by Ali Jalili Various groups are once again calling for Vermont’s wealthiest to “pay their fair share of taxes” to raise revenues for worthy social goals. While I agree with this thinking on the national level, I believe it would be a big mistake for the state. On the national level, there are few rich democracies with lower tax burdens. If you raise taxes on the wealthiest households, very few would give up their citizenship and move to another country.
On a state level however, it’s a completely different picture. States, especially small states with relatively stagnant populations like Vermont, are in a bit of competition for people and businesses. And taxes are one factor (of many, to be sure) in attracting and keeping residents, especially those with higher incomes who have the means, skills, and wherewithal to choose where they want to live.
Ranked by overall tax burden, Vermont is already 47th according to the tax policy foundation. Are those who are advocating for raising taxes on the “rich” seeking to make us 50th? It could be. It could be a model. Or… it could drive away some percentage of our already few “rich” residents. Unlike other high-tax states such as New York or California, whose economies and populations are orders of magnitude larger, Vermont depends on literally a few thousand households for most of its income tax base.
The top 10% of households, a mere 33,000, paid about 65% of net income taxes in 2021. What should that “fair” share be? And that 90th percentile of income starts at $154,000 - what a young police officer and nurse household would make. The people we are most in need of in Vermont - police officers, nurses, doctors, engineers, high-tech workers, and various other high-income professionals - would be the targets of the higher taxes.
Say you’re an early career professional two-income family making $180,000 a year in Burlington and living in a $600,000 house (slightly higher than the median home price). You would be paying about $9,000 a year in state income tax, $10000 a year in state and local property tax, and 7% sales tax on much of what you spend; over $20,000 a year in state taxes! Are the advocates of higher taxes suggesting this family pay more?
Maybe they’re just targeting the 1%ers, the 3,300 households who already pay about 1/3 of total income taxes. I don’t know who these households are, but there aren’t very many of them! They are likely business owners, entrepreneurs, doctors, senior executives, and, I’m guessing, rich retirees who can easily decide that it’s time to move.
I would add that these households are also likely those that provide a disproportionate share of contributions/donations to Vermont’s robust non-profit sector. Would they be as generous in an even higher tax environment? If we do decide to tax them even more, I would suggest we be careful. We don’t know the tipping point at which we cause them to leave the state and/or dissuade them from moving to the state. And we need them to stay and we need more of them to come.
In general, and this doesn’t just apply to the rich - as Governor Scott reiterates over and over - we don’t need more taxes, we need more taxpayers!
Ali Jalili, of Burlington, is a retired Foreign Service Officer who served with the State Department all over the world, primarily as an economic officer.