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The property tax was imposed back when property owners made a lot of money off their properties. Nowadays, most property owners aren't making money off owning a home, but they're getting taxed anyway. I estimated once that there are tens of billions of privately held untaxed wealth-producing property in Vermont-- but to tax it would bring cries of "Class warfare!"
Paying for schools should not fall entirely on property owners. The property tax should be eliminated and replaced with an education income tax.
There's also way too much bureaucratic dead weight in the system wasting our money and the NEA's influence is another issue all its own.
VT has a progressive income tax that gets very high for upper incomes. A big chunk of those income taxes goes towards reducing property taxes for 2/3's of the property owners in VT via State Payments, so we sort of already are putting a major part of education spending onto income taxes.
I agree with CatwomanofVT and you in that we seem to spend way too much on the bureaucrats in the school systems. CatwomanofVT is also correct that distance is a valid factor in the discussion, especially at the Elementary School level. In my district one of the two schools that could close is maybe 5 minutes from the school those kids could easily be absorbed into and one is maybe 10 minutes away. I am sure that public debate could hash out some standards as to how far is too far.
My focus is on the best and brightest who are currently the ones being most shortchanged.
cgregor, what is the untaxed wealth producing property that you refer to?
Biker53, the untaxed property in the tens of billions in Vermont are those assets which produce on average one-third of the income which goes to households earning over $1 million (cf Hacker, Andrew, Money: Who Makes How Much, and Why).
As I predicted, your reaction is probably, "Class warfare!" BUT, it is property and it, like the property of old, produces revenue.
The only time it is taxed is when it passes to heirs. However, even then, the first $5 million is tax exempt.-- unlike $5 million worth (29 average Springfield homes) of real estate which gets taxed annually.
It would also be far better to have a tax rate which reflected the distribution of income in Vermont by household. Rather than a two-tiered 3 percent/ 9 percent, it would curve upward to reflect how household income curves upward. if such a system had been applied to Vermont in 2012, every household earning $1 million or less would have had its taxes reduced by sixty to one hundred percent. (Well, the only ones getting the 100% were on average paying only $17, but the 60% would have been a quite substantial reduction for the million-dollar households).
cgregor, I understand the sentiment and you are far from alone in thinking as you do but anyone with investment accounts, bank accounts etc receives 1099's each year reflecting taxable income earned by those accounts, and they then pay Federal and Vermont income taxes accordingly. The very wealthy would leave VT before they'd pay a tax on the actual balance of those accounts too. They are more mobile than the average person and could easily make what is now their primary residence in VT into a secondary residence and themselves no longer a VT resident subject to VT income taxes. Many already own homes in places like Florida that doesn't have an income tax. The State would likely collect less tax in total as a result of losing the wealthiest residents.
There could as well be an unintended consequence of sending a chill through the 2nd home market in that it would make those folks fearful the State would be coming after them next. A not insubstantial portion of school costs are currently paid by 2nd home owners via their property taxes. Some of those 2nd homes become the primary when those affluent folks from elsewhere retire to VT (and then also start paying VT income taxes).
Our school funding needs the wealthy that are already here to stay in VT, and for other wealthy people to be buying 2nd homes here. We don't want to chase them across the border into NH.
Biker53, I think too many people have the idea of the very wealthy being greedy bustards, when actually quite a large number of them recognize and appreciate the good fortune that has befallen them and believe in the principle, "Of those to whom much has been given, much is expected." Of course, the Koch brothers are not of this ilk (read Jane Mayer's book, Dark Money for the full story). I have no problem with people like the Kochs moving out of Vermont, just as I had no problem with Enron's Jeffery Skilling leaving his Holly Hill home in Norwich to reside involuntarily in a minimum security pied-Ã -terre in Colorado. The state would be a little cleaner for all that migration.
If you've read Thorsten Veblen's The Theory of the Leisure Class, you know how they use their wealth to show their peers who's got the real money: If Vermont's wealthiest paid the highest taxes of any wealthy group in the nation, their peers would whisper at cocktail parties, "The Huffingtons? They're so rich they can afford to live in Vermont!" We would also have the nouveau riche battering down our doors to establish residency just to show the old money that they too have arrived-- and we should make them pay handsomely for the privilege. Nothing wrong in being more like Switzerland in that respect.
Just as the value of the untaxed privately held property can be computed from the income it generates, so too can a tax be applied to it, simply by adjusting the capital gains tax. No need to say, "You have $X in securities; your tax is $Y;" just boost the capital gains tax to a level that treats all property like Vermont treats all real estate.
Finally, we'd once again be showing the nation how to deal with a chronic problem.
VT has a progressive income tax that gets very high for upper incomes. A big chunk of those income taxes goes towards reducing property taxes for 2/3's of the property owners in VT via State Payments, so we sort of already are putting a major part of education spending onto income taxes.
