A Taxing Task
(NOTE: If you missed Wednesday’s post, please scroll down and read it)
It is to Bill Schubart’s credit both that he understands that the “blue ribbon” panel on which he sits might be something of a political sham, and that he’s taking it seriously anyway.
Even shams sometimes come up with something useful.
Schubart, a Hinesburg businessman, is one of three members and, for now, the chairman, of the Blue Ribbon Tax Structure Commission, a little-noticed (at the time) provision of this year’s state budget bill, the one the Legislature passed over Gov. Jim Douglas’s veto.
The Commission, according to the legislation that created it, is to look into possible “improvements and modernization (and) long-term vision for the tax structure,” aiming toward “a tax system that provides sustainability, appropriateness, and equity.”
Somehow they forgot to include the provision endorsing motherhood, apple pie, truth, justice, and the American way.
Actually, the wording of the statute indicates that at least some of the folks who designed the Commission really took it seriously. The law orders the Tax Department and the Legislature’s Joint Fiscal Office to cooperate with the Commission, and it gives the three-member panel a specific, interim, objective: to recommend by next January whether state income taxes should be leveled on adjusted gross income or taxable income.
Say what?
Probably not a common topic of conversation at the dinner table or the corner saloon. “Hey, where do you stand on the adjusted gross versus the taxable?” is not a question commonly heard.
A fact that does not render the question unimportant. The answer could save you money.
Unless it costs you money.
As could the other questions the Commission will ponder, even if it is determined not to recommend an aggregate tax increase.
“Any change we make will be with the goal of being revenue neutral,” Schubart said.
Any proposed change, then, will deal not with the total amount to be raised by taxes, but with who pays how much.
That’s why you should watch your wallet.
And because any suggestion to redistribute the tax burden is (and ought to be) political, that’s why it’s reasonable to wonder about possible political motives behind the Commission’s creation.
Schubart did, enough that he asked House Speaker Shap Smith, who appointed him, whether he and Senate President Peter Shumlin were serious about the Commission’s work.
“Based on no guarantees and nothing specific, and not just that I’m the eternal optimist, but I believe they’re serious and they do want recommendations,” Schubart said.
Doubt is warranted because, to understate the case, it is not unprecedented for elected officials to divert criticism from powerful interests by creating some kind of study commission. Lots of states do it. Schubart said he and his fellow-commissioners (former Gov. Howard Dean’s administration Secretary Kathy Hoyt and William Sayre of Associated Industries of Vermont) have already asked members of similar study groups in other states, “has your legislature had the courage to make (the recommended) changes?”
Rarely.
Still, the fact that the Vermont commissioners have been in touch with their counterparts elsewhere indicates that they are taking their mission seriously. They have already held five hearings, amassed copious information from other states, and taken testimony from business leaders and economists in Vermont (and it’s all available on line).
But there’s a problem. The Commission’s job is to look at how Vermont raises its money, but not how it spends it, or how much it spends. Since, as the great economist Milton Friedman put it, “to spend is to tax,” the Commission’s undertaking is unavoidably limited.
And what it is limited to is the distribution of the tax obligation. It cannot recommend spending more or spending less, meaning it can not recommend taxing more or taxing less. It can only recommend redistribution.
Meaning the process borders on politics, if it does not cross that border. If the total spent and raised does not change, the only change will be in who pays how much. And if somebody pays less, somebody else is going to have to pay more.
That’s simple arithmetic, but in this case also simple politics, because the politically organized, well-financed, and assertive faction in this argument has been the faction that claims the current tax system is too progressive, that it “penalizes wealthier Vermonters,” in the words of the presentation to the Commission by the Lake Region Chamber of Commerce and the Greater Burlington Industrial Corporation.
But if wealthier Vermonters pay less, then non-wealthy Vermonters will have to pay more. Considering that there are a great many more non-wealthy – voting – Vermonters than wealthy ones, that’s a political non-starter.
True, the two business groups also propose spending cuts, but they are beyond the Commission’s purview, and therefore moot.
Schubart said that with precise fine tuning, some objections of the business community can be dealt with without raising taxes on middle-income earners.
“Maybe certain parts (of the tax code) are too progressive and others not progressive enough,” he said, “some places where the wealthy get an easy ride and others where they get hammered.”
Perhaps, but that seems to be far less than some upper-income activists want. It was pressure from them that may have inspired Smith and Shumlin to establish the Commission in the first place. They have taken the initiative in the debate, and already set some terms of the discussion. Thanks to some intellectually lazy journalism, they have succeeded in setting some of those terms in a manner which distorts rather than informs.
In its coverage of the October 3 Commission meeting, the Times-Argus reported statistics that the “slightly more than 10 percent” of taxpayers who earn more than $100,000 a year “will foot more than two-thirds of Vermont’s total tax bill,” while the one-fifth of one percent who earn more than $1 million “will be responsible for a full 15 percent of total tax revenue.” On Vermont Public Radio, the usually astute Jane Lindholm repeated the same figures when all three Commissioners appeared on Vermont Edition on October 27.
Accurate but irrelevant, essentially a comparison of apples and baboons. The appropriate comparison with money is money, not people. That 10 percent who earn more than $100,000 a year brought in 44.8 percent of all the money earned in 2007, according to information presented to the Commission by economist Tom Kavet, a big jump from the 33 percent they earned in 2000 (and paid not more than two-thirds of the taxes, but 61.9 percent.)
As for the 531 households (not people) who earned more than $1 million, they took in more than 9 percent of the total adjusted gross income.
That still means the wealthy paid a greater share of taxes than their share of income. But that’s precisely how progressive taxation is supposed to work.
Is Vermont’s tax schedule too progressive? A good question, the answer to which depends on all sorts of considerations, some of them subjective.
But the people who argue for less progressivity rest their case on an assertion that lower taxes for the wealthy would benefit everyone by perking up the state’s economy. That’s not a subjective assertion. It can be examined via empirically testable evidence.
We’ll examine it Monday.
Tags: Bill Schubart
