endorse his plan. But most people (perhaps including most educators) are barely aware of the State Board. Its statement got a one-day headline. Aside from that, the Governor mounted nothing like a political or public relations campaign designed to put pressure on the Legislature, the school boards, the teachers union, or anyone else.

Raising the question of whether even he took his own plan all that seriously.

But he hasn’t given up on it. In fact, a few weeks ago, Lunderville said, the Administration presented its “Plan B” to the Legislature, adding that “to date, they haven’t’ taken it up.”

Perhaps that’s because the lawmakers don’t consider it much different from Plan A.

“It’s an extension of the original proposal of shifting teachers retirement to the Education Fund, said Rep. Mark Larson,  the Burlington Democrat who is Vice Chair of the House Education Committee.

The difference, Larson said, is that now Douglas would apply $38 million of federal stimulus funds “to offset some of the costs so that it limits the impact on the property tax.”

But limiting is not the same thing as eliminating, Larson said.

“Based on the (school)  budgets that we were passed, we  can’t shift (teacher)retirement (payments) into the Ed Fund without  raising property taxes.”

Whoever is right about the numbers, perhaps it is unfortunate that more people, perhaps including Douglas, did not take the school spending problem seriously. Oh, both sides took it seriously enough as a political opportunity. But had they taken it seriously in detail, they might have dealt with some difficult questions instead of ignoring them.

Starting with the question of whether the per-pupil spending freeze was the best – of even a rational – mechanism for judging how and when schools should restrain their costs. Then continuing to the question of  whether school spending is “continuing to grow at unsustainable levels.”

That’s Lunderville’s description, so it isn’t objective. But neither can it be casually dismissed. Vermont schools are expensive. They’re also good, by all the usual measurements, so maybe they’re worth it. But as Douglas said in his January speech, it’s a little hard to explain how the number of teachers kept going up as the number of pupils kept going down.

Until now. This year, there are fewer teachers in the state’s schools than there were last year. OK, it’ a minimal decline. A whole drop of ten (count ‘em 10) full-time equivalent teaching positions. But Jill Remick, the spokesperson for the State Education Department, said there would be another decrease next year and probably on into the future.

Lucky Vermont. Maybe it never will have to take the matter seriously.

Meanwhile, one way or another, expect a tax increase.

Adam Smith

It’s the State Senate’s turn this week to try to raise money, and among other revenue sources, the senators have their eyes on soda pop and candy bars.

The money that would be raised from making those two items subject to the state sales tax would not be huge. But these days, every penny counts, and besides, in this case money isn’t the only object. This is a tax designed to change the way people behave.

It’s simple market economics. Make a product more expensive (by levying a tax) and fewer people will consume it. And at least according to many doctors and nutritionists, less consumption of snack foods and sodas means less obesity, less heart disease, less diabetes, and therefore lower health care costs all around.

It’s a win-win-win.

Except for those in the soda, candy, and other snack food business, of course. And except for those – which in this state is a lot of people – who bristle at the idea of government trying to meddle in peoples personal lives. If your house is your castle, isn’t your digestive system your inner courtyard, into which you may admit whatever you choose?

Whereupon we return to the discussion of last week (April 14, Doing What We Wanta) about just what the state should and should not do to influence what its citizens do and do not do.

It is a discussion in which (and in this it is hardly unique, or even unusual) partisans on both sides often descend into silliness, making exaggerated claims and proclaiming broad truths which turn out to be…well, neither broad nor truthful.

Consider, for instance, the claim of some economists that the only legitimate purpose of taxation is to raise government revenue. This is obviously nonsense. It is arguably the wisest policy that taxation only be used to finance the government. But a democracy may choose to use the tax system for any purpose it pleases, and this society has always used it to create incentives for what it deems socially desirable behavior.

The biggest of those incentives probably benefit everybody reading this. Those are the tax deduction for home mortgage interest and local property taxes. They were designed to encourage home ownership. They do. One reason so many Americans own their homes is that home ownership is subsidized.

These subsidies are not entirely equitable. More than 80 percent of the $160 billion in the revenues lost from these deductions goes to the richest 20 percent of the taxpayers. That means if your income is something like $60,000 or $70,000 you’re helping subsidize the home ownership of somebody earning $300,000 or so. And the mortgage interest deduction might have been one cause of the housing “bubble” partly responsible for the recession. Either way, it is tax policy with a social purpose.

