Approaching its crunch time, Vermont’s budget debate is in the grip of two falsehoods.

One comes from the right side of the political spectrum, the other from the left. Those who assert the first are guilty of haughtiness, and perhaps greed. Those who claim the second  are guilty of over-dramatizing and perhaps naiveté. Pointing out the first is not respectable. Pointing out the second may seem cruel.

That’s fine. Dispassionate analysis sometimes has to be disreputable or cruel or both. This site never claimed to be respectable or nice.

Because the discussion is complicated, we’ll divide it in two. Disreputable today; nasty tomorrow.

The falsehood from the right is that Vermonters have no more “capacity” to pay higher taxes.

“I think we are out of tax capacity,” Finance Commissioner Jim Reardon said the other day, echoing the oft-stated sentiment of his boss, Gov. Jim Douglas.

OK, these guys are politicians, arguably not subject to the rules of intellectual honesty. But the businesspeople, professors and editorial writers who make the same claim should be ashamed of themselves. They spout balderdash.

Do not misunderstand. This is not an endorsement of tax hikes. There is always a good argument against raising taxes, and  good arguments aren’t even necessary. In a functioning democracy, the voters of any state, city, county, or nation can decide not to raise taxes simply because they don’t want to. It’s their choice.

But choice is not necessity. This state had, at last count,  a gross domestic product of $24 billion. As if conspiring to make the arithmetic easy, the budget hole facing the state (before last Friday’s recapitulation increased it somewhat)  is $24 million, or one tenth of one percent of its economy. The idea that one of the most prosperous, innovative, and educated societies in the history of humanity can not tax itself by another tenth of a percent is absurd. It can.

This does not mean that it should. To begin with, there is a strong macroeconomic case against tax increases. As Douglas and his supporters regularly point out, raising taxes in a recession is a mistake. With less money in their pockets, people will buy less, just when economic policy is trying to get them to buy more.

Almost every economist would agree. But all the honest ones would then add that increasing taxes is the second worse thing to do in a recession. What’s worse? Spending cuts, especially those that entail laying off workers.

Just what the governor wants to do. So maybe the macroeconomic case against higher taxes isn’t all that strong.

But at least it’s minimally honest, which can not be said of the “businesses will run away” delusion and its cousin, the “all the rich folks will leave” fallacy. Conveniently illustrating the absurdity of the former, the folks at the Vermont Tiger web site recently warned against raising taxes because ” people will leave a state that is failing economically And they will head for a place where the business environment is friendly. Like North Carolina.”

North Carolina? Give us a break. The “business environment” may be great down there. The economy is a disaster. With a 10.8 percent unemployment rate (Vermont’s is 7.2), North Carolina is the state that’s “failing economically.”

Remember, these are the folks who not long ago wanted Vermont to follow the economic model of Ireland. Who, in fact, may have named their site after the “Celtic Tiger,” nickname for the Irish economic boom of not long ago.

The inanity of this comparison boggles the mind. Ireland is a sovereign nation with control of its currency. It did ease financial regulation and cut taxes in the early 1990s, but it increased spending, largely on education, mooching off the European Union and going into debt.

Oh, and its boom has gone bust, largely because it is under-taxed and under-regulated (and possibly corrupt; see here). No intent here to trash the folks at Vermont Tiger, who seem civilized and who sometimes make sense. But their economic analyses should be viewed through the filter of their Irish delusion.

Anyway, all this stuff about businesses switching states because of taxes is something of a fraud. Businesses rarely move from one state to another at all. When they do, the availability of skilled workers, proximity to materials and markets, quality of life for executives and employees are the major factors, not taxes.

As to the rich folks leaving, we know they won’t because they haven’t. For several years now, we are told, Vermont has had the highest marginal state income tax rate in the country. We are told wrong. Californians who earn more than $1 million pay a higher rate. Still, Vermont’s rate is high And in those years, the number of rich people in Vermont has – believe it or not – gone up.

One reason for Vermont’s appeal to wealthy folks could be that despite that high rate, the actual tax payment of the financially well-endowed is higher in many other states. That top rate – 9.5 percent – doesn’t kick in until a taxpayer’s 357,701^st earned dollar. In neighboring New York, the top rate is only 6.5 percent. But that’s on every penny earned over $20,000. As to the Californians who don’t quite pull in a million a year (there are a few), their top marginal rate is 9.3 percent, almost as high as Vermont’s, and that starts at $47,055

So maybe Vermont isn’t such a bad state to be rich.

No place is, and here’s another reason why. According to economists Thomas Piketty and Emmanuel Saez, the highest-income households pay less of their income in federal taxes than they have in decades. Taxes, then, are simply not that big a factor – they are, one might say, an increasingly diminishing factor — for very wealthy people in deciding where to live.

Perhaps that’s why, after New Jersey added a higher income tax bracket on households earning more than $500,000 in 2004, the number of “half-millionaires” in the state went up, according to a study by Princeton University’s Woodrow Wilson School of Public and International Affairs.

It isn’t that no rich New Jerseyans left the state in anger. Some did, just as some people from other states who had been thinking of moving to New Jersey decided not to because of the new bracket. But they were outnumbered by far by those who stayed, or moved in anyway. The new bracket did not hurt the state’s economy and did help its treasury.

Obviously there are limits here. If Vermont or any state doubled its taxes, or even raised them by 10 or 15 percent, the economic consequences could be severe. But that’s not what’s under consideration in Montpelier. The tax bill passed by the House of Representatives would add less than 75 bucks to the  annual tax bill of most Vermont households. This is not going to send anyone to the poorhouse, or out of the state.

Again, do not interpret anything here as an endorsement of higher taxes. It is an endorsement of intellectual honesty. Not just for the politicians, either. Also for the press, which regularly reports the fraudulent claims about the disasters of tax hikes without comment or correction. Mainstream reporters may not add, “but that’s a lot of garbage” after those quotes, even though a lot of garbage is what it is. They could  – after quoting Mr. Yifniff proclaiming that another penny of taxes will create a mass exodus of entrepreneurs and their enterprises – say something along the lines of…”most economic data and analyses indicate that Mr. Yifniff may be over-stating his case.”

“May be overstating his case “understates the case. But at least it would provides some hint that Yifniff should be taken with a spoonful of salt.

Meanwhile, Instead of repeating (falsely) that Vermont lacks the “capacity” to raise taxes, opponents of higher taxes should argue (plausibly) why they are bad policy. Or they should acknowledge that they just don’t want to pay more. Either way, they then (continuing to insist on intellectual honesty here) have to face the consequences of not paying more.

Under the current circumstances (falling revenue) the most obvious consequence of not paying more would be doing less. Those most obviously affected by doing less would be those who have little.

But perhaps not as little as they and their advocates often say. Tune in tomorrow when the News Guy gets really mean and applies the same standards to the low-income as he did today to the rich.