A few steps forward—and back
It should be clear by now that Washington is committed to a lopsided economy that keeps concentrating money in the hands of fewer and fewer people. But in some state capitals, including Montpelier, elected officials are beginning to recognize that smarter tax policies are aimed at helping working families.
There has been bipartisan support for Washington’s efforts to help the already wealthy, according to a study released last month. The Institute on Taxation and Economic Policy (ITEP) analyzed tax cuts from 2001 through 2018, which includes the Bush, Obama, and Trump administrations. Tax cuts totaled $5.1 trillion during that period, and nearly two-thirds of the reductions went to the richest 20 percent of taxpayers, ITEP found.
And a New York Times story last weekend served as another reminder of who benefited the most from the Trump tax cuts. According to the article, wealthy individuals and corporations enjoying generous tax reductions are funneling some of their windfall back to the Republicans, who passed the Tax Cuts and Jobs Act (TCJA) of 2017.
The federal tax bill had varied impacts on the states, and states had varied responses. In Vermont, personal income tax revenue would have risen about $30 million without legislative action. On Gov. Phil Scott’s recommendation, the Legislature increased the state Earned Income Tax Credit (EITC) as a way to offset some of the federal changes. Vermont’s EITC piggybacks onto the federal EITC. Both are designed to help working parents in low-wage jobs. The amount of the tax credit depends on income and family size. The maximum federal credit last year for a married couple with three children was about $6,300. Vermont’s credit had been 32 percent of the federal credit, but the Legislature increased that to 36 percent, effective this year.
Vermont made other changes that will have small, but important benefits for low- and moderate-income taxpayers. It eliminated itemized deductions, which tended to favor the wealthy, and it restored tax exemptions for family members, which had been eliminated by the federal law and would have hurt lower income families.
Vermont certainly could have done more to change tax policies that are working against working families. Another recent ITEP report said Vermont had taken “A Few Steps Forward, A Few Steps Back” with its response to the federal tax cut bill. A step backwards was the decision to lower state tax rates across the board, including the rates on the top 20 percent of Vermont taxpayers who are estimated to get a $350 million cut in their federal taxes in this year alone.
Still, the increase in the EITC was laudable. Based on last year’s credits, the change could mean an extra $250 for some families. Maybe next session, low-wage working Vermonters can get another step closer to a livable income with enactment of a $15-an-hour minimum wage.