But that’s still not the same as using tax policy to influence whether or not a person ingests a legal substance into his or her body. If the state is going to  follow that policy, is it not introducing a new intrusion into the realm of individual choice?

No. First of all, nobody is proposing actually to limit choice. Candies and colas would remain legal and available, just a few cents more expensive. Besides, Vermont already levies a tax on something many of its citizens regularly ingest, and one purpose of that tax is to minimize said ingestion. That’s the tax on alcoholic beverages. Most states tax beer, wine, and liquor both to raise revenue and limit consumption. But not all do.

Vermont is one of only ten states that levies a sales tax on neither soda nor candies. Many states tax both of them.

There is, of course, an inherent contradiction involved in levying a tax in hopes of reducing demand for the product being taxed. In theory, at least, the more successful the tax is at discouraging consumption, the less revenue the tax will bring in.

That is not what has happened with higher tobacco taxes. As cigarette taxes have gone up, smoking has gone down, especially among young people . But the tax revenue has increased. In Vermont, for instance (this is from an anti-smoking outfit, but based on government statistics) , since the cigarette tax went up 60 cents a pack in 2006, cigarette consumption is down by 14.6 percent  (from education and persuasion, as well as higher taxes) ,but revenue from the tax is up by 30 percent.

But tobacco taxes have gone up a lot. The tax bills before the Vermont Legislature (H.149 for sodas; H392 for sodas and snack foods; access to all bills here) would simply end the sales tax exemption for sodas and “snack foods” (potato and corn chips, cheese puffs, pork rinds, processed fruit snacks et al). That’s six cents on the dollar.

Still, if this is a matter of principle, the money would be irrelevant. If this is a question of the autonomy of the individual to make his or her own decisions in the free market, who among the champions of individual autonomy and the free market could approve of such taxation?

Uhhh, how about Adam Smith?  ”Sugar, rum, and tobacco,” wrote the first great champion of capitalism, “are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.”

Prescient, wasn’t he?

The interesting question in this debate is just how individual these consumption decisions really are, and here is where both sides go to extremes. The anti-sugar campaigners (“food police,” or perhaps just “busybodies”) suggest that corporate villains are duping children into eating and drinking stuff that’s bad for them. The other side scoffs that no one is forced to eat or drink anything, and that people are responsible for their own decisions.

But why does this have to be an either/or situation? Obviously no one is prying open anyone’s throat and pouring colored corn syrup down his gullet, and everybody bears some responsibility for deciding what to eat or drink.

On the other hand, there is little doubt that the soda and candy industries target their marketing to children and young teenagers, who are not entirely responsible for their own decisions. As an article in the New England Journal of Medicine (NEJM) pointed out, there is an “information asymmetry between the parties to a transaction. In the case of sugared beverages, marketers commonly make health claims (e.g., that such beverages provide energy or vitamins) and use techniques that exploit the cognitive vulnerabilities of young children, who often cannot distinguish a television program from an advertisement.”

Besides, it turns out that more people drink sodas because they’re actually cheaper than they used to be, and one reason they’re cheaper is government policy. It was Richard Nixon’s agricultural policy that inspired farmers to grown corn “fence row to fence row.” All that corn made high fructose corn syrup cheap. High fructose corn syrup, which in the view of some nutritionists is especially unhealthy (more unhealthy than getting the same number of calories from another product; see here) is the main sweetener used in sodas and many other sweets.

So government farm policy could be partially responsible for  what Kelly D. Brownell and Dr. Thomas R. Frieden, call the “obesity epidemic” in their NEJM article. Just how responsible is open to debate. So, perhaps, is the designation of the current obesity situation as an “epidemic.”  But some connection is hard to deny. When it comes to eating and drinking in this country, Perhaps all of us are not quite the autonommous individuals we like to think we are.

Lots of stuff happening this week as we move forward, but for today both honesty and humility require a quick look back, at last Thursday’s post (Protests Left and Right) about, among other matters, the conservative “Tea Party” demonstration held in front of the State Capitol.

The assessment then was that as many as 250 people participated in the demonstration, a “surprisingly good turnout for a conservative cause in a liberal town.”

