Hoffer: Income tax changes would give $4.1M back to millionaires

Editor’s note: This op-ed is by Doug Hoffer, a policy analyst and former candidate for State Auditor. He lives in Burlington.

I offer the following comments about the personal income tax provisions of the bill.

I agree with the recommendation of the Blue Ribbon Tax Commission that Vermont should shift from federal taxable income to AGI. And I also agree with the (near total) elimination of the 40% capital gains exclusion. However, the estimated impacts of the bill raise some issues that should be considered more carefully before these changes are adopted.

Some have argued that the legislature should act now because the changes are needed to improve the “business climate.” But to my knowledge, there is no evidence that Vermont’s current tax system is an impediment to job creation. Many have asserted as much for years, but while repetition can create the impression of received wisdom, it cannot substitute for facts. Furthermore, the changes are intended to be revenue neutral, so there is no urgency about this from a fiscal perspective.

I understand that a shift of the type is bound to create winners and losers up and down the income scale and that this is the price of improving the system. But these are not normal times and the proposed changes would produce results that I suspect many Vermonters would find unacceptable.

For example, 55,527 filers earning less than $60,000 would see their taxes increase; and it’s not a pittance. On average, over 5,000 filers (mostly families) earning $50,000 – $59,999 would pay an additional $262, which is a 21% increase over their average tax bill in 2009. Others would see even greater increases as a percentage of the 2009 average. All together, this group would pay almost $7.6 million more in state income taxes, a 41% increase.

Filers expected to pay more (JFO)

JFO estimated that 101,892 filers earning less than $60,000 would see savings and 59,441 filers would have no change. But that is small comfort to the 55,527 filers that would pay more during these difficult times. Obviously, “revenue neutral” means different things to different people.

The projected impacts at the upper end would undoubtedly raise some eyebrows. There are 19,416 filers earning more than $100,000 that would pay less under the new system. It is especially noteworthy that 196 filers earning $1 million or more would save almost $21,000 on average; a 12% savings.

Filers expected to pay less (JFO)

These cuts are balanced by increases for 12,308 filers earning $100,000 or more, as well as another 605 who would see no change.

But the legislature is considering deep cuts to essential programs for our neediest neighbors. At this time, it is unseemly to give $17 million to 19,416 well-to-do Vermonters, including $4.1 million to 196 families that earn more than $1 million.

I hope the committee will hold off on these particular provisions of the bill until it has time to recalibrate the proposal (perhaps over the summer). There’s no need to rush the otherwise sensible structural changes if they will hurt thousands of low- and moderate-income families when they can least afford it.

Filers expected to pay more (JFO)

And add some of it here as well!

Filers expected to pay less (JFO)