Freedom, Unity and Taxes

by Robert Maynard

The Blue Ribbon Tax Commission released its report this past Thursday January 13. In general, the report calls for lower rates and broader bases. The preamble to the report identifies what it sees as a tension inherent in tax policy:

“Freedom and Unity. Vermont’s state motto embodies the inherent tension embedded within tax policy. Vermonters want freedom from excessive tax burdens, but have historically maintained a deep commitment to community through their maintenance of a strong social safety net. The paradoxical beauty of Vermont’s motto is that neither tendency is noble without the other. The Commission’s report reflects this noble paradox.”

I think that the above quote misrepresents the meaning of our motto “Freedom and Unity”. Vermont’s early pioneers did not see the need to balance freedom with community, but were able to achieve both. The two ideals were not seen as in tension with the need of one to counter balance the excesses of the other. In fact, these two ideals were seen as two sides of the same coin. One obvious reason why they were not seen as in tension is that our Vermont’s early pioneers did not equate their “deep commitment to community through their maintenance of a strong social safety net” with the expansion of government. The voluntary association of free people in a free society was seen as better able to create a genuine sense of community as well as preserve individual liberty. Why do we now see the desire to be free from excessive tax burdens as in tension with our commitment to community? It is because we have come to equate community and the maintaining of a safety net with the expansion of the central government. The centralization of government power that results in this approach is both a threat to our individual liberty and our sense of community. In addition, there is no evidence that such an approach benefits the less fortunate among us. In fact, the opposite seems to be the case.

In December of 2009 I wrote a True North editorial entitled “Hunger and the Free Market”, which dealt with the fact that Vermont was rated sixth in the nation by the 2009 U.S. Department of Agriculture on food insecurity. Our relatively more free market oriented neighbor New Hampshire was rated 48th. The problem was not just the high ranking for food insecurity, but the fact that Vermont has been trending toward higher food insecurity relative to other states for a while. We have always trailed New Hampshire in this regard, but have been in the middle of the pack when compared to other states. The Valley News wrote an article at the time equating food insecurity with economic insecurity. All the factors that we believe help to balance a focus on freedom from high taxes and create a sense of community and provide a safety net have combined to create economic insecurity. Needless to say, it is the poor who suffer more from the insecurity created.

Our “progressive” approach to education seems to be faring no better. Here in Vermont we are among the highest in the nation when it comes to educational spending on a per child basis. Has our excessive spending on public schools helped bring greater educational opportunity to the less fortunate? The link below is to the 2006 Fordham Foundation Report on the student achievement gap and reform efforts aimed at fixing that gap. Vermont got an F and ranked dead last at 50. The section covering Vermont is on pages 111 and 112.

Income disparity is another area that the report decries. Once again, Vermont does not seem to measure up to its own ideals. The following is from the January 7th edition of the Free Press political blog Vt.Buzz:

“Over the past few decades, real income for low- and moderate-income Vermonters has dropped, while it has soared for those at the top. During that time, Vermont saw the nation’s second-highest increase in income disparity, according to a study published by the Federal Reserve Bank of Boston.

Here we have another case where our approach to the problem seems to be making it worse. The issue of income disparity was dealt with by the Tax Foundation in a June 2010 report entitled: “Income Mobility and the Persistence Of Millionaires, 1999 to 2007”. To begin with, they do not think that we are looking at the problem the right way:

“Concern over the rising gap between the rich and poor has been the primary rationale for President Obama’s redistributive policies. But one important aspect of the American economy that should lessen concerns about snapshots of income inequality is the mobility of people up and down the economic ladder.

If people move quickly up and down through the income spectrum, the position they occupy at any point in time may be less of a concern. Moreover, it is natural that people at different stages in their life cycle of earnings-just entering the work force, just retired, or midlife during their peak earnings years-would occupy different rungs of the economic ladder.”

Their focus is more on income mobility over time:

“Research has documented that our economy exhibits considerable mobility. Roughly half of households move up from the bottom income quintile within ten years. Roughly 50 percent also move down from the top quintile within ten years.

This report generally confirms this same basic relationship using recent data covering the nine years from 1999 through 2007:

· Nearly 60 percent of taxpayers move up from the bottom quintile within this nine-year period.

· Nearly 40 percent of taxpayers move down from the top quintile within this nine-year period.

· Nearly 60 percent of taxpayers are in a different quintile in 2007 than they were in 1999.”

The report suggests that the goal should be greater income mobility if we want to see less disparity of income over the long run:

As noted by Paul Krugman (1992), “If income mobility were very high, the degree of inequality in any given year would be unimportant, because the distribution of lifetime income would be very even.”

Common sense would suggest that greater income mobility would result from an approach that stressed greater economic opportunity.

Perhaps it is time to consider the possibility that the model of progressive politics, which Vermont has been following is incapable of realizing the ideals that it proponents promote. The ideals of commitment to community and care for the less fortunate are lofty ones, but our approach to realizing those ideals does not seem to be making the grade.