McDonald: Amnesia in Montpelier over tax increases

Editor’s note: This op-ed is by Pat McDonald, chairwoman of the Vermont Republican Party. It originally appeared in The Barre-Montpelier Times Argus.

Just two short years ago, in a rush to raise taxes, the Democratic majority in the Legislature overrode Gov. James Douglas’ veto of the budget in 2009, the combined budget and tax bill for fiscal year 2010, by just one vote. The governor and Statehouse Republicans opposed this bill because it spent too much and raised taxes unnecessarily.

Those Democratic tax increases from 2009 are still being phased in. On Jan. 1, 2011, Vermonters aged 70 and over lost their exemption on capital gains income — not very helpful in the middle of retirement. Vermonters under age 70 lost their capital gains exemption 18 months prior, also as a result of the Democrats’ budget.

But those tax increases were apparently not enough. During this legislative session, more taxes were enacted, targeting health care providers, health care insurance claims and (once again) property owners with yet another increase to the broad-based property tax.

So, what’s the result of all these tax increases? Well, the headline in The Times Argus on July 22 read, “State to End Year with $40M Surplus.” Interestingly, in all the news reports and the public statements of Vermont’s Democratic leaders, not once was there a mention of how this surplus came to be. Democratic leaders like to take credit for this surplus, claiming it’s resulted from growth in Vermont’s economy and “one-time” revenue anomalies. But in fact, this surplus is the result of tax increases that apparently were not needed after all.(As a side note, it’s tough to claim the economy has recovered enough to create such a large surplus, when household costs continue to increase faster than incomes, the unemployment rate has increased and many working Vermonters are underemployed.)

Political amnesia from Democrats seems to be the norm in Montpelier. Perhaps they were not listening when, during his 2009 Inaugural Address, Gov. Douglas said, “In previous recessions, the state has raised taxes. But when our fortunes improved, some taxes remained and the revenues were spent.” That seems to be what Democrats are intending on doing now — spending Vermonters’ hard-earned tax dollars for reasons other than why they increased taxes in the first place.

Rather than spend the surplus as recommended by the Shumlin administration, are there other ways to use this $40 million surplus to the benefit of Vermonters? Here are two approaches that we think can help Vermonters and especially seniors: Return it, in the form of much-needed property tax relief, and restore the capital gains tax exemption for seniors, as originally proposed by Gov. Douglas.

Vermont was just cited by Kiplinger’s for being the most tax-unfriendly state for retirees in 2011, adding a notation that Vermont’s property taxes are among the top 10 in the nation. It didn’t help that during this past legislative session, Gov. Peter Shumlin and Democratic legislative leaders raided the Education Fund for $23 million, which resulted in property tax rates being raised in every city and town in Vermont by 2 cents.

Democrats demanded that Vermonters pay higher taxes in 2009, and they did the same this year. Now that revenues are higher than what was budgeted, those Vermonters whose hard-earned tax dollars are responsible for that unexpected surplus — especially seniors who struggle to get by on fixed (and dwindling) investment incomes — should get some measure of relief. The governor and Democrat super-majority in Montpelier should work with Republicans to give the funds back to Vermonters, as now in retrospect, it is clear these tax increases were not necessary and that Gov. Douglas was right to veto them in the first place.

Comments

  1. Mike Curtis :

    Governor Shumlin and the Democratic legislature cut spending by well over $150 million this past session. The session before that, the legislature cut tens of millions more.

    Was that enough for the Vermont GOP? Nope. They are still complaining that not enough was cut.

    They complain when there is a budget deficit. They complain when there is a surplus. Long on complaints. Sort on ideas.

    Ms McDonald, instead of telling us that taxes are too high, how about you identify specifically what more you’d cut out of the state budget?

  2. Doug Hoffer :

    They never quit.

    Top marginal tax rates were cut as part of the deal to (partly) eliminate the capital gains exemption. Not satisfied, now the Republicans want the exemption back.

    All this at the same time Congress (and the President) extended the Bush tax cuts.

    Any effort to paint this as helpful to struggling seniors is classic misdirection. We all know that the vast majority of capital gains go to the wealthy (regardless of age), along with the benefits of the exemption.

    Indeed, the exemption cost the state over $150 million during its short life and most of it went to the wealthiest Vermonters (now there’s a great investment!). So thanks for the suggestion Ms.McDonald but we’re not buying.

  3. Drew Smith :

    I think there is truth in what Pat McDonald is saying, or should Vermont be proud of the honor bestowed upon it by Klipinger magazine and the fact that it has the highest per capita state taxes in the nation?

    • Edward Pais :

      Upon seeing that you referred to Vermont having the highest per capita taxes in the nation, I decided that I had to verify that for myself. The 2005 Census does have Vermont as number 1. http://www.census.gov/govs/statetax/05staxrank.html.

