A thumb on the tax scale
It’s not unusual to hear exaggerated claims about Vermont’s taxes, and some people have come to believe them. Fortunately, not everyone has bought into the myths. If they did, places like Stratton, Winhall, Killington, Stowe, Dover, Ludlow and others would be ghost towns.
One prominent myth—a favorite in the governor’s office—is that high taxes scare people away. Despite the evidence to the contrary, the governor continually warns the Legislature that wealthy Vermonters will move to New Hampshire or Florida if they’re asked to pay more to support programs that will benefit the entire state, like expanding the availability of child care.
The other myth we hear—repeated recently by Professor Art Woolf in the Burlington Free Press—is that Vermont is a high tax state because the taxes we collect per capita are higher than the per capita taxes of many other states.
The problem with the per capita calculation is that is assumes all of the taxes a state collects are paid by the residents of the state. If we did that same calculation for all of the towns in Vermont, we might believe that people who live in Stratton really have a huge tax burden—more than $74,000 a year for every man, woman and child. That’s what you get when you add up all of the income, property, sales, rooms and meals taxes and divide by the town’s population, which was 212 when the last Census was taken in 2010. Somehow the people in Stratton are managing to pay all these taxes on about $42,000 in per capita adjusted gross income—well above the state average, but clearly not enough to cover such a whopping tax bill.
By this method, residents of other towns are also getting slammed: Killington ($26,000 per capita), Dover ($17,700 per capita), Ludlow ($15,600 per capita), Stowe ($13,000 per capita). Why aren’t all these people packing their bags and heading to Tennessee, which had the lowest per capita taxes in 2011?
It should be apparent by now that the residents of these communities—all of which attract a lot of tourists every year—are not paying all of the taxes collected within their towns’ boundaries. By the same token, Vermonters are not paying all of the taxes paid within the state’s borders. If we’re going to talk about Vermonters’ taxes, let’s at least start with the taxes they’re actually paying.
For information on what the typical taxpayer pays in each state, the annual study by the District of Columbia is a good place to look. The DC study looks at five hypothetical families, with annual incomes of $25,000, $50,000, $75,000, $100,000 and $150,000, and calculates the taxes they would pay in the largest city in each state. The study includes income taxes, property taxes, sales taxes and gasoline taxes. The DC study overstates property taxes for some families because it doesn’t include the income adjustment Vermont allows on school taxes for qualified residents. Still, Vermont’s overall ranking, as represented by Burlington, was 19th in the DC study.
But whether Vermont’s taxes are higher or lower than some other state really isn’t the discussion we should be having. Both our spending policies and our tax policies should be guided by the statement of purpose that the Legislature adopted for the state budget in 2012. Our state budget, the Legislature rightly concluded, should provide for the well-being of the people of the state. If we put people first, rather than money first, we’ll start seeing the budget from a new perspective. Instead of asking whether our taxes are lower than everyone else’s, we’ll start asking if Vermonters are healthy, do they have enough to eat, are all kids getting a good start in life, are their enough decent jobs so people can support their families, do Vermonters have hope for the future.
If we used this approach, maybe the state would be a place that actually worked for Vermonters.
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