In all fairness

Rutland Herald/Times Argus Editorial
October 18, 2018

There are two certainties in life: We all want to debate taxes, and we all know we’re going to die debating how we should be taxed.

A report issued this week by the Institute for Taxation and Economic Policy looks at how all 50 states tax their citizens and evaluates which ones do it better than others. The Public Assets Institute here in Vermont collaborated on the study.

The study, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” analyzes all major state and local taxes, including personal and corporate income taxes, property taxes and sales and other excise taxes.

Vermont’s tax system ranked 49th least equitable on the study’s Tax Inequality Index. (Washington had the most inequality.) Among New England states, Vermont had the best rating on the index; New Hampshire had the worst.

Tax systems generally favor the wealthy, but Vermont’s system is skewed less than most other states when it comes to high-income taxpayers, according to a release from the Public Assets Institute on Wednesday.

Taxes are considered regressive if lower-income taxpayers pay at higher rates than taxpayers with higher incomes. According to the report, Vermont taxpayers in the top 1 percent now pay a slightly higher share of their income in state and local taxes than those in the middle. However, some upper-income taxpayers pay a lower percentage than Vermonters in the middle. The lowest-income taxpayers pay the smallest share of their income in state and local taxes, according to the report.

“This is very good news for Vermont,” said Public Assets President Paul Cillo. “The Legislature has improved the tax system over the past several years and it shows.”

The Legislature decoupled Vermont from the federal income tax changes enacted last year, which favor corporations and the wealthiest Americans; it eliminated itemized deductions and increased the earned income tax credit for the lowest-income working Vermonters. These actions have made the tax system less regressive.

But, Cillo cautioned, the system could be much fairer.

“The wealthiest Vermonters have benefited most from our growing economy and substantial new federal tax breaks. It’s reasonable to ask the highest-income residents and corporations to pay their fair share of state and local taxes,” he concluded.

Anti-tax advocates across the country and in Vermont continue to push for policies that reduce tax rates for the wealthy and businesses, the report finds. However, a movement is growing in opposition to this agenda, as the public realizes that tax cuts for the wealthy and corporations mean less money to fund the things that benefit everyone: schools, parks and public spaces, infrastructure, public safety and other basic services.

It is worth looking at the national trends.

The report includes these main findings:

— Tax structures in 45 states exacerbate income inequality. Most state and local tax systems worsen income inequality by making incomes more unequal after collecting state and local taxes.

— A progressive graduate income tax is a characteristic of the least-regressive state tax systems. States with the most equitable state and local tax systems derive, on average, more than a third of their tax revenue from income taxes, which is above the national average of 27 percent.

— The vast majority of state and local tax systems are inequitable and upside down, taking a much greater share of income from low- and middle-income families than from wealthy families. The absence of a graduated personal income tax in many states and an over-reliance on consumption taxes contribute to the longstanding problem.

— The lower one’s income, the higher one’s overall effective state and local tax rate. On average, the lowest-income 20 percent of taxpayers face a state and local tax rate more than 50 percent higher than the top 1 percent of households.

— In the 10 states with the most regressive tax structures, the lowest-income 20 percent pay up to six times as much of their income in taxes as their wealthy counterparts.

“Rising income inequality is unconscionable, and it is certainly a problem that local, state, and federal lawmakers need to address,” said Meg Wiehe, deputy director of ITEP and an author of the study. “State lawmakers have control over how their tax systems are structured. They can and should enact more-equitable tax policies that raise adequate revenue in a fair, sustainable way.”

To be more fair, and to provide funding to the services Vermonters need, tweaking needs to be done. While we can be proud of the ranking in terms of the rest of the nation, we still have some major steps to take to reform our tax structure, and stop leaving many resources untapped.

Before we die, we’d like to see our taxes go down.


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