Vermont’s tax system fairer than most, but still regressive overall
Vermont taxes are higher, as a percentage of income, on the poor and those in the middle than they are on the 1 percent at the top, according to the new study “Who Pays?” released Wednesday, Jan. 14, by the Institute on Taxation and Economic Policy (ITEP).
Vermont is not alone; the wealthiest pay less than everyone else in all states. But Vermont is better than most when it comes to collecting taxes from those who are better able to pay, according to the study.
“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”
The 50-state study cites Vermont for having one of the least regressive tax systems in the country. Vermont gets good marks for having a “very progressive” personal income tax system—that is, a system in which the effective tax rate rises for those with higher incomes. The study also credits Vermont for offering refundable income tax credits. Vermont piggy-backs onto the federal Earned Income Tax Credit for people who work in low-wage jobs. The state credit amount is equal to 32 percent of federal credit, and if the state credit is more than the filer owes in state income taxes, she gets the difference as a refund.
But the fairness of Vermont’s personal income tax is more than offset by sales and property taxes that tend to fall more heavily on low- and middle-income taxpayers than on the top 1 percent.
“Many people think Vermont has a progressive tax system. We don’t,” said Paul Cillo, president of the Public Assets Institute. “The regressive property tax is Vermont’s largest single revenue source supporting state and local public services,” he said, “and the Legislature has been shifting more and more public costs onto the property tax.”
The study points out a practical reason for states to be concerned about regressive tax structures. If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.
“Americans generally have a visceral reaction to taxes, but the truth is we need them to make state governments work for all citizens,” said Meg Wiehe, ITEP state policy director. “The problem with our state tax systems is that we are asking far more of those who can afford the least.”
The report is available online at www.whopays.org
The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.
Public Assets Institute is a nonprofit, nonpartisan organization that promotes sound state budget and tax policies that benefit all Vermonters. More information at www.publicassets.org