By Rob Roper
The Wall Street Journal recently looked at IRS data and noticed “an accelerating flight from high-tax states.” The editors conclude, “The liberal tax model is to fleece the rich to finance spending on entitlements and government programs that invariably grow faster than the economy and revenues. IRS data on tax migration show this model is now breaking down in progressive states as the affluent run for cover and the middle class is left paying the bills.” Though the editorial focused on larger states, such as Illinois, New Jersey and Connecticut, Vermont lawmakers should take warning. This is you.
It used to be that the people moving into Vermont brought in more revenue than what was lost when others moved out. However, this has not been the case for several years. Writing a year ago about 2013-2014 Census statistics, UVM economist Art Woolf noted that among taxpayers earning over $75,000, the income group that provides the majority of Vermont’s revenue, “people moving out took with them $78 million more in income than people moving in earned. That is, middle- and high-income people moving out of Vermont tend to be richer than people moving in.” (BFP, 9/15/16)
Today, Vermont’s personal income tax revenues are down significantly so far in fiscal year 18, $6.41 million below forecasts. We have to ask how can this be given that the national economy is booming with 3 percent or better growth for three straight quarters, the stock market is at record highs, and Vermont’s unemployment numbers are at record lows.
What’s more worrisome is that everything mentioned above was occurring before the US Senate joined the House in passing a federal tax reform bill that will in all likelihood lead to the elimination of the SALT (State and Local Tax) deductions on the federal income tax. This will mean a big hit for taxpayers in high tax states like Vermont, increasing quickly and dramatically the incentives for people with already high tax bills to flee.
Vermont’s tax-and-spend business model was failing already. Federal tax reform, assuming that it passes, will be the final fatal nail in that coffin. Our lawmakers’ challenge is to implement a new business model that conforms to both the old and the new economic realities and makes our state economically competitive on a national and global scale. The status quo is no longer an option.