Editor’s note: This commentary is by Ali Jalili, of Burlington, who recently moved to Vermont after a 23-year career as a foreign service officer with the U.S. Department of State, during which he served across the world in various roles covering economics, trade, and development assistance.
Increasing income and wealth inequality damages the social fabric and distorts politics and the economy. The multi-decade trend that has concentrated wealth and income to the grotesque levels we see today has been partly driven by tax policy (among other factors). At the federal level, according to a study by economists Emmanuel Saez and Gabriel Zucman, the 400 richest households in the U.S. now enjoy a lower effective tax rate than the bottom 50% of households. As recently as 1980, the top marginal tax rate for the highest income bracket was 70%! It was even higher before that. It is now just 37%, as the rich-poor gap has yawned. Increasing taxes on the rich will not only raise desperately needed revenue for a federal government running trillion-dollar deficits, but it will also help ease wealth inequality. So, please, tax the rich — at the federal level.
At the state and local level, however, beware! Vermont is already at the brink of overtaxing the rich. Our representatives should carefully consider the impacts of various proposals to further increase taxes on wealthy Vermonters. Vermont needs residents. It needs new residents and it needs to keep its current residents. And it needs upper-income residents who can pay its already relatively high taxes. At the state and local level, people can easily move, and taxes are always a factor in those decisions. Given Vermont’s small population, every taxpayer counts.
I recently picked Burlington as a nearly ideal place to settle down. For many of my friends and colleagues, the decision was unfathomable — “why would you move to Vermont with its high taxes?” For me, Burlington and Vermont were worth it. But even here, I hear some upper-income Vermonters complaining about taxes and considering leaving the state. Vermont ranks 33rd on WalletHub’s analysis of state tax burdens, so it’s probably not as bad as some people think, but it’s above average. It doesn’t have much room for continued tax increases without affecting the decisions of upper income residents to move to Vermont or stay here. At the national level, this is not an issue as very few Americans are likely to give up their citizenship because they feel overtaxed.
But, you say, if the rich have received such great reductions in their tax rates at the federal level, they can afford to chip in more at the state level. That argument, however, doesn’t hold when a rich person is considering whether to move to Vermont or stay here. To the extent that taxes factor in their decision, they would just compare state to state.
This applies at the municipal level too. In Burlington, there have also been various recent proposals to raise local taxes on the rich. Again, at some point, it becomes a factor in the decision to remain in Burlington. And higher taxes on the “rich” may actually have the perverse effect of worsening wealth inequality. We may lose professionals who are “rich” (doctors, lawyers, engineers), while gaining some of the super-rich for whom the marginal increase in taxes are less important, resulting in a much less desirable overall mix of residents.
Let’s do something about wealth inequality in America by taxing the rich and increasing support for the poor and middle class. But let’s make sure Vermont (and Burlington!) continues to be a place that attracts and retains high-income professionals and innovators whose energy, expertise, and, yes, taxes, help sustain our great state.
