Editor’s note: This commentary is by Ed Deegan, of East Montpelier, who is an accountant in Montpelier.
[I] have some “world views” based on old quotes and old sayings. They shape how I approach life. One of those sayings is “Keep it simple, stupid” or the KISS principle. This expression came from the Navy back in the 1960s and it basically says simple systems usually work better.
When it comes to taxes in the state of Vermont, simple is hard to come by. It has not always been this way. When I came to Vermont in the very early 1980s, Vermont had one of the simplest tax systems in the country, today we have one of the most complex. The complexity alone does not make the tax system a bad system, however, the current dysfunction of the system does. So, let me “KISS” the Vermont tax system for you and analyze in simple terms the problems.
First, I have a one half of 1 percent (.5 percent) spending increase in school spending this year which will give me an increase of 10 percent on my school property tax. That is 20 times increase in taxes over the increase in spending. This alone is absurd.
Next, I am paying substantially more as a primary residence than commercial properties in my town. I am not just subsidizing my neighbors taxes through the income sensitive property tax, I’m now subsidizing Walmart. (Walmart is not in my town I’m just using it as an example.) Two years ago I believe we were one of 37 towns with this situation, this year I was told about half the communities in the state are in this position. The margin difference between non-residential and residential continues to grow. In KISS terms, every year I will continue to pay an increasingly larger difference in my property tax as a primary residence over commercial properties of similar value.
Now it may sound like I’m ranting about high taxes, I’m not. Taxes are the price you pay for civilization and I don’t mind paying high taxes if the systems work.
Finally, I am subsidizing primary residence property taxpayers to the level of absurdity. There is no state in the US or country in the world who has a similar system for good reasons. In KISS terms there are taxpayers who can pay another state tens of thousands of dollars in property tax but under our current system have the majority of their taxes subsidized in Vermont. If you can pay New York City $50,000 in property tax for your property there you should not have $4,000 of your $6,000 Vermont property tax subsidized. This is absurd.
In KISS terms, the system is failing. The first problem is admitting you have a problem, which, although I hear a lot of rhetoric from Montpelier, I see no definable action on fixing any of these things. Instead they are proposing changes to the income tax system that will continue to hurt the middle class taxpayers.
So, in KISS terms, let’s look at the income tax situation. Vermont is the only state in the U.S. that the top 1 — and actually the top 20 percent — of taxpayers pay a higher effective rate (the actual taxes paid) than the bottom 20 percent. That’s the way it should be and is. The reason for that is that the bottom 20 percent of taxpayers in Vermont pay a negative income tax of 1 percent. That means that the bottom 20 percent collect more through the Earned Income Credit than they pay in state income taxes. In KISS terms, $140 million in income tax collected mostly from the top 20 percent of taxpayers goes directly into the pocket of the bottom 20 percent of taxpayers. If you analyze the data more closely most of the money comes from 15 percent of taxpayers and goes to 15 percent of taxpayers.
Now it may sound like I’m ranting about high taxes, I’m not. Taxes are the price you pay for civilization and I don’t mind paying high taxes if the systems work. In the case of the Earned Income Credit (EIC), it works. There is nobody receiving an EIC who is driving a Mercedes or paying other states more property taxes than they pay on their Vermont homes. The EIC benefits working people and especially benefits working people with children. The problem is, in KISS terms, we have about $140 million taken from the top shifted to the bottom in the EIC and then we take another $150 million from the school education tax and do the same thing. That doesn’t include the “circuit breaker” money from the general fund which adds even more. That is a lot of money, but for some people not enough.
These problems will get worse because now capital flight will occur as people with money Kiss Vermont goodbye. I love Vermont but we need to get these problems under control. The current tax system is absurd. We need to apply the KISS principle and create a simple system that works.
