Public Assets Institute > Policy Areas > Vermont Taxes > “Per-capita tax burden” is misleading

“Per-capita tax burden” is misleading

Is Vermont a high-tax state?  It depends on whether you look at the taxes Vermonters pay, or the taxes the state collects? There’s a difference, which we should keep in mind when we see information like a recent item in the Burlington Free Press “Innovate”  section.

The article cited 2009 Census data, the latest available, on taxes collected by state and local governments. For Vermont, the total was $2.9 billion. And as the article said, if you divide that by the number of people in Vermont, you get a per capita “tax burden” of $4,650. And when you compare that to the per capita taxes in the other states, Vermont is the 11th highest.

But before you jump to the conclusion that the residents of 39 other states are paying lower taxes, you might want to read what the Census has to say about this kind of per capita tax calculation, which it stopped publishing after 2005.

“[U]sing total taxes or per capita taxes as a measure of tax burden on the citizens of that state can be misleading because different states use different approaches to taxation,” the Census warns, “comparing only the total taxes collected by each state is not enough to understand the economic impact of those states’ taxes–one must also understand how those taxes are collected.”

Whether you divide total tax collections by a state’s population or the personal income of the state, you’re assuming all of the taxes are coming from state  residents. But of the $2.9 billion collected by Vermont state and local government in 2009, for example, about $580 million—20 percent—was property tax paid by corporations or out-of-state residents. If we want to know how Vermonters’ taxes compare with taxes in other states, we should be looking at the taxes paid by the residents. Unfortunately, it’s not an easy task to separate resident taxes from non-resident and corporate taxes in every state.

We have written about this problem before, and once again we’ll point to another annual report that more accurately reflects the taxes Vermonters pay relative to their counterparts in other states. The District of Columbia does a nationwide comparison each year of the taxes paid by typical taxpayers in the largest city in every state. The study looks at income, property, sales, and automobile taxes (gasoline taxes and registration fees) for hypothetical families of  three with incomes of $25,000, $50,000, $75,000, $100,000 and $150,000.

The 2010 study, released last fall, is the latest. When the cities are ranked highest to lowest in overall taxes, Burlington ranks in the middle to the bottom nationally for taxes paid by the families in each of the income categories as shown in the table below.

 


 

If we look at Anchorage, Alaska, in the DC study, it’s near the bottom for all income categories because the state has no income tax and no general sales tax. But Alaska collects billions in severances taxes each year from the oil companies, so in the per capita rankings, it’s typically at or near the top of the list.

Alaska can’t be called a high-tax state on the basis of what Alaskans pay. That’s the measure we should use in assessing whether Vermont’s taxes are high or low compared to other states.

 

Posted by Jack Hoffman on February 7, 2012 at 10:53 am

7 Responses to ““Per-capita tax burden” is misleading”

  1. susan alexander says:

    It is equally misleading to report only the findings of the one DC study and frankly I expected more from this website. Clearly, we pay relatively high taxes in VT and there are many studies that put our state much higher on the list than where Burlington was placed in the DC study to prove it. However, the questions that follows then should be: what do we receive for these taxes? and are we happy with those services? and what other factors influence the decision to live here? A fair and honest discourse on taxes is welcome but it is not the bottom line.

  2. C A Beaudette says:

    If you and your partner each own your own business location in this state, and you have the misfortune of owning a home as well, all in a Gold Town, the RE taxes alone are likely to be close or nearly double that cited in this study before we even begin to compute Income Taxes…..and they are thinking of raising these taxes. Add on to that what they are contemplating for Health Care next year,(15%) and your goose is cooked. Self-employed already pay 15% of the first $105,000 for SS and Medicare: $15,750/year, there is no employer to match this tax burden. By the time you add on Federal Taxes, you are working more than the feudal serfs of old for the state….well over six months of the year for government overall. Vermont is way up there. Plan on lots of people moving in for free health care if it goes through, and lots of self- employed moving on out. Higher taxes are inevitable. Other people’s money will eventually run out.

  3. Jack Hoffman says:

    In the blog, I linked to the most recent DC study, but the 2010 rankings for Burlington were consistent with previous years.
    Most other studies I’ve seen that show Vermont as a high-tax state are a variation on the analysis published by the Burlington Free Press: they assume all of the taxes collected by the state are paid by Vermonters — either per capita or a percentage of personal income. The DC study is the only one I’m aware of that looks at what typical residents of a state pay.
    The Legislature’s Joint Fiscal Office also did a study in 2006 that took a similar approach. It created two dozen hypothetical tax filers — rich, poor, middle-income, single, married, etc. — and calculated the taxes each would pay in Vermont and 11 other states. That study is available at http://www.leg.state.vt.us/jfo/reports/2007-01%20Vermont%20Tax%20Study%20-%20Volume%201.pdf. It did not include property taxes, which are difficult to assess state to state. The DC studies attempt to overcome that problem by focusing on one city (the largest) in each state. If there are other studies that also answer the question of what people pay — rather than what each state collects — please let me know.
    Taxes are only half of the equation, which is why we also have been urging policy makers to re-establish performance indicators like the Vermont Well-Being Reports the Agency of Human Services published for nearly 15 years.

  4. cgregor says:

    The more reliable tax figure indicator is household per capita.

  5. Carolyn Tonelli says:

    For me the question is not how much tax one pays, but how much one has left to support oneself and one’s family. If one can support second homes, top rated colleges for our children, million dollar homes, etc., one shouldn’t complain…

    Hence I agree with the writers who want to measure well-being, and other intangible factors about life in Vermont.

  6. Tim Swartz says:

    One of the main things I like about the PAI and its posts is that they are oriented toward reporting data and its implications, rather than just expressing opinions. I notice that the original post, and Jack Hoffman’s comment posted above refer to studies, and explain why the one study which was the primary source for the post is the best one (thus far) available. Jack also appeals to the audience to find other relevant studies. By contrast, the first commentator only says: “Clearly, we pay much higher taxes in Vermont”. I appreciate the data presented by PAI, and I see the relevance of the cited study, and the other one linked in Jack’s comment.

  7. Ralph W Howe says:

    Tax burdens are but one component of economic well being and justice. When taken out of context they make great headlines, but can mislead us in the ways that we want to be misled. What percent of Vermonters live at each economic level; how easy/difficult is it for a small business to thrive and hire; how many people are permanently outside of the main economy; do the wealthy pay taxes commensurate with the benefits that they derive from the overall governmental engagement with the economy from subsidized highways to tax loopholes to the benefit of not having to pay SS tax on 100% of earned income and 0% on investments, etc.

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