Vermont’s Tax Structure Is Less Regressive than Most, But Still Favors the Wealthy

FOR IMMEDIATE RELEASE
November 18, 2009

MONTPELIER—Vermont has done better than many states to tax according to ability to pay, but low- and middle-income Vermonters still pay more of their income in state and local taxes than do those in the highest income brackets.

That is the finding of a new report released today by the Institute on Taxation and Economic Policy based in Washington, D.C.

“Vermont lawmakers may be forced to make difficult tax and spending decisions in the upcoming year,” said Matthew Gardner, ITEP’s executive director and lead author of the study, titled Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. “They should be mindful that the Vermont tax system already falls most heavily on the very poorest families in the state.”

Paul Cillo, executive director of the Montpelier-based Public Assets Institute, said the report should be required reading for the members of the Vermont Blue Ribbon Tax Structure Commission, which recently began a two-year study of the Vermont’s tax system.

“We have a long tradition of progressive income taxes, and thanks to income sensitivity, many Vermonters pay school taxes based on their income rather than the value of their property,” Cillo said. “But as this report clearly shows, we have more work to do if we want a tax system that is based on ability to pay.”

According to the study, which was based on taxpayers under 65, the poorest 20 percent of Vermont families are paying, on average, 8.2 percent of their income in state and local taxes, while the richest 5 percent of Vermont families pay 7.5 percent on average. For the middle-fifth of Vermont families, those with income between $34,000 and $54,000, 9.4 percent of their income, on average, goes to state and local taxes, the report found.

“No one would ever design an income tax with lower tax rates for the best-off taxpayers,” Gardner said. “But that is exactly what Vermont’s tax system overall does: it allows the very wealthiest individuals to contribute less of their income, on average, than middle- and lower-income families must pay. In other words, Vermont has an unfair, regressive tax system.”

Vermont sales and excise taxes are regressive: they fall more heavily on low- and middle-income taxpayers than on the wealthy. The Vermont income tax is progressive: the middle fifth of Vermont families pay, on average, 1.7 percent of their income in income taxes, while the richest 1 percent pay, on average, 5.4 percent of their income in income taxes. Taken all together, however, the entire tax structure is tilted in favor of those with higher incomes.

Although Vermont’s overall system is still regressive, it is not as bad as some states. Florida, which is seen by some as a haven for wealthy Vermonters, has one of the most regressive systems in the country. According to the ITEP study, the poorest 20 percent of Florida families pay, on average, 13.5 percent of their income in state and local taxes. The richest 1 percent of Florida taxpayers pay 2.1 percent of their income to support state and local government.

The full ITEP study is available at http://www.itepnet.org/whopays3.pdf

Public Assets Institute is a nonprofit, nonpartisan organization that promotes sound budget and tax policies to benefit all Vermonters. Additional information is available at www.publicassets.org

Based in Washington, DC, the Institute on Taxation and Economic Policy is a nonprofit, nonpartisan research organization that seeks to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy.

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