Tax fairness

Times Argus editorial February 12, 2016
It’s unclear whether the bill offered by Sen. Anthony Pollina on property taxes was meant primarily to make a point or whether he thinks it has a chance to become law. In any event, the point he makes is a good one.

In this season of heightened awareness about economic inequality, Pollina’s bill underscores the fact that our system of school taxes is actually designed to give a break to wealthy taxpayers.

It may come as a surprise to many that the school finance law favors the rich. That’s because the law includes the well-known income sensitivity provisions that peg school property taxes to income for middle-income taxpayers. Income sensitivity applies to those making less than $90,000 a year and caps school property taxes at 3 percent of income. Thus, income sensitivity represents a significant and useful cap on property taxes, not for the rich but for the middle class.

Those earning more than $90,000 do not get to tie their property tax bill to their income, but in most cases they probably wouldn’t want to. If they had to pay 3 percent of their income on school taxes, their taxes bills would often be higher than they are now. That’s because their higher income represents a larger source of potential revenue than their property does.

At present, the law allows those earning less than $90,000 to pay based on the value of their property or 3 percent of their income, whichever is less. About two-thirds of taxpayers qualify for this choice.

Pollina proposes that those earning more than $90,000 pay based on their property or 3 percent of their income, whichever is greater. For middle-income taxpayers, 3 percent is usually a good deal. For wealthy taxpayers, 3 percent would mean higher taxes. The result would be that middle-income and high-income taxpayers would be paying the same percentage, bringing new fairness to the system and bringing in about $82 million in new revenue.

We are accustomed to the complaint that raising taxes on wealthier taxpayers is unfairly punitive or counterproductive, that it will persuade wealthy residents to leave Vermont. Thus, we have allowed a pattern of special treatment to take hold, allowing a wealthy property owner to enjoy a school property tax bill amounting to, say, 2 percent of income while middle-income taxpayers pay 3 percent.

Progressive taxation has been instituted by democratic governments as a way of finding necessary revenue to carry the important duties of the state. If the vast wealth of the wealthy is given special protections, the burden of taxation falls on the less wealthy and oligarchy takes hold as it is doing today.

The point isn’t to punish wealthy people or to apply some sort of abstract notion of justice. The point is for the state to acquire sufficient resources to carry out its fundamental duties. Today the constant refrain is that we don’t have enough money for schools or roads or environmental protection. But it turns out we do. The problem is that we have put it off limits because we believe we need to give special protections to wealthy taxpayers.

As it stands, the Public Assets Institute has pointed out that when all taxes are considered — including federal and state income taxes, property taxes and other taxes — wealthy Vermonters pay a smaller percentage in taxes than middle-income taxpayers do.

The enthusiasm that Bernie Sanders has generated on the campaign trail has a lot to do with the growing awareness of economic inequality and the way that conventional wisdom has persuaded that the wealthy must be coddled. Progressive taxation, though, is workable because, even paying at higher rates, wealthier taxpayers have a lot left over after taxes, and it is necessary because we have to get the money from somewhere.

Legislators are likely to mumble among themselves that Pollina’s idea is not practical and besides he’s just another onetime Progressive in the Sanders mold so we don’t need to take his ideas seriously. But these days special tax breaks favoring the wealthy are getting more serious attention than they have in a long time.