Editor’s note: This commentary is by Robert Feuerstein, who is president of Kennedy Brothers Inc. in Vergennes.
[I]n the commentary, “Margolis: The State’s Budget (and Revenue) Conundrum,” there is a major flaw in his presumptions. He states:
“So it’s simple arithmetic. If more of the income flows to those who pay a smaller percentage of their income in taxes, the total tax revenue will be smaller than it would be if they paid a higher percentage, or even the same percentage as other taxpayers. “
This is ONLY TRUE if the amount of income stays the same. And it won’t since income changes all the time. What Vermont needs is increased incomes for Vermonters. The state tax revenues will rise if we can raise the incomes. Let’s focus on doing that while increasing income inequality.
One other point. Income inequality is not a problem. Low incomes for many Vermonters is the problem. Please do not conflate the two.
For example, let’s say we change the income tax in Vermont so that all income above $1 million is taxed at 5 percent. This is less than the 7.7 percent average tax rate for high-income Vermonters cited by Mr. Margolis, and far less that the current maximum Vermont income tax rate of 8.95 percent at this income level. And let’s say that this change in the tax law induces 100 of Vermont’s second-home dwellers to change their residence to Vermont because this will lower their state income tax compared to New York, Connecticut or Massachusetts, and because they love Vermont.
This leads to an increase in taxable income in Vermont. Then let’s assume that they have an average of $1million in taxable income at this new tax tier. This greatly increases the income inequality in Vermont, but it increases the states income tax revenue by $5 million! Is that a bad thing? Is this unfair to those that earn less because these rich residents get to pay a rate of “ONLY” 5 percent? Do we care?
One other point. Income inequality is not a problem. Low incomes for many Vermonters is the problem. Please do not conflate the two. I ask you: Would you rather live in a state where the top 10 percent earned an average of $1 billion a year each, and the other 90 percent earned $100,000 per year; a situation of massive income inequality, or in the current Vermont situation; where income inequality is much much less than the former case?
Thus I propose to the state Legislature that they implement this new tax tier and attempt to massively increase income inequality in Vermont. And BRAG about it to all our second-home owners.
