Tell Me Again Why a Wealth Tax Is a Terrible Idea

From the Public Assets Institute’s “State of Working Vermoint 2020”

An income tax surcharge — permanent or temporary — is a political nonstarter in Vermont. It was one of Lt. Gov. David Zuckerman’s major proposals in his bid for governor, and look what it got him. I am fully confident that a wealth tax would fail to draw anywhere near a majority in either the House or Senate Dem/Prog caucuses, let alone escape Gov. Phil Scott’s ever-ready veto pen.

But it’s a really good idea, and it’s a real shame we’re not taking it seriously.

First of all, Vermont needs new revenue. We’re threatened with huge budget cuts unless the federal government comes to our rescue. And even if it does, we need major public-sector investment on climate issues, broadband, housing, and higher education. Among many others. Even Scott acknowledges the need for these investments, but then he shrugs his shoulders and says we just can’t do it.

Second, the wealthiest Vermonters, just like the wealthiest Americans, have benefited tremendously from federal and state tax policies that cater to their interests. Zuckerman based his call for a temporary wealth tax on the fact that top earners really cashed in on Trump’s 2017 tax cuts. The lite-guv simply asked them to pay a share of that bounty for the greater good of the state.

But even before Trump, the system was rigged on behalf of the wealthiest. Ronald Reagan started this ball rolling, and it’s just gotten worse and worse since then. The above chart, taken from the Public Assets Institute’s “State of Working Vermont 2020” report, shows the result of these decades of an unbalanced economy and tax system. From the report:

Over the last four decades, there has been a dramatic upward redistribution of income in Vermont and across the country. In 2019, the top 20 percent of Vermont households received almost half (48.4 percenty) of the income earned in the state. The top 5 percent of households got 20.7 percent. Average income for the top 20 percent of households had increased more than 8 percent since 2007, after adjusting for inflation. For the bottom 20 percent, average income was down more than 7 percent.

And that’s just the income part of this equation. It doesn’t address taxation, which is generally very regressive at the federal level and in the vast majority of states.

After the jump: More mythbusting.

Vermont, in fact. has one of the most progressive tax systems of all the states. Well, it’d be more correct to say “least regressive.” Because when taken all together, Vermont’s tax system isn’t progressive — it’s virtually flat across all income groups.

According to the Institute on Taxation and Economic Policy, Vermont ranks 49th in tax inequality. Which sounds great, but what it really means is that most states have severely regressive tax structures.

What ITEP considers is not just state income tax, but all state revenue sources. Vermont’s income tax is moderately progressive, but it’s balanced out by relatively regressive sales and property taxes. Take the whole bundle together, and you get this almost dead-even distribution of the tax burden:

This is actually a modest improvement from a few years ago, when the working and middle classes got hit hardest of all. But it could be better, especially when you consider the first chart. The wealthiest Vermonters have benefited tremendously in recent decades, and even more so since Trump’s tax cuts.

And again, this is not a progressive tax system. It’s a neutral system.

Finally, we get to the last refuge of the anti-tax-the-rich crowd: If we raise taxes on the wealthy, they will move out of the state.

There is no evidence that this is true.

People often cite the alleged throngs of Vermonters moving to Florida. The problem is, pretty much the same number of people move to Florida from no-income-tax New Hampshire. Which shows that it’s not the taxes that make people move south, it’s the climate.

The governor is a big proponent of the “but they’ll move away” theory. When confronted with the lack of evidence to support it, his response is essentially, “Well, I still believe it.”

Yeah, the governor is big on conventional wisdom. He is very slow to change his beliefs because of mere evidence. But there’s no reason the Democrats should go down the same dead end. And yet, they do.

How else to explain why a wealth tax has never gotten even a shred of serious consideration in the Statehouse?

9 thoughts on “Tell Me Again Why a Wealth Tax Is a Terrible Idea

  1. bobzeliff

    Well said but you can not let rational thought cloud this issue. The wealthiest 5% have a HUGE voice in Montpelier via “Business Groups” Lobbyists, Republicans in general and quite a few of the Democrats/Progressives fall in this income range.

    The Republican have done a GREAT job in messaging. We don’t no xZ$%@ socialism, this is America, keep what you earn!

    Keep up the good work….and the Public Assest Institute 2020 report is great…facts!!!

    Reply
    1. John S. Walters Post author

      As I wrote in the piece, Vermont’s tax policies are even-handed. To me, that’s not good enough; I believe in progressive taxation because top earners can afford to pay more. But most states have taxation systems that favor the rich. Presumably that didn’t happen by accident.

      Reply
      1. ragnarsbhut

        John S. Walters, the tax rate you speak of was the nominal rate. After all of the deductions, credits, exemptions and the capital gains tax rate being lower, the effective rate was lower.

  2. Walter Carpenter

    “But it’s a really good idea, and it’s a real shame we’re not taking it seriously”

    Let’s not forget campaign donations, the biggest achilles heel of our somewhat-of-a-democracy.
    Since the wealthiest can better afford these than the working people it, of course, gets them much better access. I also agree with Bob on how the Republicans and the anti-taxers have done a much better job of messaging than us. Of course, it’s easier to message fear than it is constructive ideas. I also wonder why the public assets institute report is not out there in the mainstream more.

    Reply

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