Vermont Property Tax Ranking: Mystery Solved

You may have heard it said recently that Vermont has the highest property taxes in the country. The source of the information was Northern Economic Consulting, which seems to be the only organization that gives Vermont this dubious distinction. Not even the anti-tax Tax Foundation, which does three different calculations, puts Vermont at the top of the list.

Now we know how Northern Economic Consulting came up with its ranking: Director Art Woolf decided he didn’t like the numbers reported by the U.S. Census and added $150 million to Vermont’s property tax total.

Woolf told Vermont Public Radio this week:

“If you take Vermont’s total property taxes paid and we divide it by personal income and we do that for every state in the country, we get that we’re number 1.”

Not quite. Vermont only reaches the top if the state’s figures are padded.

The source of the property tax data for every state was a report put out each year by the U.S Census. The 2008 report is the latest one with both state and local property taxes collected in each state. Personal income for each state is available from the U.S. Bureau of Economic Analysis here.

You can do this at home. Per Woolf’s instructions: Take the total property taxes reported to the Census from each state and divide by the total personal income for each state. What you get, if you use the 2008 tax data and 2008 personal income data, is that Vermont ranks number 3. New Hampshire, in fact, has the highest property taxes in the country using this measure.

It was only after I asked Woolf to double check the arithmetic that he explained that he decided to inflate the Vermont number before doing his calculation. He offered a couple of explanations for why he thought the Census was wrong. I suspect he failed to take in account the fact that the Census data now recognize Vermont’s income-based property tax adjustment. The numbers the Census uses come from Vermont’s own Department of Finance and Management. Even so, if Woolf thought the Census data were wrong, why adjust only the Vermont figures? Mightn’t the other states be off, too?

But there is a more important flaw to this entire calculation—and it is one the Census bureau has warned against and we’ve written about. Dividing the total property taxes collected within the state by either the population or total personal income assumes that all of the taxes are paid by Vermont residents. They aren’t. Second homeowners from other states and Vermont businesses, including those who export many of their products, also pay property taxes. Why act as though those taxes are coming out of the pockets of Vermonters?

It’s perfectly sound policy to ask people with the wherewithal to afford second homes to help pay for our education system in exchange for sharing some of the beauty of this state. Why tell Vermonters that they’re paying the taxes for these out-of-state property owners? That’s the effect of calculating property taxes on a per capita basis or as a percentage of Vermonters’ personal income.

The tax debate in Vermont needs to start with accurate information about who’s paying what. Only then can we determine whether the costs of education, health care, and other essential services are being fairly shared.