Vermont Governor Rejects Raising Income Tax on High-Earners

February 28, 2011

Vermont state legislators affiliated with the Progressive Party last week introduced a bill to raise the state’s top two income tax rates, with the highest to be 10.45% on income over $373,650 (up from 8.95%). This would give Vermont the third highest top state income tax rate in the country. A Progressive Party release quotes one of the sponsors:

“People have received significant tax cuts on the federal level,” Pollina said. “We’re not increasing taxes. We’re asking the wealthy to take slightly less of the Bush tax cuts.”

The bill will be introduced just one day before the final cutoff for new legislation.

Pollina described the increase as “slight.” Wealthy Vermonters will still be able to buy yachts, he said. “It’s not a broad-based tax,” Pollina said.

The current perception already is that high-income Vermonters shoulder more than their fair share of the tax burden. (The recent Vermont Tax Reform Commission report sought to address this perception while maintaining progressivity; presentation version here (PDF).)

About half of high-income earners are in that category for just one year and another quarter for just two or three years, rather than the lifelong idle rich that Sen. Pollina seems to envision. Tax flight from tax increases is modest but exists, although the bigger problem is signalling that job-creating investors are to be punished, leading to them not to show up in the first place. There are also equity and sustainability concerns with funding broadly-available state services through a tax on a very small group of people.

Gov. Peter Shumlin (D) has already dismissed such a proposed increase (subscription req’d):

He said at a February 23 news conference that high-income Vermonters are taxed enough.[…]

“Anyone that tells me that we are not close to the precipice in terms of what we can ask Vermonters to pay in income tax isn’t really looking at the facts,” Shumlin said. “I can introduce you to many of my neighbors who no longer are Vermont residents. There is a point where we lose more than we gain, and I think we’re there.”

More on Vermont here.

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