But one of the speakers claimed to be addressing 500 people, and reporter Dan Barlow of the Vermont Press Bureau wrote of a “swelling crowd of more than 500 people. The unnamed conservative blogger at Vermont Tiger estimated 350.

So who’s right?

Who knows?

Those of us who have been crowd-counting for some decades know that getting an accurate count of folks gathered out of doors and spread out over a large expanse is pretty close to impossible. There was no “official” police count, and if there had been it would just have been the eye-balling by a cop instead of a reporter or participant.

But in retrospect, let’s concede that 250 may have been an under-estimate. Five hundred still seems too high. The guy who said 350 may have gotten it right.

Nationally, ace political (and baseball) statistician Nate Silver of 538.com estimated, based on reports from 346 cities, that 311,460 people turned out to protest President Barack Obama’s economic policies. That’s a lot of people, and the events were organized over a fairly short period of time. But the organizers were well-financed, and their efforts were augmented by free publicity from scores of talk radio shows and tub-thumping by news anchor celebrities at the Fox News Channel.

By comparison, as Silver noted, “protests in favor of immigration reform drew several million participants in the spring of 2006, including several individual events of at least 300,000. Likewise, anti-war protests in 2003 involved attendance of at least 300,000 in a single American city (New York) on a single day.”

In those cases, though, demonstration leaders had a lot more time to publicize the protests and organize their followers. Furthermore, as noted last Thursday, those on the left side of the political spectrum are more accustomed to protest demonstrations, and more comfortable participating in them.

More importantly, taking a look at the next day’s news reports calls for a re-examination of the assessment here Thursday that the demonstration was marked by a “near-total lack of political coherence.”

That wasn’t wrong. The lack of political coherence was manifest. In fact, in some ways, the later reports revealed that the “Tea Party” demonstrations around the country were in some ways worse than incoherent. Probably most of the demonstrators were not in sympathy with the man in Washington who bore a sign reading: “Obama’s Plan/White Slavery.” But it was by no means the only indication of out-and-out racism among the crowds.

There were no such signs in Montpelier. But one protester did tell his companions this joke: “Obama’s gonna outlaw Bayer Aspirin. It’s white and it works.” So Vermont is not a racist-free zone.

Nor a confused-free zone. As did their fellows around the country, many of the Vermont protestors held aloft signs branding Obama a “socialist.” But a few others labeled him a “fascist.”

Make up your mind, was an obvious first reaction. But maybe one person can be both at once; the great novelist Jack London came close.

As it turns out, though, almost hidden amidst all the rhetoric about immigration, foreign policy, declarations that the U.S. is “at war with Islam,” and  calls for doing away with Federal Reserve System, there was one coherent and rational point raised by the protesters.

It was clearly (if perhaps excessively) stated by an unidentified woman interviewed by one of the television networks who complained that the President and his associates were “robbing my children. They are robbing them for the rest of their lives. They are robbing my grandchildren.”

An arguably overwrought assessment. But behind her frenzy is a truth: this is a humongous amount of federal government  borrowing that the Obama Administration is embarked upon. By the Administration’s own projections, the result could be an unsustainable level of debt a decade or so hence. Objecting to that policy is neither absurd nor irrational, however irrationally the objections may be expressed.

But it isn’t as though everybody doesn’t know about the potential debt problem. Obama and his economic team are as aware of it as the folks leading last week’s protests. To the extent that the real issue is the impending debt and the best way to approach it, the disagreement here is a plain old-fashioned policy dispute. One side thinks the best way to control future debt is not to borrow as much in the first place. No, says the other side; that will make the recession deeper and longer, meaning more joblessness, meaning less tax revenue, meaning more debt.

Obviously, that isn’t the only real issue. Otherwise there would have been no demonstrations. Sane people don’t organize protests over technical economic disputes. Something else is going on, but most of that squabble is happening outside Vermont’s borders. The only budget-cutting, anti-tax politician in this state with any clout – Gov. Jim Douglas – is not part of the Tea Party set. So we’ll let the rest of the world deal with the complexities of the controversy in detail.

So who’s got the better case in the debt argument?

Oh, that’s kind of like crowd counting, with almost as many estimates as there are counters. We’ll let that debate rage. But it was necessary to recognize that deep down below their inflammatory and seemingly confused rhetoric, the Tea Party protesters did have one legitimate point.