Editor’s note: This piece was written by policy analyst Doug Hoffer.
The governor just won’t quit.
The Tax Foundation’s “findings” have been discredited for years, but that doesn’t stop Jim Douglas and the media from citing them ad nauseum.
The Tax Foundation and other such groups report per capita income (or taxes as a % of income). This tells us nothing about the distribution of the so-called tax burden. As the Joint Fiscal Office pointed out in Vol. 2 of the Tax Study (pages 5-12), Vermont’s progressive income tax effectively puts the state in the middle of the pack.
Our high top marginal rate doesn’t kick in until the first dollar over $360,000, which is very unusual. The proof is that the top filers (those earning over $500k), paid on average only 5.4% of their income in state income taxes in 2007 (latest data available from the Tax Department). So much for the scary 9.5% top rate (since reduced to 8.95%). But ideologues cannot be bothered with facts.
Some argue that the Tax Study is misleading because it doesn’t include property taxes. But this is a hollow argument because Vermont has a unique income-sensitive education property tax that would probably make us look even better when compared to other states. The bottom line is that with few exceptions, low- and moderate-income people do better in Vermont than many other states.
My comments should not be read as support for the current tax system. Indeed, a recent report from the Institute for Taxation & Economic Policy found that the wealthy pay a lower percentage of income for total state and local taxes than low- and moderate-income filers, in its “Vermont Who Pays?” fact sheet. Although more progressive than most states, Vermont is still regressive overall thanks to the local (non-education) property tax, the sales tax, and the many tax credits available to the wealthy.
Instead of addressing this issue, Jim Douglas continues to argue for lower taxes for the wealthy.
And for more on the general problem of these annoying and misleading “business climate” reports, see “Grading Places: What Do Business Climate Rankings Really Tell Us?” pages 17-28 for the Peter Fisher’s critical review of the Tax Foundation’s Business Climate rankings methodology.
The notion that state taxes are a significant factor in business location decisions and job creation is contradicted by the facts. I have addressed this issue in Phase 9 of the Job Gap Study and the Addendum to Phase 9. More evidence will be presented in Phase 10, which should be released in late January.
Douglas’ continuing lament about the “business climate” is tiresome but predictable. Almost everything he says about this subject is intentionally misleading. But the media’s failure to call him on it is truly disturbing. Newspapers, TV, and radio should do more than publish press releases and quotes from speeches to groups of true believers. The people have a right to know if elected officials are telling it like it is or citing misleading and discredited sources. Is that really so much to ask?
Primary sources:
Vermont Tax Study, Vol. 2
The Vermont Job Gap Study Phase 9
