Wrong Secret

by Art Woolf

Vermont's quiet little secret in this regard was that we didn't tax the very rich much at all, compared to other states.

--Rutland Herald

Actually, no.  In Vermont, we tax the rich a lot. About 8,000 Vermont taxpayers--out of more than 300,000 who file an income tax form--pay more than 40% of the $500 million the state collects in income taxes.   According to the Federation of Tax Adminstrators, we have one of the highest marginal income taxes in the nation, and compared to other states with high marginal rates, the tax rate starts at a pretty high income level.

The real secret is that if you're a middle income Vermonter, earning, say $50,000 to $100,000, you pay less income taxes than you would if you lived in just about any other state with an income tax.  It's the middle class that is relatively lightly taxed, not the rich.

Although our property taxes are high, Act 68's income sensitivity provision shields 2/3 of the state's homeowners  from the full property tax impact of their local school budget voting decisions, so even there the middle class gets off relatively well.  K-12 education is the largest single expenditure item for state and local governments, accounting for half of all the tax revenues.  And we spend more on K-12 education, on a per student basis, than all but three other states (and those are much wealthier than Vermont).

Our policymakers have three choices when we have budget problems like we did this past session (and will have to an even bigger extent next year and the year after):

1.  They can raise taxes on the middle class.  But there are a lot of middle class voters so that's politically problematic.

2.  They can raise taxes on the rich, which is what this year's budget did.  But as the Herald notes

The taxes on those mansions and their owners pay much of the upkeep for our generous social safety net. If they move out of state, and there's plenty of anecdotal evidence to suggest a lot of them are at least considering it, their tax dollars go with them.

3.  They can cut spending.  But the only place where there are big opportunities for savings is in K-12 education.  That's  difficult and, as the Governor found when he tried to take the first steps to address this, it's a hard sell.

These problems won't go away.  There are no win-win solutions.  Only difficult choices.

Comments

[Katherine Traver]

I am one of those 8000 and we will be leaving the state in the not too distant future!

[daniel o bushey jr]

Gee that name above sounds familiar...we have the kids in camp down here in northern Florida for five weeks so they get to know the other kids and here's betting that I'll also be one of those 8000 that will soon be a statistic.

[Peter Joes]

According to Mr. Woolf, "But the only place where there are big opportunities for savings is in K-12 education." This amazes me.

I'm sure he knows that health care costs about three times as much and is rising three times as fast. We don't get to vote on the health care budget, or the people that vote on the health care budget for the simple reason that there is no health care budget.

But I don't mean to pick on Mr. Woolf. He is just like many other people. They don't realize that medical care is a cost to them because it is provided by someone else and they never see the massive $$ being spent.

Now I know he's going to say this is not a state budget item. But you see, that's the problem. We have this massive cost, much more than education. We vote for school boards, we can go to their meetings. They propose budgets. We debate them and decide them. None of this happens with health care.

Let's get real.

PJ

[Richard]

Ditto here.

We're putting up with VT for four more year; as our kids will be out of high school and their local ties and friends will become much less important.

Without course-correction, we will be leaving Vermont, and we'll take our $$ and professional (limited and valuable) expertise with us.

We'll be replaced - in all probability - by the retired and wealthy elitist who wish to preserve the status quo as the playground for the rich, as middle class job opportunities and affordability continue to stretch them into the lower class ranks and into the hands of government assistance.

This is the price they will unwittingly pay for their "income sensitivity" protections in their property taxes, along with the other extortion's they've received to date from our Legislature.

You get the government you deserve.

There really are no free lunches.

Only mirages.

[G. Cross]

"In Vermont, we tax the rich a lot. About 8,000 Vermont taxpayers--out of more than 300,000 who file an income tax form--pay more than 40% of the $500 million the state collects in income taxes." Isn't there a third part to this equation, what percentage of the state's income does this group earn and/or otherwise accumulate? This group reports income of at least $200,000 and half of them report income of at least $300,000.

[Chris Campion]

There's not much the Herald seems to be getting right these days. I don't think that's by accident, either. If a newspaper is going to consciously print what they're describing as news, and not report the full truth that is completely available to them, then they're doing it for reasons other than informing their readers. Maybe there's a reason why so many newspapers are folding.

[Art Woolf]

George Cross: The folks who earn over $200,000 pay 40% of all the income taxes and earn 24% of all the adjusted gross income in the state. Source is http://www.state.vt.us/tax/pdf.word.excel/statistics/2007/income_stats_2007_state.xls

[G. Cross]

Thanks Art. For those of us who believe in a progressive income tax those figures seem reasonable. While those reporting less than $200,000 a year in income may pay a slightly smaller percentage of their income in taxes, they pay the same as their more wealthy neighbors in gas tax, sales tax and so on. They also tend to have the jobs that make the state go. They repair our cars, fix our televisions, build our houses, milk the cows and more. The real issue here is that some folks simply do not like progressive taxes of any type.

[Peter Joes]

G.Cross - - not to mention the SS tax that conveniently drops out once you reach (I think its) $106K in income.

Total taxes on middle income people are significantly greater than for higher income folks, especially when you consider that it is almost entirely earned income and not lower taxed capital gains.

And, each of us incurs a set payment of about $6000 per year per person for medical insurance and costs (whether paid by employer or not). This is maybe 20% of a lower income workers pay and 3% of a $200,000 a year one.

PJ

[GreggB]

Yeah Vermont isn't progressive enough. Hey Montpelier I hear Finland has progressive speeding tickets. Fines increase with wealth. How about a special session this summer to add progressive speeding fines, could be a real money maker. Plus it will increase safety by slowing down expensive cars. And save energy. Did I mention it will save energy? Vermonters should demand Montpelier hold a special session as soon as possible to make traffic fines progressive.

[sceptical]

George, I've never managed to 'accumulate' much money, but I am a member of the 8% club who 'creates' over $200k each year. I create it through hard work. I know lots of people in VT create less than I do. I also know LOTS of Vermonter's work less too. How does VT's progressive tax structure account for this?

Is it truly a 'fair' tax if I pay for my stoned neighbors to sleep in each morning and enjoy their fun-employment check while I zip by at dark-O'clock in the morning on my way to another grueling work week where I'll create more wealth that VT will tax indiscriminately despite having contributed nothing to its creation? (aside from providing the road I use to leave the state each work week)

Assuming a progressive tax is desirable, (which I fundamentally disagree with but that's an entirely different argument) wouldn't it be more 'fair' for people to be taxed based on ability to pay rather than effort? If not, what to do about the Ivy League stoners next door? They have no shortage of ability but, like a lot of people in VT these days, have room for improvement on their level of effort.

How does VT's progressive tax system ensure that otherwise capable people are not free-riding on the system by intentionally exerting a low-effort? If you can't answer this question how can our tax system be considered 'fair'?