Home Commentary A Fairer Tax System Can Make Vermont More Affordable For All

A Fairer Tax System Can Make Vermont More Affordable For All

Image from Vecteezy.
By Jared Duval

Today in Vermont, the top 1% of income earners — Vermonters who make over half a million dollars a year — pay a lower share of their income in state and local taxes than a Vermont family making about $80,000 a year.

This is regressive and unfair. It also prevents Vermont from raising the revenue needed to make ours a more humane state, with dignity and opportunity for all Vermonters.

Tax rates should primarily be based on one’s ability to pay, with higher income and wealthier Vermonters contributing a greater share of their income and wealth in taxes than lower- and middle-income earners. This is known as progressive taxation.

The opposite — where lower-income families pay a higher share of their income in taxes than the wealthy — is regressive taxation. Thankfully, Vermont has the third least regressive tax system in the U.S. But that does not mean we have as progressive of a tax system as we could or should.

Greater progressivity and fairness can be achieved in three ways:

  1. Increasing taxes on the wealthiest Vermonters.
  2. Decreasing taxes on lower-income Vermonters.
  3. A combination of both.
 Let me share why I favor a combination of both. 

In many key areas, Vermont can’t afford to reduce public investment. Our current lack of affordable housing is not sustainable; our roads, schools, and other essential infrastructure need repair and strengthening; the cost of healthcare and childcare take too big of a chunk out of many family budgets; and children are living in poverty. These and others are challenges that require more public investment, not less.

Too often we hear affordability talked about in a very narrow and simplistic way: only as it relates to taxes. But if we look at the bigger picture, the reality is that public investment — which requires tax revenue — is often necessary to achieve greater affordability in many of the ways that matter most to Vermonters: housing, childcare, healthcare, education, and more. In short, we can’t hope to make true and lasting progress toward a more affordable Vermont until and unless we acknowledge the necessary role of public investment in achieving it. The question is, who pays?

The incomes of Vermont millionaires have risen significantly over the last decade, with more wealthy people moving into Vermont than away. Meanwhile, lower- and middle-income Vermonters have been squeezed by incomes that have not kept up with rising costs of living. Yet, the Vermont tax system has not adequately responded to this increased inequality, nor to the growing needs of Vermonters. Indeed, when it comes to balancing budgets, cutting back on public investment has almost always been the default approach in recent decades instead of raising more revenue from those who are most able to pay (and to whom most gains in income and wealth have been going).

The chronic underfunding that has resulted is visible in our communities every day. When we fail to invest appropriately year after year, it ends up costing all of us more in the long run — as we’ve seen with insufficient or deferred funding for everything from affordable housing to climate resilient infrastructure. There’s nothing fiscally responsible about deferring needed investments. Because without action these costs don’t go away — they only grow. 

While taxes are only one part of the affordability equation, they are also an important part — especially for lower-income Vermonters. That’s why, in addition to raising more revenue from wealthy Vermonters, it also makes sense to reduce the taxes paid by those who have the least ability to pay: Vermont’s lower-income families.

One of the best ways to do this is by expanding the tax credits that help bring more lower-income Vermont kids and families out of poverty: the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC).

Multiple bills have been introduced in the legislature this year that could contribute to a fairer tax system in Vermont. I’d like to highlight two of them. 

H. 701 would lower taxes on lower-income Vermonters by expanding this pair of proven anti-poverty tax credits (the CTC and the EITC). These credits help the lowest-income Vermont families fill the gap between income and expenses by providing cash when they file their taxes.

During the pandemic, temporary expansion of these tax credits at the federal level helped bring 10,000 Vermonters out of poverty. When the expansion ended, Vermonters were worse off. 

Expanding the state CTC and EITC and improving access to the credits will increase financial stability so that more Vermont families can meet their basic needs and live with dignity. Doing so as proposed in H. 701 would require about $14.5 million.

H.828 would create an income tax surcharge on personal annual income over a half million dollars. This would be a marginal tax, affecting fewer than 2% of Vermont residents. This proposal is projected to raise an additional $70 to $100 million per year.

Together, these bills would go a long way to making Vermont’s tax system more progressive. And, together, they would do so while generating additional revenue to invest in making Vermont more affordable, especially for Vermont families with lower incomes. 

With a combination of lower taxes on lower-income Vermonters and higher taxes on the highest-income Vermonters we can make real progress toward both a fairer tax system and a state that’s more affordable for all Vermonters.

Jared Duval is a resident of Montpelier. He serves as a member of the Board of Directors of the Public Assets Institute.

The material presented here represents the opinion of the author and does not reflect the opinions of The Bridge. Commentaries may be submitted to editor@montpelierbridge.com. Preference is given to submissions by those who live in central Vermont. Submissions are encouraged to be 500 to 750 words in length.