The $383 million price tag for childcare is a launch pad, not a ceiling

For several years now, the Vermont childcare “stakeholders” (the political euphemism for “special interests”) have been pushing for a massive expansion of state subsidies and regulation of childcare. In preparation for their big push in 2023, lawmakers passed a law calling for an in-depth study of what it would cost and how we might pay for this wish list. The study is out!

The RAND Corporation that did the analysis concluded that in addition to the $125 million the state currently spends on childcare programs annually, an additional $258 million will need to be raised, for a total of $383 million taxpayer dollars… a year… to start. This would be on top of the $260 million that citizens privately pay for childcare services.

How might we cover this substantial nut? RAND lays out some options.

1)    A new payroll tax of 1 percent. $196 million.

It is worth noting that the Paid Family Leave bill currently under discussion calls for a 0.58 percent payroll tax, so if both programs become law, which appears to be the plan, it would mean a 1.58 percent payroll tax totaling $310 million. This would put Vermont businesses at a disadvantage, as these taxes will more than likely have to be passed on to consumers. And is still only gets us two thirds of the way to the total cost of the program. So….

2)    Increase the existing state sales tax from 6 percent to 7 percent. $85 million.

New Hampshire has no sales tax, which has already devastated Vermont’s economy along the Connecticut River. New York has a 4 percent sales tax, and Massachusetts has a 6.25 percent sales tax. A 7 percent sales tax would give Vermont the second highest sales taxes in the country next to California, higher than every state we share a border with. It would put Vermont businesses at an even more severe disadvantage, encouraging shoppers to jump the border to make their purchases.  

3)    Creating a new 6 percent sales tax on limited services. $105 million.

4)    Creating a new 6 percent sales tax on extended services. $143 million.

RAND’s recommendations for a sales tax on services would apply to “•personal services, such as - auto mechanics - personal and household repair - dry cleaning • publication services, such as - newspapers - magazines - books - greeting cards • broadcast services, such as - motion pictures - radio - cable TV - telecommunication services - internet publishing [you lost me right there!] • entertainment services, such as - performing art companies - museums - amusement parks - fitness centers - bowling centers.”

It would not, however, apply to health services, legal or financial services, the latter two being odd exceptions given that they tend to be more lucrative businesses, which would generate more revenue for the program and be better able to absorb the cost. Moreso than, say, auto mechanics and dry cleaners. But, perhaps the many lawyers in the legislature don’t want to pay their financial advisors an extra six percent to manage their money.

Expanding the sales tax to services, especially along the New Hampshire border, would do to service businesses what the sales tax on goods has done to retail. Not good! Past discussions of adding a sales tax to services were a part of lowering the overall sales tax rate and “broadening the base,” which at least had some logic to it. That idea seems to be out the window.

5)    Increasing the Rooms & Meals Tax from 9 percent to 10 percent. $14 million.

Vermont is already has one of the highest hospitality tax rates in the country, though our New England neighbors also mostly share that distinction, some more, some less.

6)    A 15 percent tax on soft drinks. $24 million.

This is a notoriously unpopular tax that is extremely complicated for stores to categorize and collect. What exactly is a soft drink? It sounds like a simple question but when you start debating whether Gatorade and other sports drinks are soft drinks or not, bottled flat water versus sparkling water versus flavored sparkling water, it’s a can of worms the legislature has never been able to untangle – much as they would like to. And, as with the expanded Rooms & Meals tax, it doesn’t raise nearly enough to be anything more than a small piece of a much larger puzzle.

Now, as you can see, this is a lot of money we’re talking about on top of a lot of money we already raise and spend. The legislature is aiming to make our already exceptionally high tax rates on key sectors of our economy even higher.

But here’s the part Vermont taxpayers really need to understand: This is just the beginning. It’s a starting point. The acorn destined to become the mighty oak.

A principal goal in creating “high quality” childcare in this proposal is making sure that childcare providers are trained and compensated at the same rates as public school teachers. Senator Thomas Chittenden (D-Chittenden) went so far as to suggest that this whole program of birth-to-five care be integrated into our public elementary schools (and this really is the ultimate endgame of this whole exercise).

As another senator pointed out, given those compensation goals, public school teachers get regular raises based on union contracts. If we are going to maintain over the long term that parity of pay, does that mean we’re going to have to ratchet up some combination of the above tax stew to cover that expanding salary cost? Short answer: Yes!

Long answer provided by Christopher Doss of RAND, “What we’re trying to do [with these recommendations] is to get that [funding] at the starting level, and then as time goes on it would be incumbent upon Vermont to figure out…  how to continue that pay growth and continue to be compensated at that comparable level.”

• Rob Roper is a freelance writer with over twenty years experience in Vermont politics and policy.