Yet More Taxes on the Way?

by Robert Maynard

The January 15th deadline to reveal to the public how Shumlincare is going to be paid for has come and gone and it still remains a mystery just how bad the beleaguered Vermont taxpayers are going to get soaked this time.  Here is how a recent message from Vermonters for Health Care Freedom described the ducking of this issue:

When Vermont passed single payer health care in 2010, it required the governor to present a budget and financing plan to the Legislature no later than today, January 15, 2013. This report is part of a $300,000 study commissioned to the University of Massachusetts. The law also requires that a second budget and financing plan be delivered for the Health Benefits Exchange under Obamacare.

The UMass study likely calls for a massive tax hike to pay for government run health care. Governor Shumlin’s refusal to release this report in compliance with Act 48 is inexcusable. Governor Shumlin now says the report will be released on January 24th, but given his consistent pattern of delay and distraction can we trust him? And will the report contain the statutorily required information if and when we finally see it?

Governor Shumlin’s hesitation to come clean with the price tag is not surprising considering how overburdened the Vermont taxpayers already are.  Vermonters are still feeling the affect of the last bunch of tax increases by the Democrats.  Here is an excerpt  from a July 2011 op-ed piece by then GOP Chair Pat McDonald calling for the return to the taxpayers of the unneeded tax increases:

Just two short years ago, in a rush to raise taxes, the Democratic majority in the Legislature overrode Gov. James Douglas’ veto of the budget in 2009, the combined budget and tax bill for fiscal year 2010, by just one vote. The governor and Statehouse Republicans opposed this bill because it spent too much and raised taxes unnecessarily.

Those Democratic tax increases from 2009 are still being phased in. On Jan. 1, 2011, Vermonters aged 70 and over lost their exemption on capital gains income — not very helpful in the middle of retirement. Vermonters under age 70 lost their capital gains exemption 18 months prior, also as a result of the Democrats’ budget.

But those tax increases were apparently not enough. During this legislative session, more taxes were enacted, targeting health care providers, health care insurance claims and (once again) property owners with yet another increase to the broad-based property tax.

So, what’s the result of all these tax increases? Well, the headline in The Times Argus on July 22 read, “State to End Year with $40M Surplus.” Interestingly, in all the news reports and the public statements of Vermont’s Democratic leaders, not once was there a mention of how this surplus came to be. Democratic leaders like to take credit for this surplus, claiming it’s resulted from growth in Vermont’s economy and “one-time” revenue anomalies. But in fact, this surplus is the result of tax increases that apparently were not needed after all.(As a side note, it’s tough to claim the economy has recovered enough to create such a large surplus, when household costs continue to increase faster than incomes, the unemployment rate has increased and many working Vermonters are underemployed.)

Now that the Vermont Tax Expenditures 2013 Biennial Report has been released it is easier to get an idea of the impact that ending the exemption on capital gains income had.  If you start with the Tax Expenditure Report for 2011 you will find that the capital gains exclusion for 2008 was $61,150,300 and $31,047,600 for 2009.  If you look at the 2013 report, the numbers are $13,533,900 for 2010 and $8,544,200 for 2011.  That represents a huge drop in the exclusion that can be claimed for capital gains.  Some of this drop, especially in the first few years, could be accounted for by the economy tanking in 2008.  The problem here is that most of the stock market value that drives capital gains had returned by 2011.  Despite that return, the amount reported for capital gains exclusion continued to fall.  With less in exclusion, people were clearly paying more in taxes.  According to the 2013 report, capital gains exclusion makes up 18% of the state tax expenditures which may be taken against individual income tax.  That is second only to the 54% accounted for by the earned income tax credit.  In other words, ending the capital gains exclusion represents a significant tax increase.

One argument used by the Douglas Administration in opposing this excessive taxation was its negative economic impact:

Administration Secretary Neale Lunderville says the new system is having a negative impact on job growth:

(Lunderville) “These tax rates are forcing folks out of Vermont. They are creating disincentives for businesses to invest right now and to grow jobs at a time when we need them to do that most.”

Given the fact that Vermont lags behind the national economic recovery, as reported here at TNR earlier, they apparently had a point in that argument.  This argument is obscured by the ranting that the rich need to pay their fair share, but a January 2011 “Final Report“, prepared by Vermont’s Blue Ribbon Tax Structure Commission, clearly makes the argument that those benefiting from capital gains exclusion in Vermont hardly can be considered wealthy.  In fact, there really isn’t a very large wealthy population in Vermont at all.  The commission examined  data that tracked high income taxpayers in Vermont over a nine year period and found that only 3.5% had an adjusted gross income of over $500,000 for all nine years.  Of the 3,926 Vermont taxpayers who had an adjusted gross income of over $500,000 in any one year from from 2000-2008, more than half only fell into this category for one year.  Their wealth was generated by a one time event like the sale of a house, or some other such asset.  Very few Vermonters have a continuous income that puts them in that category over time.  For most it is a temporarly phenomenon.  Despite the fact that policies like the elimination of the capital gains tax exclusion fall mostly on those who really are not welathy, we still hear the arguement that it is the wealthy who are the target of such policies.  Given the reality of just who is getting soaked by Vermont”s high taxes, is it any wonder the Shumlin and company are hestitant to announce where the next round of massive tax increases are coming from?

 

One thought on “Yet More Taxes on the Way?

  1. it will be interesting to see whether the Golden Dome decisions to up the taxes on the upper-income quintiles with new capital gains levies and so on, will end that group’s present pattern of migration into VT, even as the middle-income quintile out-migration continues. as best evidenced by continued K-12 enrollment shrinkage, because, remarkably, when young-adult families leave, they take their kids with them.

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