Tuesday, December 9, 2014

Stop the Madness: Increase Vermont Taxes 2.5% of Gross State Product

Stop the Madness: Increase Vermont Taxes 2.5% of Gross State Product

Vermont and national numbers for median household and family income remain down now well into the Great Recession of 2008-2009 “recovery”—$52,600 in 2013, slightly above the U.S. average, but down $3,800 from its peak in 2008.  This drop gives absolute proof to the concerns about a declining middle class and middle class incomes.  But manufacturing wages, a key income indicator, remains little changed from 1980 suggesting a much longer historic tale of income woe for the nation and Vermonters.  A major study in Vermont in the 1990s revealed the eroding of incomes and increase in poverty associated with the decline in manufacturing jobs which fled to low wage countries.  U.S. and Vermont long term unemployed numbers today remain far above normal along with depressed incomes compared to previous recoveries.  Since “government” during the 2008 to date period has regularly declined in terms of employment and discretionary funding cuts, maybe the role of government needs another look.  The right wing mantra of “starving the beast” of government apparently working quite well, but a government starved does not meet ever growing demands on it services and support.  Should there be more government and taxes or less?  (The Department of Numbers website provides lots of information on U.S./Vermont income data http://www.deptofnumbers.com/income/vermont/  ,)

The Organization for Economic Cooperation and Development (OECD) regularly chronicles the performance of its member nations comprised of developed nations, mostly European plus the U.S., Canada, Japan, South Korea, etc.  The first thing that strikes an observer is the U.S. ranking last among 14 developed nations in income equality (11 European nations, Canada and Japan).  Current U.S. governments spending at all levels overall actually contributes to the inequality because it tends to benefit the upper income groups.  Also, more importantly, low U.S. household tax burden stands out like a sore thumb.  Reform of existing government spending to benefit the low and middle income needs immediate attention, and so does the amount of taxes—taxes need to move up about five percent minimum in terms of gross state and federal government support.

Note the current news from Montpelier regarding how exciting it is with our economy growing, a low unemployment rate and no seeming obstacles in the path of a good life for Vermonters.  With Vermont continuing for years now boasting of its near lowest unemployment rate among states and our nation five years into recovery, why Governor Peter Shumlin announcing delay of his signature universal pre-kindergarten, a $100 million dollar budget deficit facing lawmakers, and demands by the Vermont middle class for some form of relief from a $3,800 drop in median income suffered from a 2008 peak through 2013 which seems to be moving toward a permanent state?

For the Greater Burlington Chamber of Commerce leader Tom Torti the recipe is simple: “Let’s stop raising taxes. Stop the madness”  (Seven Days, November 19).  Actually, the opposite is most likely true—Vermont can and should increase its taxes and at some point expect the federal government to do the same.  The reason is quite simple—the U.S. already has some of the lowest tax rates among developed nations measured in both the overall economy and household tax burden while attaining the highest level of income inequality, an inequality seeping swiftly into the middle class in a process dating back to the 1980s when U.S. manufacturing jobs began to flow to low wage destinations.  (See the New York Times piece by Steven Ratner November 15  http://www.nytimes.com/2014/11/17/opinion/inequality-unbelievably-gets-worse.html?emc=eta1&_r=0 

Yes, Vermont may well throw money down the drain in education administration and lack of performance while spending more than practically any other state to attain under achievement in primary and secondary education--but curing that does not solve the need for additional taxation.  As Vermonters decrease their driving or just throw away the keys, for example, they choose to move to downtowns and village centers.  Consider the needed infrastructure investments—intercity and commuter rail, higher education, and urban walk/bike facilities to further the demand from the movement of the “new workforce” and the doubling senior population who together increasingly choose to work, play, retire and shop without being car dependent.   

Right now U.S. taxes are split roughly 50 percent state/local and 50 percent federal.  If the overall tax burden were raised in the U.S. 5% of gross national product (GNP) to the average 32% of a group of 14 developed nations (11 European plus Canada and Japan) the State/local and federal coffers would each gain from Vermonters and Vermont businsesses roughly $750 million each yearly, $1.5 billion overall.  Since Vermont’s Gross State Product (GSP) in 2013 amounted to $29.5 billion, devoting 5% more of that GSP to government means about shifting $1.5 billion from non-government activity to government activity which means additional taxes to support that shift.

The Ratner analysis shows the current typical $100,000 U.S. earner paying an effective tax rate of 26% or $26,000 toward government—a rule of thumb of federal versus state/local taxes is 50/50, about $13,000 federal and $13,000 state/local.  Clearly the total is far more federal than state since federal Social Security taxes are included here—but this makes the argument a conservative one here since the majority of increased taxes suggested here would go to non-retirement areas even if the U.S. did establish a needed long term care insurance program under Social Security and expanded overall retirement and disability benefits modestly as well.  Assuming a 5% increase of hypothetical individual with a $100,000 income shifted to federal and State/local taxes means an increase of $5,000 to a total of $31,000.  Again, it is assumed that half the $5,000 increase--$2,500--goes into federal tax coffers and half to Vermont State and local taxes. 

Just raising our $750 million additional taxes a year for Vermont compares to the current general fund budget for this year passed by the Legislature of $2.5 billion—an additional $750 million in State revenues amounts to a 30% increase.  From another standpoint our State and local governments now try to provide a full range of services with one third less the funds of a typical developed OECD country.  Yes the “beast” of State and local government starves.  Meanwhile one would expect a similar 2.5% increase would occur allowing federal programs such as research, infrastructure, housing assistance, food support, and long term care would get attention instead of inflation and/or outright cuts experienced over the last several years and clear expectations this trend continues in the foreseeable future.  While the federal government sleepwalks, Vermont State government can begin to take judicious steps to bring needed relief using the taxing power to benefit the needy and the middle class without the loss of employment.

 Perhaps the proper response to Tom Torti is:  “Let’s start raising taxes. Stop this madness.”

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