In the past, I have variously labeled UVM economist Art Woolf as “Vermont’s Loudest Economist” for his inescapable media presence, and as “Vermont’s Laziest Economist” for his tossed-off weekly emissions in the Burlington Free Press. We at GMD have also criticized him for his obvious free-market bias.
Well, he’s outdone himself with his newest Freeploid “effort” entitled “State taps richest Vermont taxpayers for revenue.” (Gannett paywall warning.) It’s the kind of rhetorical disingenuousness I’d expect from a junior hack at the Heritage Foundation, not a tenured professor at a pretty good university.
Woolf’s message is that Vermont’s top earners are already shouldering a substantial burden under Vermont’s “highly progressive income tax.” The unstated corollary is that we shouldn’t impose on them any further. But his evidence is so obviously, blatantly selective that it invalidates his entire argument.
The whole thing rests on the narrow foundation of this chart:
That one chart gives birth, in Woolf’s fertile imagination, to a columnful of conclusions about state tax policy past, present, and future. And I’m sure the chart was carefully chosen to “prove” his point, since I’m about to produce other charts that show the hollowness of Woolf’s reasoning.
The chart concerns state income tax only — not total tax burden. And I think you know why: the property tax burden (local and state combined) is relatively friendly to top earners and hits the middle hardest:
(Chart from the Institute on Taxation and Economic Policy) What’s more, the sales tax is even worse: the lower your income, the more it stings. According to ITEP, the lowest 20% pay 5.1% of their income in sales and excise taxes. The top 1% pay 0.6%. Now, that’s a regressive tax.
The chosen cutoff point in Woolf’s chart — $100,000 — is rather curious. That’s quite a bit lower than the usual wealthy/middle class/working class/poor dividing lines, and lumps quite a bit of the middle class in with the very rich.
Also, please notice that virtually all of the dastardly increase occurred while Jim Douglas was governor. Damn socialist.
After the jump: Lots more charts!
Now, I don’t think Douglas was really soaking the rich. I imagine the increase was due to the pre-Great Recession boost in upper incomes and stock valuations.
But still, the chart does show the income-tax share borne by those earning $100,000 or more increased from 46% to 65% in a decade. That’s quite a leap. Funny thing, though: Woolf does not cite a single change in policy or law that shifted the tax burden upward.
Well, there’s a reason for that: the tax burden has shifted upward because THE INCOME HAS SHIFTED UPWARD. The top earners are taking home more and more of the taxable income. And if you earn proportionately more, of course you’re going to pay proportionately more in taxes. (That’s how it ought to work, at any rate.) Remember this chart?
First, to be clear, this is a “wealth” chart, not an “income” chart. They’re different. But this chart is still relevant to Woolf’s sophistry. Those bars at the far right, showing the top 5%, shoot way, way up off the chart. The bigger point is that the upward curve doesn’t kick into high gear until about the 89th percentile. The bottom 80% just don’t own very much of our total wealth.
Now, let’s look at a couple of readily available charts on Vermont income that Art Woolf chose to omit. Both come from our friends at the Public Assets Institute. The first shows how the top 1% of Vermont earners have seen their incomes skyrocket since — how about that — Ronald Reagan took office. (The chart ends in 2005, but the trend has continued since then.)
The second PAI chart shows how the income share has skewed to the top in the last two decades.
As PAI notes, the state economy “saw respectable growth” in the period, as did real personal income. But the median income level — the dividing line between the upper half and the lower half — barely moved at all. Which means virtually all the growth in real personal income was concentrated in the top half. And, by other measures, we’ve seen that it’s mostly concentrated at the very top. According to the Center for Budget and Policy Priorities, the bottom 20% of Vermont earners take home $25,500; the middle 20% earn $65,700; and the top 5% earn a whopping $243,900. The average top earner’s share is nearly ten times higher than the average bottom earner.
What’s worse, those figures include the Earned Income Tax Credit, which helps buoy the working poor.
So of course the top earners are paying a bigger share of the total income tax burden than they used to. THEY’RE TAKING ALL THE DAMN MONEY.
Whether they’re actually paying as much as they should is another question. Vermont’s top income tax rate — for those earning more than $398,350 — is 8.95%, which is pretty hefty. But thanks to the way Vermont calculates taxable income, and thanks to the many tax breaks and deductions available to top earners, the real income tax rate paid by the top 1% is 5.2% — more than three and a half percentage points lower than the official rate.
That 5.2% figure is from the Inetitute on Taxation and Economic Policy, as is the following chart, which puts the whole picture together:
To sum it all up, Vermont’s income tax takes a bigger bite from top earners, but not nearly as much as the official rate — and the total tax burden actually falls hardest on the lower and middle classes. The working poor get a break on income tax thanks to the EITC, but they still pay almost as much as anybody else — and they actually pay a higher percentage than the top 20%. Does anyone really think that’s fair?
The top earners pay proportionately more dollars in taxes, but that’s because their share of the total dollars is so absurdly high. They are not paying more than their fair share; indeed, a far better argument can be made that they aren’t paying enough.
Which means that Woolf’s implicit argument — the rich are paying too much — is nonsense. And his assertion that “Vermont has a highly progressive income tax” is accurate but fundamentally misleading.
He makes another statement near the end of his column:
The downside of that progressivity is that Vermont’s revenues become much more sensitive to the business cycle. When the economy does well, income tax revenues soar. But when the economy falters, state revenues fall by a lot more than they would if Vermont’s tax structure… was less progressive.
Hm, so we need to increase taxes on the bottom and middle in order to equilibrate revenues? Psssh. When I look at that, I see a powerful argument against income inequality: we’d have a more stable society, and more stable government revenues, if income were shared more equally.
Thanks, Art. That’s not what you meant to say, but it’s a nice takeaway from your otherwise abysmally dishonest column.