A new 50-state analysis of state income taxes by Public Assets Institute shows that Vermont ranks in the middle of states compared to the rest of the country. While much has been made of Vermont’s high tax rates, the amount taxpayers actually pay in Vermont is lower than in many other states because of deductions and other adjustments and the state’s progressive rate structure. This analysis looked at the total income taxes paid in each state in 2008 and divided it by the total adjusted gross income (AGI) - that is, income before deductions and other adjustments.
Using this ‘effective tax rate’ measure, Vermont was 23rd among states when they were ranked highest to lowest. Forty-three states levy a personal income tax; seven do not. Vermont also ranked 23rd in per capita income.
‘We hear a lot about Vermont’s top income tax rate, which is relatively high because Vermont has a long traditional of progressive income taxes. Those who get the greatest financial benefit from society’s public structures are expected to contribute the most to maintaining them,’ said Paul Cillo, president of the Public Assets Institute.
‘But few people pay that top rate because it applies only to taxable income above about $372,000, after deductions and exemptions have been subtracted.
‘If we want to see how Vermont’s income tax stacks up against the other states, the most straightforward way is to look at the amount Vermonters actually pay and divide it by their adjusted gross income, which is based on federal tax laws and is, therefore, the same for every state.’
The Public Assets report (CLICK HERE) shows that Vermont’s effect tax rate was 3.9 percent in 2008. Among the states with an income tax, the effective rates ranged from 0.2 percent in Tennessee to 7.0 percent in Oregon.
‘Because we have progressive income tax rates, people in the higher income brackets have an effective tax rate that is higher than 3.9 percent; the rate is lower for those in the lower brackets,’ Cillo said. ‘How taxes are distributed is an important consideration. But it’s also useful to look at how much of Vermonters’ income goes to pay state income taxes, and how that stacks up against other states.’
Another common method of state tax comparison is to look at all taxes collected within a state’taxes paid by residents as well as those paid by businesses and non-residents. The U.S. Census used to publish annual reports calculating state taxes or state and local taxes on a per capita basis. However, the Census stopped issuing those reports, explaining that they presented a distorted picture for states, such as tourist states, that collect a lot of revenue from non-residents.
Per Capita Income by State
Dollars
Rank
United States
38,611
(X)
Alabama
32,404
42
Alaska
40,352
15
Arizona
33,029
40
Arkansas
30,060
48
California
41,571
7
Colorado
41,042
10
Connecticut
54,117
1
Delaware
40,608
12
District of Columbia
61,092
(X)
Florida
38,444
20
Georgia
33,457
38
Hawaii
39,239
18
Idaho
31,197
44
Illinois
40,322
16
Indiana
33,616
37
Iowa
35,023
27
Kansas
36,768
22
Kentucky
31,111
46
Louisiana
34,756
31
Maine
33,722
35
Maryland
46,021
5
Massachusetts
49,082
3
Michigan
35,086
26
Minnesota
41,034
11
Mississippi
28,845
50
Missouri
34,389
32
Montana
32,458
41
Nebraska
36,471
24
Nevada
40,480
13
New Hampshire
41,512
8
New Jersey
49,194
2
New Mexico
31,474
43
New York
47,385
4
North Carolina
33,636
36
North Dakota
34,846
29
Ohio
34,874
28
Oklahoma
34,153
33
Oregon
34,784
30
Pennsylvania
38,788
19
Rhode Island
39,463
17
South Carolina
31,013
47
South Dakota
33,905
34
Tennessee
33,280
39
Texas
37,187
21
Utah
31,189
45
Vermont
36,670
23
Virginia
41,347
9
Washington
38,414
14
West Virginia
29,537
49
Wisconsin
36,047
25
Wyoming
43,226
6
US Census Bureau, 2007.
An annual report published by the District of Columbia and two studies done by the Vermont Legislature’s Joint Fiscal Office compare the taxes typical Vermonters pay with taxpayers in other states. The DC study compares the amounts paid by taxpayers in the largest city in each state. According to latest DC study, Vermont’as represented by typical Burlington families’falls in the middle when it comes to taxes paid as a percentage of income.
The Legislature made modest tax changes in the last two years, a blue ribbon commission is studying the state’s tax structure, and taxes are likely to come up again in next year’s budget discussions. The state income tax is the largest source of state General Fund revenue. The tax generated $622.3 million in fiscal 2008, which was 52 percent of all General Fund receipts.
Public Assets Institute is a nonprofit, nonpartisan organization that promotes sound budget and tax policies to benefit all Vermonters. Additional information is available at www.publicassets.org