      However, according to the 2010 census information Alaska has surpassed Vermont by over $2,000 per capita. The top five in order are: 1. Alaska, 2. Vermont, 3. North Dakota, 4. Wyoming, 5. Hawaii. South Carolina has the lowest per capita state taxes in the nation. Here is a link to the census page on 2010 taxes. http://www.census.gov/govs/statetax/ It doesn’t list the per capita tax rate so I had to compute them myself using the 2010 census state population figures.

      I don’t know if this has any bearing or is just a coincidence, but Alaska, Vermont, North Dakota, and Wyoming are the four least populous states and Hawaii is the tenth least populous.

      Also, it seems that Vermont having a revenue surplus is a positive thing. Especially as Governor Shumlin is proposing putting most of the surplus into the state reserve fund.

    • Doug Hoffer :

      Mr. Smith

      Per capita taxes is a meaningless measure.

      There is no one in the phone book named per capita. Taxes are paid based on income. Vermont has a progressive income tax and an income sensitive education property tax. As a result, per capita figures are terribly misleading.

      In addition, it is noteworthy (if you care about facts) that the Census figures cited are for STATE taxes. Vermont is unique in that we have a statewide property tax for education. As a result, any comparisions of state taxes are not (and cannot be) apples to apples because education taxes are levied at the local level everywhere except Vermont. Shame on those who put this measure forward as a useful indicator.

      The ONLY fair way to compare the so called “tax burden” is to run tax returns for people similarly situated. That is exactly what the Joint Fiscal Office did a few years ago. The results show that Vermont is in the middle of the pack.

      http://www.leg.state.vt.us/jfo/reports/2007-10%20Vermont%20Tax%20Study%20-%20Volume%202.pdf
      see pages 5 – 12

      How long must we put up with this stuff? The discourse on taxes has been subverted and perverted by ideologues who are not interested in truth (let alone fairness).

  4. Drew Smith :

    Ed,

    Wow, you are industrious to crunch the numbers yourself. Here is my source http://www.theliberaloc.com/2011/07/26/what-are-the-top-ten-most-taxe-states-in-america/

    Vermont is the #1 most taxed state. And this article was just published on July 26, 2011…so it is current. Alaska wasn’t even in the top 10.

    Here is the link to Kiplinger Magazines rating Vermont as #1 Retiree Tax Hell http://www.wcax.com/story/14982110/vt-ranked-as-tax-hell-for-retirees and http://www.kiplinger.com/slideshow/TaxUnfriendlyStatesRetirees/2.html#top

    I agree setting aside surpluses for a “rainy day” is a wise thing to do, particularly with the uncertainty of how much taxes will have to be increased to cover the cost of the single payer health care plan. To me this is the more worrisome issue. Vermont is a very heavily taxed state and adding more taxes to support the proposed health care system may cause businesses (jobs), that we so desperately need, to move out of state. Does Vermont have a Central Budget Office, like in Washington DC, to crunch the numbers to determine if this health care plan can fly, before we get in over our heads.

  5. Drew Smith :

    Doug Hoffer,

    The link I provided earlier will connect you to the methodology that was used. They included property tax, sales and gross receipts taxes, license taxes, income taxes, and other taxes. You are correct that per capita data don’t tell us who is paying the taxes, but as most Vermonters know, the high taxes in this state are quite progressive, so the lower to mid income people are relatively spared. In the 2007 tax study that you mentioned, Vermont was considered to have the most progressive state taxes.

    The tax foundation ranks Vermont 8th highest in the nation in state and local tax burden (2009 figures-latest available). http://www.taxfoundation.org/taxdata/show/484.html
    This and other comparisons have shown that Vermont is a highly taxed state, particularly for the higher income earners, who tend to be the business owners who bring jobs to our state, and professionals (e.g., doctors, lawyers, dentists). Continuing to increase taxes in this state will quell the state’s ability to grow jobs and may drive some businesses and professionals to greener pastures. This trend would not be in Vermont’s best interest.

    Governor Shumlin agrees that we are a highly taxed state. Shumlin said: “We’ve already got a progressive income tax in Vermont, and we can’t get more progressive because we’ll lose the few payers that we have. We don’t have any more tax capacity.” http://newhampshire.watchdog.org/7854/nh-saves-vermont-tax-relief-for-everyone/
    Shumlim also acknowledges: “We all know Vermont is not an island. We all know people will pay a certain amount of tax on the state level, and when those taxes are disproportionate to those in neighboring states, they migrate.” http://www.vermontbiz.com/news/february/shumlin-says-despite-rumblings-legislature-he-will-stay-no-new-taxes-course/

    • Doug Hoffer :

      Mr. Drew

      With respect, you are misreading the data. For example, you said, “The tax foundation ranks Vermont 8th highest in the nation in state and local tax burden.”

