Rich man’s blackmail
It would be a surprising turn of events if the Legislature were to embrace the Jim Douglas-style rhetoric heard lately from Gov. Peter Shumlin about the need to coddle rich people. Shumlin’s conversion into a neo-Republican on tax issues is surprising in itself.
Responding to a tax package taking shape in the Vermont House, Shumlin last week warned that raising taxes on wealthy Vermonters would send them fleeing to friendlier places — Florida and New Hampshire are the usual havens cited by those concerned not to insult the sensibilities of the rich.
It is the usual blackmail deployed to protect the perquisites of the top 1 percent, based on a myth partly responsible for the widening gap between rich and poor, which is one of the most serious afflictions undermining the nation’s economy. But is it a myth?
Certainly, there are anecdotes of wealthy Vermonters moving to Florida. They may be motivated by the lack of an income tax there. But wealthy people also move to Vermont. Some of the fancy mansions going up in the posh precincts of Barnard or Shelburne provide ample counter-anecdotes.
Beyond the anecdotes there is some evidence that the threat of dollar migration to Florida and elsewhere is overblown. The Blue Ribbon Tax Structure Commission created by the Legislature in 2009 studied the issue of “tax flight,” and though it did not reach definitive conclusions, it found data that it believed undermined the “mythology of persistent tax migration among high-income taxpayers.”
“All the commission can say,” said its report, “is that the conventional wisdom is not supported by the data.” Among the data the commission uncovered was evidence showing that people moving to Vermont earn 18 percent more money than those leaving the state. The commission advised Vermonters “to abandon the discussion of what wealthy Vermonters are doing based on their taxes.”
Vermonters do a disservice to themselves when they allow policy discussion to be frozen by fear inspired by the rich man’s blackmail. That’s because they foreclose the opportunity to take steps to improve life for Vermonters.
We live in a time when the tax burden, especially on rich people is lower than at any time since the 1950s. Further, the gap between rich and poor is greater than any time since the 1920s. Meanwhile, state and the federal governments have decided to withdraw investment in the public sector to such an extreme degree that our infrastructure is falling apart and our schools are starved for resources.
The connection is staring us in the face: The coddling of the rich on the one hand and disinvestment in essential institutions on the other.
Shumlin throws out the familiar numbers: The 1,237 highest-earning Vermonters provide 20 percent of the income tax revenue.
Of course they do. That’s where the money is. If we allow wealth to be concentrated at the top, then it is the top that will have to provide the revenue. And if the low incomes of everyone else do not provide a tax base adequate to carry out the functions of the state, the top will have to do more. This in itself is an argument for closing the gap between rich and poor.
It’s not as if the rich are suffering. Even in Vermont, which has one of the most progressive tax systems, the richest 1 percent of taxpayers pay a smaller percentage of their income in state and local taxes (8 percent) than the bottom 20 percent do (8.7 percent). As for Florida, it’s no wonder rich people like it. The bottom 20 percent pay 13.2 percent of their income state and local taxes. The richest 1 percent pay 2.3 percent.
The crocodile tears Shumlin sheds for rich Vermonters are made all the more repugnant by his efforts to increase the tax burden on poor Vermonters by reducing the state’s share of the earned-income tax credit. It is heartening that the Legislature so far is not buying it.
There is certainly an upper limit beyond which high taxes would be damaging, but the wealthy in America are nowhere near it. All it would take to solve innumerable economic problems would be for the American people to see through the myth of the rich man’s tax burden and to demand the revenue needed to allow state and local governments to reverse the deterioration of public services and to solve the nation’s long-term debt problems.
Can Vermont go it alone, or would higher taxes ignite a flight of millionaires to Florida? Migration usually is motivated by hardship. One thing we can say in a time when the rich are richer than ever before is that hardship is not one of their problems.