Fleeting tax arguments

Gov. Peter Shumlin made it clear that he didn’t like the tax package passed by the Vermont House this week. But his reasons for opposing the House bill are getting shakier and shakier.

To provide needed revenue, the House plan would raise about $23 million for fiscal 2014, and slightly more the next year mainly by reducing income tax deductions typically claimed by upper income Vermonters. In opposing the House plan this week, the governor claims that wealthy Vermonters will leave the state if their taxes go up. There’s no evidence to support his view that raising taxes drives out wealthy taxpayers, and, in fact, there are several recent studies that show he is wrong.

We know from IRS reports that about 16,000 people move out of state each year and about 16,000 move in, so there’s no reason to question the governor when he says he knows wealthy people who have left Vermont. But there are also wealthy people moving to Vermont. Those who have researched the issue, and not simply relied on anecdotes, have found no evidence that increased taxes cause the wealthy to flee and states to lose revenue. We’ve reported on several of their studies. And Vermont’s own Blue Ribbon Tax Structure Commission, as news organizations reported this week, debunked the tax flight myth in its 2011 report.

Then there’s the governor’s line that the problem with Vermont’s taxes is not that they’re too low, but that they’re too high. People have different views about whether taxes are “too high” or “too low.” But compared to other states, Vermont is actually right in the middle of the pack when you look at income taxes as a percentage of income. And a study that looks at the taxes paid by typical residents in the largest city in each state—including incomes taxes, property taxes, sales taxes, and fuel taxes—also shows that many Burlington residents pay less than taxpayers in other states.

Early this week Shumlin got himself tied in knots trying to explain to reporters why he criticized the governor of New Jersey for opposing tax increases on millionaires and billionaires when he’s doing the same thing here in Vermont. First, the governor said New Jersey’s taxes were lower than Vermont’s, implying there was room to raise taxes there to help the middle class. But then it turned out that New Jersey’s top tax rate on millionaires (and billionaires) is already higher than Vermont’s and that filers with income of $1 million or more pay a slightly higher percentage of their income in income taxes than Vermont millionaires.

If New Jersey’s taxes are too low and hurting the middle class, which is essentially what the governor told a New Jersey newspaper, why doesn’t Vermont have room to raise taxes on millionaires to rebuild its middle class?

Finally, there’s the governor’s argument for cutting the state’s earned income tax credit—his preferred source of revenue for his initiatives. He insists he’s not taking money away from the 100,000 Vermonters who depend on the credit, including more than 50,000 children. He says he only wants to redirect the money to expand childcare subsidies for low-income families.

But a working family with three children and income of $13,000 a year now can get a Vermont credit of about $1,800. With the governor’s cut, the credit would be reduced to $600—a loss of $1,200, and most of the families who will see this cut won’t benefit from the child care expansion.

Why the governor would take that money from a family making $13,000 and not from a millionaire still isn’t clear. Maybe he thinks there’s less of a risk of tax flight.