File Your Taxes Where The Sun Is Shining ...

and the rates are lower

Entrepreneurial, high income, no children in the school system, and active in the community -- this describes the people  Vermont needs to survive under the current modus operandi of high spending and free rides. Unfortunately these same folks are in high demand in all 50 states, and the more frequently they are left out in the cold, the more often they pack their bags.

High taxes, and above average cost of living expenses are even more punitive in a recessionary environment, one that 45% of economists agree we seem to be in. This all seems logical, to everyone except our politicians in Montpelier. As these highly mobile people leave our lovely state for greener pastures, we will be faced with the inevitable fact that you can’t milk a dead cow.

I can certainly appreciate the need to digress from an important topic for a few moments, now and then, to clear the air, but Montpelier refuses to deal with the important topics to begin with. Instead we declared a state sport, addressed global warming (again), worked to create another unconstitutional campaign finance bill that protects incumbents and, of course, spent time reducing penalties for the occasional pot smoker. For a good dose of reality take a close look at the Rutland Herald’s legislative coverage page, found here: Nothing Done. Any residents hoping to find coverage about efforts to reduce taxes might want to look elsewhere. This isn’t because of delinquent coverage on behalf of the Rutland Herald; there is simply nothing to report.

Many of our legislators refuse to believe that people with high incomes and entrepreneurial spirits will leave. To some extent they’re right. Vermonters aren’t all picking up their bags and selling their homes and moving. Instead we are seeing a hybrid approach to Vermont living: stay for the good (summer) head out for the bad (winter) and file your taxes in a sunny state with a lower rate.

I work in a world of finance, talk to accountants on a daily basis, and our consensus seems to shatter the world of Montpelier.  We are losing “residents,” and no one seems to care. On a weekly basis I hear of more high net-worth individuals spending that extra couple of weeks in Florida to claim residency. In the process they are rapidly downsizing their Vermont homes to reduce property taxes and the high cost of living here.

Need proof? Drive through Dorset or Manchester and witness the locust swarm of real estate signs that blight the lawns of hundreds of homes. If you’re truly bored pick up the phone and ask a local realtor how many months of inventory there is on the market and what type of homes are for sale.  The sad answer is that many were primary residences, and are now second homes.

This has much larger ramifications than for fiscal year 2008. Vermont needs high income residents to pay the bills, because that’s how we’ve structured our tax system. We can’t continue with populist class warfare as practiced in Montpelier, because if the people paying the bills leave (albeit only on paper), that means everyone else will be left paying their fair share (gasp!).

Comments

[GreggB]

If anyone is interested the house in the photo accompanying this article will be on the market soon.

[brattleboro_conservative]

Last year was the 50th anniversary of the publication of "Atlas Shrugged". It's too bad many have not read the book or heard Ayn Rand's message. Turns out that she was dead right with regards to what is happening now in this state. Too many of us high earning college types give Montpelier our sanction by cooperating with our "Looter" government by staying here or even worse, starting an entrepreneur venture here, thus giving the looters in the state house the idea that everything is all right when it is not. Since the gun laws here are what I moved here for, I will stay but I will not hire anyone for my business and I will find ways shift my costs for taxes onto my tenants and customers. Whatever sales taxes the state collects from me is close to zero as 99% of my business is out-of-state. I have no children, so we live and take little from Vermont. Anyone who wishes to live here will probably want to do the same. Avoid the larger towns or cities. Home schooling or private school is a must! Time to stop feeding the Looters and Moochers who live here.

[Karen Kerin]

You hit the nail right on the head with people seeking the sunny south to call home. I recently drove through Woodstock and was stunned at all the for sale signs. Woodstock has long been a bastion of the ultra liberal left, so your argument shows that the wealthy who have homes there are indeed bailing out of our overtaxed economy.
Frankly, I am so upset with the behavior of some of our lawyers that I want to clean it up and so am running for Attorney General.
Here in my town, Royalton, we had an entire page plus of homes listed up for tax sale in the Herald of Randolph. I hit the roof as I discovered that many were mobile homes on small plots and that nearly all the listed properties were only 90 days late. The elected Collector of Delinquent Taxes is a lawyer and he failed to work with people at all in violation of the law and hired another lawyer in Randolph to advertise the sales and he, too, had failed to follow the statutes by talking to the people. The very first notice any of those folks had was when the paper came out. I was so mad that I went to the Selectboard and raised the dickens.

