Editor’s note: This commentary is by Don Keelan, a certified public accountant and resident of Arlington. The piece first appeared in the Bennington Banner.
[T]here is a great deal of chatter by union officials, politicians and progressive-minded individuals regarding raising Vermont’s income tax rates in order to transfer money into the state’s treasury. With the state staring at a potential general fund deficit of $125 million, I can see why there is so much chatter — but it is a waste of time.
Any suggested tax rate increase scheme is directed at the wealthy — and why? They are the class that has the most income to be taxed. But setting a higher tax rate on such income doesn’t translate into taxes collected — at the federal level or at the state level. When will the cohorts of such a policy recognize that the wealthy have a reservoir of tax devices to offset the impact of any increase in tax rates? They also have in place teams of investment, legal and financial advisers monitoring the reservoir.
Since 1960, when I first became a student of taxes, it has always puzzled me — the conflicting goals held by politicians when it came to writing our tax laws.
Take, for example, the application of tax credits that are available within the tax code. And here I am not referring to those that have been established for the middle-income or low-income taxpayers — Earned Income Credit, American Opportunity Tax Credit, Child and Dependent Care Credit, and so on. I am referring to the tax credits that wealthy taxpayers are often directed to, and for good reasons — they provide huge tax relief — supposedly created to accomplish various social/welfare good works.
And just so we all are on the same page in understanding the significance of tax credits, a tax credit lowers (or eliminates) the taxes that are due and payable. Conversely, a deduction lowers the amount of taxable income — huge difference.
Since 1960, when I first became a student of taxes, it has always puzzled me — the conflicting goals held by politicians when it came to writing our tax laws.
Vermont’s towns and villages depend heavily on the application of the tax credits that are utilized by the wealthy. The New Market Tax Credit would be a prime candidate. The purpose of this credit, which amounts to 39 percent of the equity invested by the taxpayer in a project, is meant to attract invested capital to the blighted areas of Vermont — generally where the poverty rate is near 20 percent.
If wealthy taxpayers are less interested in investing in a distressed community, they could look at the 20 percent Historic Rehabilitation Tax Credit. Once a commercial property is certified as historic by the National Park Service, 20 percent of the work done (has to be qualifying work) gets to reduce the investor’s income taxes. One would be hard-pressed not to see the results of this credit throughout Vermont.
And if investing in a business property is not an item for a wealthy taxpayer, but providing housing is, he/she can seek out what is known as Low-Income Housing Tax Credits. These tax credits have been around for almost 20 years and I would say that every low-income housing project agency in Vermont has utilized them to attract investors.
Of course, if wealthy taxpayers don’t want the hassle and cost of going through the morass of paperwork involved with tax credits, there is always the best tax avoidance program — investing in state and municipal bonds. The interest income doesn’t get taxed at all.
It appears that our legislators want to increase the tax rates for the wealthy. What they stay silent on is that they also want to encourage funding on an array of social and welfare programs, funded via the tax code, and by doing so, granting a lifetime annuity to investment, legal and tax advisers — who I am sure are deeply grateful.