      The Tax Foundation’s methodology is just as flawed as the others. It does NOT account for the progressivity of the system. Reporting per capita or taxes as a percentage of total income completely ignores the distribution of the so-called “burden.”

      You also said, “This and other comparisons have shown that Vermont is a highly taxed state, particularly for the higher income earners, who tend to be the business owners who bring jobs to our state, and professionals (e.g., doctors, lawyers, dentists).”

      There is an error and an unfounded assumption here. First, if you go back to Vol. 2 of the JFO Tax Study, you find that high income Vermonters do comparatively well. Of the 12 states reviewed (some low rates, some high, and some in between), wealthy Vermonters do just fine.

      AGI, Rank, and Effective income tax rate

      $109,320 9th out of 12; 3.2%
      $357,934 6th; 5.8%
      $715,868 6th, 5.8%
      $1,066,309 6th; 6.8%

      Obviously, the effective tax rates are much lower than marginal rates that are used by some to suggest VT is so mean to the wealthy. The reason we’re not is that the brackets kick in at very favorable levels. That is, the top rate doesn’t apply until the first dollar over about $365,000. In most other states, the top rate kicks in at $40,000 – $60,000.

      However, the Tax Foundation, Forbes, and the others are not interested in educating people about state taxes. Rather, they confuse and mislead people with half truths.

      As for your assertion that high income earners “bring jobs to our state,” there is no evidence to support that. Lots of Vermonters who earn more than $300,000 employ workers, but we don’t have any information about the entire group of high income residents. Most of those who earn big money ($1 million+) receive most of their income from “unearned income” such as capital gains, interest, and dividends. If so, those investments are rarely in Vermont (Fortune 500 equities, federal and corporate bonds, etc.).

      In any case, just because the refrain about the wealthy being job creators is repeated often does not make it true. Having said that, there are lots of jobs being created by wealthy investors, but it’s pretty clear they’re not in Vermont (or the US for that matter).

      And finally, while I like and respect Gov. Shumlin, his pronouncements on taxes should not be offered as evidence. Indeed, they too are not supported by the facts. Those who argue that taxing the wealthy leads to interstate migration have a heavy burden that has not been met. Just repeating something over and over does not make it true (although the Chamber would have you believe it does).

  6. Tom Pelham :

    Mike Curtis…..You’ve been misinformed. Let me point you to a link on the legislature’s Joint Fiscal Offices website that will provide you with accurate information about the state budget during this recession – from Fiscal 2008 through the current approved fiscal 2012 budget. At this link you will find the following:

    Budget Category FY 2008 FY 2012 Difference Rate per yr.

    Total Budget $4.102 bil. $ 4.688 bil. +$585.6 mil. 3.39%
    Total State funds $1.870 bil. $ 2.009 bil. +$139.5 mil. 1.81%
    Net Education fund $ 974 mil. $ 1.075 bil. +$101.5 mil 2.51%

    Here’s the link: http://www.leg.state.vt.us/jfo/appropriations/fy_2012/FY08_-_FY12_Total_Appropriations_Comparison_COC.pdf

    Because neither fiscal 2008 nor fiscal 2012 contain any material ARRA stimulus funds, this JFO chart provides a good topside view of state spending. As you can see, contrary to your assertion, the state budget has not been cut during the period but in fact has grown quite substantially. Further, during this same period the budget of the Agency of Human Services grew from $1.742 billion to $1.977 billion or by $235 million at an annual growth rate of 4.3%.

    I think the point Pat McDonald was making is that during this period, democratic leaders and advocates often stood at press conferences stating that the legislature had cut the budget severely, that the most vulnerable were at risk and therefore tax increases were necessary. The media, including Nancy Remsen, Terry Hallenbeck, Peter Hirchfeld, Anne Galloway, among others wrote stories about these press conferences. Unfortunately, there was little or no follow-up to find out whether such statements were in fact true. As we can see from the above, they weren’t. And in fact, in addition to the above budget increases, the state ran a fiscal 2011 surplus of well over $40 million, indicating that the tax increases were not necessary as Governor Douglas said and stood behind with his veto of the 2010 budget.

    Given the media’s very weak performance with regard to covering the state budget, I’m not surprised that you were under the impression that the budget was cut when in fact it was increased by hundreds of millions of dollars.

Comments

*

Annual fundraising appeal: If we had a dollar for every comment, we could end this annual fund drive now. Donate now.
Comment policy Privacy policy
Thanks for reporting an error with the story, "McDonald: Amnesia in Montpelier over tax increases"