Vt’s Tax Challenge

Emerson Lynn on Politics

If half a company’s revenue came from five percent of its customer base, the CEO would begin each day with the same ritual: prayer.

That’s a narrow base upon which to build hope, let alone a sustainable business.

To an extent, that’s Vermont’s issue, not at the corporate level but with state government. We have a spending level that is disproportionately dependent on a progressive income tax structure and a paltry number of taxpayers.

We had 531 Vermonters with adjusted gross incomes of a million or more who paid 15.3 percent of the net Vermont income tax collected in 2007, the last year from which figures are available.

We had 1,040 Vermonters with adjusted gross incomes between $500,000 and $999,000 who paid 7.2 percent of the income tax collected.

We had 2,163 Vermonters with adjusted gross incomes between $200,000 and $499,000 who paid 8 percent of the income tax collected.

We had 4,095 Vermonters with adjusted gross incomes between $150,000 and $199,000 who paid 8.4 percent of the income tax collected.

We had 6,083 Vermonters with adjusted gross incomes between $125,000 and $149,000 who paid 7.8 percent of the income tax collected.

In sum, 13,912 Vermonters were responsible for almost half of the revenue generated through the income tax, and the income tax revenue constitutes about half of all the general fund revenue the state collects.

To visualize this inverse relationship, consider a pyramid standing on its head, with the broad side at the top representing what’s being spent, and the bottom point being the few upon which all this spending depends.

It doesn’t take much to upset a fragile balance.

California is in much the same position and recently a governor-appointed bipartisan tax commission recognized what it has is not sustainable and recommended that its tax collection efforts be dramatically revamped. The panel recommended eliminating the sales tax, cutting taxes on personal income and businesses and replacing them with a broad-based business net receipts tax.

The recommendations may or may not be accepted. The point is that even the state’s progressives were beginning to understand that they were basing their hopes on an increasingly narrow base. In California, one percent of the filers paid 50 percent of the state’s income tax collections. In Vermont, our top one percent pays about a third of all income tax collections – that’s a little over 3,000 Vermonters.

We live in an increasingly mobile world, obviously. The average person holds almost 11 jobs between the ages of 18 and 42, according to the Bureau of Labor Statistics. In Vermont, where the growth rate was meager even before the recession, that doesn’t bode well for companies considering expansions, or for their owners who are looking both for a stronger employment base and kinder treatment from the tax department. If our growth rate remains in the doldrums, it remains problematic for a state government with a disproportionate dependence on one percent of its taxpaying population. What are we doing to that one percent to encourage them to stay? What’s plan B if they don’t?

Within Vermont there is a sizable constituency that continues to favor the expansion of state government, and to pay for that expansion by raising taxes on those at the top end of the income scale. The excesses of Wall Street and the gap stretch between those at the very tip-top and the rest of America give traction for such efforts. There will be a constituency within the Legislature that continues this refrain when it convenes in January.

Not only is this group poorly informed, but the implementation of that effort threatens the very programs they cherish, which is why the progressives in California are beginning to pull back from past practices. They are beginning to vocalize concern that their own priorities are being placed at risk by supporting a tax policy that relies on only a few payers. The same challenge is being played out in Vermont.

As a state, we may want aggressive affordable housing programs. We may want expansive programs to clean up the lake, or to conserve farmland. And we may want to continue with state support programs that are among the nation’s most generous. If so, then we also need to recognize that our current tax structure threatens each of those priorities. All these wants cannot continue to be borne on the backs of 3,000 or so Vermonters.

At first blush, this would seem to be a debate that would split according to party lines with Republicans favoring lower taxes and Democrats favoring higher taxes [on the upper income.] It needn’t be. In fact, it shouldn’t be. Democrats and progressives have a stake equal to the Republicans in terms of ensuring that state government going forward is able to meet its needs.

Vermont is laboring under a model that places what we do at risk. We need to use the upcoming gubernatorial campaign as a forum to evolve toward a model that makes us more competitive, more affordable, and more equitable. Prayer alone doesn’t work.

(Emerson Lynn is editor & publisher of the St. Albans Messenger where this essay first appeared.)

Comments

[GreggB]

No worries those 13,912 people will stay for the VT brand. None of the other state run lifestyle magazines come close to VT's.

[Charlie Smith]

As always, Emerson is right on target. If you overlay this data onto the income sensitivity program, its the same 5% plus a few more households who pay an undiluted education property tax. It is indeed time to get spending under control and rethink the distribution of tax burdens.

Charlie Smith

[bob zeliff]

Some very good points presented.
I think part of this is also that Vt and the Nation has shrinking middle class, so revineu from that portion of the population is shrinking too. This relates to the flat job growth in Vermont. The other side of the coin is spending. The big ticket for Vermont is education and I have seen no political will to address that. Also Our prebate system has shielded to many of our voters from education costs and responcibility.

[Bill]

Bernie Sanders never passes up an opportunity to preach to his devotees about the evils of the richest 1%. To his adorers and minions working from within the Vermont General Assembly, anything less than a massive tax hike on the 13,912 would be heresy, and slap to the Brooklyn native's face. And what would good agitprop be without villains?

[Doug Wacek]

Very thoughtful. Some of us have tried to highlight this risk for years. Perhaps now that we are facing a very real crisis more Vermonters will pay attention to the unsustainability of our approach to spending and taxation. Politics aside, Vermont must find a solution.

[GreggB]

VT's solution is collapse. The silver lining is perhaps VT will go back to being a cheap place to live, there is no way prosperity is going to flourish in VT. Sad when the best thing VT can hope for is being a cheap backwater to live in again.

[Mike Bernhardt]

Emerson stated the reality. The coming gubernatorial campaign is the perfect opportunity to focus on THE issue facing our state and that is the solvency of Vermont and our future. The next Governor must have the political courage to implement an austerity budget, address education spending by eliminating the free ride of our property tax rebate or prebate, whatever makes you happy, system. No platitudes, no fancy speeches, every constituency will have to realize that business as usual is no longer acceptable. Which future candiate will have the will and be prepared to take a direct approach to future fiscal responsibilty and Vermont solviancy.

Mike Bernhardt

[Brattleboro_conservative]

Gregg, you and me have to sit down and have a beer together sometime, I'm buying. Love your last post.

The only thing that will correct this state is to have it return to the dirt poor hillbilly, nose picking, beer swilling, sex-with-your-sister place it was before all the flatlanders moved in. Oh and to put a $50 toll booth at the borders of our lovely state. You should also put $100 tax on every skier who is dumb enough to buy a lift ticket, just to kill the ski "industry".

Take that George Cross!

[G.Cross]

Thanks, BC, for the new tax ideas and for the latest definition of a conservative Vermonter. Now, I recall it slightly differently, but clearly you are better prepared to set the record straight than I am. Thanks for your help.