Gov. Peter Shumlin has put himself on a collision course with the progressive wing of the Democratic Party with budget proposals that raise money by taking it from low-income Vermonters.
There are two principal areas of contention. One is his plan to increase funding for child care subsidies and early education by $17 million through a significant cut in the earned income tax credit, which is a benefit that piggybacks on a federal credit for low-income workers. The money taken from low-income workers would be shifted to increased funding for child care.
The second issue is his plan to enact welfare reform, a change that Vermont avoided in the 1990s when the rest of the states were following up on President Clinton’s welfare reform legislation by imposing time limits on welfare benefits. Shumlin would establish a five-year lifetime limit on the state’s Reach Up benefits. Welfare recipients would have three years to get a job, then they would lose benefits. They could return for an additional two years if they could not find work.
Republicans in the Legislature were happy about Shumlin’s welfare reform proposal. The governor has argued that benefits without a time limit foster dependency. That is the traditional conservative argument that Clinton co-opted when he enacted welfare reform.
The question that the Legislature needs to answer before it embraces Shumlin’s welfare changes is whether the time limit has caused hardship in states that have adopted it. Nationally, welfare rolls have decreased, but in a time of unemployment, when finding work is not easy, the time limit may have added to the nation’s widening inequality rather than encouraging work and boosting prosperity.
Then again, Shumlin is proposing steps that could make it easier for poor Vermonters to find work. These include a big boost in spending on day care, plus an emphasis on training and education. If the state’s effort to diminish dependency is coupled with efforts to foster independence, then Shumlin’s welfare reform program may make sense.
His proposal to cut back the earned income tax credit makes less sense. When one of the nation’s greatest afflictions is the growing gap between the rich and poor, budget and tax proposals need to be subjected to a test: Do they widen the gap or narrow it?
Shumlin argues that Vermont’s support of the earned income tax credit is the second richest in the nation because we have allowed federal indexing to increase it unchecked. In his view it would better to direct some of that luxurious benefit to child care subsidies, which would be a more targeted expenditure.
If the problem is that Vermont’s earned income tax credit is indexed, causing it to rise too quickly, it could be solved by decoupling it from the federal benefit. Then in the future it would demand less from the state budget. It’s another matter to claw back from low-income workers a commitment that the state has already made, even for an aim as worthy as boosting child care.
In many areas, Vermont’s expenditures are at the high end in relation to those in other states. In itself that is not an argument to cut the expenditure. On education, for example, Vermont spends more, and for good reasons. Benefit cuts should not be justified by the miserliness of states at the low end of the spectrum bringing down the average.
Meanwhile, the federal government has had only halting success in addressing the economic inequality that is crippling the national economy. Congress and the Obama administration took a first step with the fiscal cliff bill when they raised the top marginal tax rate. But there is much that remains to be done to scale back the many benefits that the wealthy enjoy on capital gains and the payroll tax, to name just two.
Absent federal action, state tax-writing committees might take steps to create greater economic equity, not by taking money from low-income workers, but addressing the tax benefits enjoyed by the wealthy.
It would be ironic if Shumlin has decided to cultivate his inner Republican at the same time that President Obama has found his inner Democrat. During the 1990s Gov. Howard Dean was in sync with the New Democratic policies of President Clinton, who had to cater to the conservative tenor of the times. Shumlin needs to move beyond the 1990s. Obama appears to be doing so. It is time to redress economic inequality, not amplify it.