I agree with CatwomanofVT and you in that we seem to spend way too much on the bureaucrats in the school systems. CatwomanofVT is also correct that distance is a valid factor in the discussion, especially at the Elementary School level. In my district one of the two schools that could close is maybe 5 minutes from the school those kids could easily be absorbed into and one is maybe 10 minutes away. I am sure that public debate could hash out some standards as to how far is too far.
My focus is on the best and brightest who are currently the ones being most shortchanged.
cgregor, what is the untaxed wealth producing property that you refer to?
"Very high"? I can't say that I agree.
We do have a progressive income tax, but the top rate, which kicks in at an annual income of $411,500.00, is 8.95%. By contrast, what we could call the middle class rate, for the entire band from $37,450 - $90,750, is 6.80%. Thus, someone at the bottom of the top rate has an income more than ten times someone who made it into the middle class rate and yet pays a tax rate about thirty percent higher.
Thinking of a subsequent post from you, although capital and taxpayers are theoretically very mobile, research doesn't support the proposition that many wealthy people are relocating to avoid high tax rates (I know, the idea is always that it could happen, or that it's just about to happen, so we'd better watch out), or even that tax rates are a major factor in where people decide to live.
Last edited by jackmccullough; 08-23-2016 at 11:08 AM..
My own view is that an income tax tracks the ability to pay more equitably than a property tax. On the other hand, the income tax is subject to more annual instability and doesn't capture revenue from people who live out of state and own property in Vermont, so it makes sense to maintain some kind of hybrid system.
From my work on my town's board of civil authority I can say that lots of people don't understand how income sensitivity works.
I thought it kicked in at $160,000. Thanks for the information!
As I posted here before, a tax rate that reflected the per household aggregate income distribution would have saved from 60 to 100% on all households earning $1 million or less in 2012.
jackmccullough, only CA, OR, & MN have higher marginal rates than VT. IA, NJ, NY, & DC all have top rates about the same as ours. On a national scale, VT is very high.
I used to be a high income person but a few years ago I decided to retire early. I was worn out from decades of 50 - 60 hour weeks and never being free of the cell phone and laptop even when on vacation. Listening to the incessant drumbeat that somehow I wasn't paying my fair share was emotionally draining given how much tax I paid. I thought to myself is there any amount short of all my income that would be enough for the social justice warriors. I chose to stop feeding the beast and have not regretted my decision even once. None of what I was earning and paying tax on is now earned by anyone in VT. The work I did and the person who replaced me is not in this State. It went to a lower tax State instead. Upper income people do reach a point where it just isn't worth it anymore.
Never have I voted against school budgets even though my kids went to private school, and I pay substantially more property tax than most people.
My income is now very modest by most measures and so raising the income tax rates in VT isn't going to affect me personally. Being I am more living off my assets than I am current income, taxing assets would affect me unless there was a reasonable non-taxable threshold. There would be such a threshold just as there is for inheritance taxes if the intent was to whack the truly rich vs the moderately affluent. So, even then an assets tax isn't going to affect me personally. Just don't get convince yourself that the very wealthy would idly sit by and pay it. They won't and if they leave we'll have even less funding for our schools. They might physically stay in VT but their lawyers and accountants will see to it that they are not VT residents and thus not subject to VT income and asset taxes. Don't lose the income tax they currently pay in your quest to get even more.
It's strange how the generation that lived through the Depression imposed a nominal rate of 90% (actual, 50%) on the country's wealthiest in the late 30's, the 40's and the 50's-- and somehow that class didn't flee the country or get ground into poverty. Plus, with that tax money being used for massive improvements in infrastructure, America experienced perhaps the greatest boom in innovation, transportation education and health than in any other time in its history. But today, America's wealthiest groan under a nominal rate of 35% (actual, 18%). Summer soldiers!
Contrast that with the Reagan tax cut on marginal income: It freed up $13 trillion which of course went to Wall Street. In conformance with classical economics, the demand for investment vehicles exceeded the supply, so all that happened was prices went up. As a result, brokers, traders and management started making more money. The best and the brightest graduates started getting going to Wall Street rather than productive lines of work. They invented new investment vehicles which we read about in "The Big Short," "Inside Job," and "Barbarians at the Gates." As was written in Leopold's The Looting of America, it was all paper profits, which turned the financial world into the equivalent of a fantasy football league. There was very little that made a substantial positive impact on our country.
There were no cities renewed, no people hired to repair bridges, roads and schools, no colleges made more affordable, no public water or sewerage systems upgraded. There was a boost in the Dow Jones Industrial Index-- which doesn't feed anybody and certainly doesn't directly benefit anybody making less than $160,000-- which is about 94% of Vermont households.
Good to know you feel better about your present tax status. I would like everybody to enjoy my income status-- which is to have $12,000 a year more than I need to live on. Never thought I'd ever have it this good!
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