Do Vermonters really pay (as a percentage of income) the highest property taxes in the country, as Brian Dubie says in his economic policy document? Earlier this year, a study by the Tax Foundation concluded that Vermont’s property tax was fourth highest.

It all depends on what’s being counted. The Tax Foundation was counting property taxes paid by “owner-occupied housing.” Information about the study on which Dubie relied, by the Vermont Economy Newsletter, is available only to subscribers. But Art Woolf of Northern Economic Consulting (the newsletter’s publisher) helpfully confirmed via email that its study dealt with all property – residential and otherwise.

Whether the average family will be relieved to find out that its property tax bill is “only” the fourth-highest in the land is questionable.

But not as questionable as the conclusion that it is, in fact, the fourth-highest in the land.

The Tax Foundation study, released earlier this year, found that Vermonters paid $1,869 in property taxes per person in 2008, the seventh highest per capita but fourth as a percentage of per capita income.

But hold on. A subsequent Tax Foundation study revealed that the 2008 figure was  a reduction from the 2007 number ($1,994), a 4.9 percent decrease. Vermont was one of only four states in which total property tax collections per person actually went down in 2008. 

Besides, these statistics, while legitimate (they are taken from U.S. Census numbers) are based on aggregate payments. Researchers add up all the property taxes (or the residential property taxes) paid in Vermont, divide by either population or income, and…Voila! A ranking.

But that ranking does not mean that Mr. and Mrs. Typical Vermonter are paying the fourth, seventh, or fourteenth highest property taxes in the country. In fact, it may not mean anything at all.

The point here is not that there is anything wrong with these studies, or anything dishonest about Dubie’s use of the Vermont Economy Newsletter. The point is that like all economic statistics (but probably even more than other economic statistics) tax data can confuse at least as much as they can clarify, meaning they are easily misunderstood if not misused. The prudent citizen, then, would be well advised to cast a skeptical eye on any candidate’s claims about taxes.

For instance, Dubie proposes lowering Vermont’s top marginal income tax rate “from the current 9% to between 6-7%,” which “still does not meet the regional average of 5% as seen is Maine, Massachusetts and Rhode Island.”

Actually, judging from the tax tables in those states, the highest earners in Maine and Rhode Island would seem to pay more like eight percent of their taxable income in state income taxes.

That still leaves Vermont with a slightly higher top rate. But most Vermonters do not pay higher income taxes than their counterparts in those other three states. According to Rhode Island’s tax tables, for instance, the lowest-earning taxpayers (less than $56,700 in taxable income) pay 3.75 percent of their taxable income in state income taxes. Vermonters earning the same pay 3.55 percent. Even a Rhode Island household with $100,000 in taxable income pays more ($5,157) than its Vermont counterpart ($4,040). In Massachusetts, a household with $80,000 in taxable income pays $4,239 in state income taxes, almost $600 more than it would pay in Vermont.(all these estimated comparisons are for married couples filing joint returns).

There is at least one other problem with these state-by-state tax rankings. The “scores” are often very close. Sometimes taxpayers in the fourth, fifth, or seventh ranked states don’t pay much more than the folks in the states ranked twelfth, eighteenth, or twentieth.

Two years ago, a reporter (OK: full disclosure: this reporter in another guise) estimated how much a typical Vermont family would save in taxes if it moved to Delaware, ranked right in the middle, tax- obligation wise, in a study by the Federal Reserve Bank of Boston.

The conclusion, tilting the evidence Delaware’s way for every estimate and every assumption, was that they might save as much as $700 a year, though probably less, and none at all if they moved into one of the school districts with higher property tax rates (which are, not surprisingly, the districts with the highest-rated schools).

Seven hundred bucks ain’t chicken feed. But our hypothetical new Delawareans would probably pay that much and more were they to buy or rent a house comparable to the one they left in Vermont. Not to mention that they’d be in Delaware, a nice place but a lot hotter, flatter, and more crowded, which many a Vermonter would probably find it worth $700 to avoid.

What all this boils down to is that these state-by-state tax comparisons are close to meaningless, especially when they consider only taxes, not other economic data.

If tax minimization is one’s goal, one should consider moving to Alabama. Taxes are much lower than they are in Vermont. But so are salaries, by almost $10,000 per household. Vermont is 19^th from the top in median household income; Alabama is fifth from the bottom.

In general, the lowest-tax states are also the lowest-income states. There are states where the taxes are somewhat lower than Vermont’s and the median income as high or higher. But in most of them, houses are much more expensive than in Vermont, and of course, the pace of life is more hectic.

The big (if partial) exception is New Hampshire which is prosperous, and which has neither a general income nor general sales tax. Property taxes are quite high in some localities, but on balance, a Vermonter moving to New Hampshire would have smaller tax bills and a higher income.

Well, a higher income if he or she moved to southern New Hampshire, which is not small-town and rural like most of Vermont, but urban, suburban, and effectively (though not officially) part of the Boston metropolitan area. Southern New Hampshire is where one finds most of the people and most of the prosperity. That’s also where one finds expensive houses and higher property tax rates.

Dubie and others often use New Hampshire as “proof” that lower taxes lead to faster economic growth. New Hampshire does have lower taxes than Vermont, and, in most recent years (though not all) faster economic growth. But New Hampshire’s proximity to Boston has a lot to do with its growth, and many states with lower taxes – Delaware, for one, these days — grow much more slowly than Vermont.

As it happens, there is an obvious refutation of the ‘low taxes equals high growth’ argument: the United States of America, where a 1981 tax cut was followed by 16 months of economic decline (which reversed itself only after a tax increase in 1982); where a small income tax hike for upper-income earners was followed by years of non-inflationary economic growth; where tax cuts in 2001 and 2003 were followed by several years of economic torpor and then the worst collapse since the Great Depression.

Only a fool would argue (a few have) that the tax increases caused the economic growth which followed them. But only a bigger fool could argue that lower taxes always lead to a faster-growing economy. It isn’t that taxes don’t matter. They do because everything matters. But because everything matters, taxes are only one of many things that matter.

If Brian Dubie has his way, taxes are going to matter a lot in this campaign. By framing the issue as he has – tax cuts for everyone but an emphasis on lowering the top marginal rate for the top earners – he has both put the Democrats on the defensive and left himself open to the charge that he’s favoring the rich.

All of which makes it worthwhile to examine the details, such as they are, of his tax proposal, a task for Wednesday.

NOTE: The News Guy is taking the day off Thursday, so there will be no post on Friday.

Tags: Brian Dubie, Maine, Massachusetts, New Hampshire, Rhode Island

This entry was posted on Monday, September 6th, 2010 at 12:15 am and is filed under Politics & Elections, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.