John Greenberg: Raise the tax burden on the wealthiest, lower it on the middle class

This commentary is by John Greenberg of Marlboro.

With no end in sight to the unavoidable expenses (e.g. health care costs, insurance, etc.) which prompted this year’s substantial rise in property taxes, tax policy is likely to feature prominently in November’s elections. Realistically, the choice that confronts policymakers is not whether or not to raise taxes, but on whom.

Taxes impact income groups differently. Income and wealth are distributed highly unequally in Vermont. That’s why it’s essential to look at the impact of the whole panoply of Vermont taxes on separate income groups. For some, rising taxes really are unaffordable; for others, not so much.

Vermont’s income tax is progressive (meaning that the more you earn, the higher the marginal rate you pay), but our overall tax structure (including sales, property, excise and other taxes) actually slightly favors the very top 1% of taxpayers over most of the middle classes.

Households making between $83,300 and $588,500 pay 10.3-10.6% of their total income in taxes , including sales and property tax, income tax, excise taxes, etc. Those making above $588,500, the top 1%, pay a bit less: 10.1% of their total income. And those making between $55,400 and $83,30000 pay only slightly less than any of these other groups, 9.6%.

In Vermont, unlike many other states, those making the least (the bottom 40%) pay a fair bit less. That’s commendable.

But it makes no sense — morally, politically or economically — for the rest of us to be paying at similar rates when we earn at such radically different rates.

It should surprise no one that when you raise taxes without considering the facts just stated, you hear cries about affordability. Gov. Phil Scott has always put these front and center of his agenda. They ring true to most voters because they already bear the greatest tax burden; most of the remaining 1% remain silent.

Worse still, these top income earners often join the chorus preaching “austerity,” because they won’t bear its main impacts. Those who will be hurt by cutbacks are told there’s no choice — you can’t raise taxes forever; if you make Vermont unaffordable, folks will leave; blah blah blah. We’ve all heard the nostrums.

Here’s an option seldom discussed: raise the total tax burden on those who can most afford it (because that’s where the money is!), and use at least a portion of the funds raised to lower the burden on everyone else, especially on the middle class.

The easiest way to raise taxes on high income earners is to simply raise the marginal tax rates on the highest incomes. Additional taxes are raised ONLY on incomes above the threshold established.

The usual objection is totally spurious: we’re told that these folks will leave the state if their taxes go up. This ignores the obvious fact that New Hampshire is right next door and already charges far lower total top tax rates than Vermont. Either the affected folks are dumb enough not to know that or we can reasonably conclude that the nightmare scenario (for which there is literally zero supporting evidence) is false. We hear anecdotally about folks moving to Florida, ignoring the difference between our weather and theirs. “Some Like it Hot.”

We should cut taxes on the remaining middle class filers for three distinct reasons:

1) It’s fair. Those who derive the greatest economic benefits should contribute the most to maintaining the system that has provided them so much.

2) It’s good politics. There are a lot more middle-income taxpayers and they vote.

3) It makes complete fiscal sense. Consumer spending accounts for about two-thirds of U.S. gross domestic product; it drives economic growth. People with low incomes spend what they earn (or more) because they must. As incomes reach higher levels, only a portion gets spent while the remainder gets saved.

Additionally, when the government raises taxes — say to fund education — it spends the money raised. Consequently, taxing higher incomes dampens spending LESS than taxing everyone else and relieving taxes on the middle classes maximizes spending.

Finally, government can target more than one goal when lowering taxes on middle-income filers. For example, instead of lower rates, we can provide them with tax credits or rebates for choosing energy conservation, energy efficiency or renewable energy generation. Similarly, we could provide them tax credits or deductions against Vermont income tax for deductions made to Vermont non-profit organizations. If the goal is to reach ONLY these taxpayers, then upper income limits would be set on these programs.

The fact of the matter is this. There’s plenty of money in the Vermont tax base, but we’re not reaching it because we haven’t honed our aim well enough to target it properly.

It’s about time to consider forging a new path.

Read the story on VTDigger here: John Greenberg: Raise the tax burden on the wealthiest, lower it on the middle class .