Vermont’s business establishment thinks taxes should be lower.

No surprise. Business establishments almost always think taxes should be lower, and it is likely that the counterparts of the Lake Champlain Regional Chamber of Commerce and the Greater Burlington Industrial Corporation in the other states would make the same argument.

But in making their case to the Blue Ribbon Tax Structure Commission, the business leaders did not simply express a preference about tax rates. They called for a major overhaul of the state’s taxing and spending systems.

Perhaps more important, they based their proposals on an assumption: that lower taxes – especially lower taxes on the highest earners – would benefit all Vermonters by leading to faster economic growth.

A few points before proceeding:

–Some of the proposals in the LCRCC/GBIC presentation make sense. Consolidation of schools and school districts, for instance, (though it is outside the scope of the Blue Ribbon Commission) is an idea being discussed across Vermont’s political spectrum;

–The business leaders are not reverting to the role of old-fashioned robber barons. Their report begins by agreeing that “state government exists to ensure our public safety and provide services to those who are disadvantaged to maintain or improve their quality of life.” That’s apparently what led Bill Schubart, the Blue Ribbon panel’s chair, to say he was “impressed by how little whining there was…The business community isn’t just coming in and purely saying, ‘we’re overtaxed.’”

–They’re not going to get most of what they want. “We’re not going to revolutionize the Vermont tax system,” said Schubart, indicating that he and his two fellow commissioners are more likely to propose some limited – if consequential – “nibbling around the edges.”

Still, that basic premise of the business leaders – that lower taxes and a less progressive income tax system would make the state’s economy grow faster – deserves examination. Their argument that lower tax rates would actually “collect more tax revenue ” by “encouraging more people to become income tax paying residents of our State and by encouraging more businesses to stay and new ones to relocate” has become part of the established wisdom in much of the state, regularly repeated in news stories (which rarely question it) and on editorial pages.

So is the assertion that “we cannot continue to have a tax structure that reduces the state’s economic activity and penalizes wealthy Vermonters.”

It seems like a tough sell. The connection between low taxes and faster economic growth is…well, it isn’t, at least on the national level. The U.S. economy grew more than three times faster in the higher-taxed period between 1950 and 1980 (average annual 2.3 percent growth) than it did in the lower-taxed period that followed (average 0.7, and that’s ending in 2007, before the recession).

Furthermore, at least until the recession began, Vermont’s economy was growing tolerably well, about as well as other states in the region. In fact, it’s doing better than most other states now – lower unemployment rate, lower poverty rate, lower foreclosure rate.

But let’s begin by asking just how “progressive” (meaning the richer a taxpayer, the greater a percentage of his/her income is taxed) Vermont’s tax system really is.

Not very. A report by the Institute for Taxation and Economic Policy (a liberal group, but its numbers, if not its proposals, are widely accepted) found that “low- and middle-income families in Vermont pay more of their income in state and local taxes than do the richest families in Vermont.”

That report is now 16 years old, and this year the Legislature made the tax system slightly more progressive by eliminating some tax deductions that mostly benefitted the wealthy. On the other hand, Act 68 and the accompanying sales tax increase made the system slightly less progressive in 2003. All in all, there is scant reason to doubt that the ITEP’s conclusion still holds.

But it may not make much difference. Because ITEP found that no state had a progressive tax structure. If Vermont taxes are relatively more progressive than those of other states, taxes still might create an incentive for businesspeople to leave, taking their businesses with them.

Except that there isn’t much tax incentive to move the business because Vermont’s corporate and business taxes are not particularly high.

“To see whether (people are) taking jobs and businesses (away), you have to go to business taxes,” said economist Tom Kavet. “In terms of business taxes, we’re more competitive, especially if you look at effective business and corporate taxes.”

Still, there is no doubt that Vermont’s personal income taxes for the wealthy are on the high side, raising the possibility that some of them will go where they will pay less.

As some have, notably Glen Wright, who moved from South Hero to Florida, which has no personal income tax, saying “the tax burden in Vermont has become more than we are willing to bear.” (Discussed by the News Guy in June, here and here).

He’s not alone. Other Vermonters have moved to Florida and other low-tax states partly or largely for the tax savings. For many of them, it makes perfect sense.

But this evidence is purely anecdotal. It would be persuasive if backed by statistics showing that, for instance, Vermont had fewer wealthy residents, or at least a smaller percentage of wealthy residents, many of them having fled the high taxes.

But Vermont has more wealthy residents than it had five years ago, ten years, or – probably – ever in its history.

Not just more in raw numbers, but a higher percentage. Clearly, the number of rich folks who like it here just fine is far greater than the number leaving.

Let’s repeat and elaborate on that a bit because it would seem to provide a conclusive end to the discussion. There were 3,734 Vermont households reporting $300,000 a year or more income in 2007. There were 1,630 in 2000.

The same holds true elsewhere. In 2004, New Jersey increased its personal income tax on individuals earning more than $500,00 a year. Four years later, a study by scholars at Princeton found that there were substantially more such folks in the state, tax hike or no.

Had some rich New Jerseyans moved away? Yup, but mostly to higher tax states. State and local taxes, it seems, simply aren’t a big factor in determining where people live.

How can that be? Don’t incentives matter?

Sure, but so do other factors, such as the ability to make money. You can make a lot of it in New Jersey. Or, more accurately, in nearby Manhattan. The way to end up with more money is to earn more money, even if state and local taxes are somewhat higher.

That’s because state and local taxes are simply not that high, especially for wealthy people. It is true that the wealthy pay an increasing share of all the income taxes paid. But that’s because – both nationally and in Vermont — they have an increasing share of all the money earned. But as shown by economists Emmanuel Saez and Thomas Piketty, wealthy taxpayers actually pay a smaller share of their incomes in all taxes. (See graph above).

You know what else seems to be a good place to get rich and stay rich?

Vermont. Otherwise, the number of wealthy folks wouldn’t have doubled in seven years, and risen even more over a longer time period. Otherwise, more people wouldn’t be moving into the state than out of it. And otherwise more of the in-migrants wouldn’t be relatively affluent. Affluent people don’t move into places with no economic opportunity

In short, the argument that lowering the taxes on upper-income Vermonters would speed economic growth in the state appears to be grounded on nothing. It isn’t just that there is no real evidence to support the assertion; almost all the evidence refutes it.

No doubt Vermont’s tax system could be improved. The Blue Ribbon Commission might improve it. Some of those improvements might involve identifying a particular tax that creates a disincentive to invest. Such taxes exist.

And there may be an argument to be made for making the tax system less progressive and reducing the taxes paid by the rich. That argument might be moral, political, philosophical, or economic. But can the economic growth claim, fellas. It’s a fraud.