[G. Cross]

"On a weekly basis I hear of more high net-worth individuals spending that extra couple of weeks in Florida to claim residency."

Let's look at the facts: According to the Vermont Tax Department web site there were 4497 tax returns in 2000 that claimed earnings of over $200,000. In 2005 this number was 5145 and in 2006 it was 6960. Now I realize that those numbers included very few who read this blog as most of you have sheltered enough income to be well below $200,000 or have added a few weeks in Florida so as to claim your residence there, but there is a clear growth pattern here. Now, if 200 hundred big ones does not represent high wealth let's look at those claiming over $500,000. In 2000 the number of returns was 829 and in 2006 it was 1373. That is about a 40% increase in 6 years or a 6.67% annual increase. Not bad.

BTW, the gun laws in Virginia also allow you to carry concealed weapons in case you need self- protection.

[Michael Gardner]

Nice to know we have some fact checkers out there. But the $500k plus category grew at just about 4.5%, much less than the growth of the "wealthy" on a national scale. In addition the Vermont Tax site simply shows that Vermont incomes were growing, unfortunately it does not show the rate we capture expanding economic prosperity, simply that we capture some of it.

[G. Cross]

In checking the numbers again it seems we both have poor math skills. The tax data shows 829 returns of over $500,000 in 2000 and 1373 returns in 2006. That is a difference of 544 returns in six years or a total growth of just under 66%. Thus an average annual growth for the period of about 11%. Unless someone can present data that shows that nationally such income filers grew faster than 11% a year from 2000 to 2006, I will have to conclude that Vermont is doing rather well.

[Art Woolf]

The IRS, in its Statistics of Income series, reports the number of tax returns with more than $200,000 AGI. (in 2000, they reported over $500K and $1m, but they discontinued that for some reason). Between 2000 and 2005, the number of returns with more than $200K rose by 28% in Vermont and 30% nationally.

[Michael Gardner]

I love numbers, especially when they're distorted by readers. Through the miracles of compounding the growth rate is much closer to 8.75% for incomes in excess of $500,000 and less than 7% for incomes in the $200,000 class, assuming we use look at all Vermonters, which we can't do. Now back to my important point. High income Vermonters with no stake in the system are leaving the state of Vermont for tax friendlier states. Since 2000 we have seen a 26% decline in high income ($500k+) taxpayers age 65 or over. These people pay high taxes, don't likely have kids in the schools and are statistically more likely to be active in their community. We can't accurately look at younger taxpayers when making this claim unless we break down income by town. This is because the data is distorted by high net worth Vermonters moving to towns with school choice and using the taxpayer subsidy to offset tuition costs, these people are using the system to their advantage (rightfully)and aren't considered highly mobile. Offering school choice is one way to cement high income Vermonters in their respective towns, at least then they are able to realize some of their tax penalties with offset tuition costs.

[G. Cross]

The data on Vermont I have presented comes directly from the Vermont Tax Department website. Now, if that is the wrong data, folks ought to be contacting Tom Pelham so he can correct his numbers.

[Michael Gardner]

Mr. Cross. The Vermont Department of Taxes posts what we can assume to be correct numbers, what is consistently incorrect is your division. You are not properly accounting for compounding in your annual growth numbers. Back to my point in the article. High income residents that don't have kids in the system are leaving the state. Your assertion that my hypothesis is wrong simply because the total number of high income filers has grown is wholeheartedly irrelevant to the argument. I might as well counter with the argument that the number of cows in Vermont has declined during the same period, while it might be true the validity of the statement is absolutely useless to the task at hand. The unfortunate reality is that unless you have a really good reason to stay (e.g. Kids) you are apt to look for greener pastures where the cost of living is not so brutal. This trend is not sustainable to the current budgeting trend of Montpelier. The bigger tragedy is that if we use Federal numbers as a benchmark we are capturing less than the national average of income growth.

[G. Cross]

You are correct, compounded percentages would be technical superior. My point was to simply demonstrate that the number of Vermont high-income families is steadily growing. The media has included many recent stories about other positive economic measures for Vermont. Unemployment continues to be lower than most of the country, mortgage foreclosures have been well below national trends, young entrepreneurs are finding investment dollars and it has been a great winter for snow. There are places where we are below average and places where we are above. That is the nature of averages. To thrive together, we must work together. We need to promote the good and improve the not-so-good. Yes, we can.