Equity and fairness in property taxes

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(Host) Commentator Dick Mallary is looking forward to the next session of the state legislature, when he says that tax fairness will once again be on the agenda.

(Mallary) In the early months of this year, at the Tax Department, I again had a chance to give serious thought to the Vermont tax system. Although taxes in Vermont are relatively high by national norms, we have a reasonably balanced system of taxes with taxes resting on the three traditional bases of income, property and consumption.

Experts tell us that the necessary characteristics of a good tax system are efficiency, neutrality and equity. The public, however, tends to judge taxes on its concept of equity. Do people believe that taxes are fair? Do they believe that they are being asked to pay more than their fair share?

Most people think that equity or fairness in taxation means that the taxes they must pay should depend upon their ability to pay them. Vermont’s tax code, like most others, is very complex, but it does its best to achieve fairness through the diversity of taxes and its provisions to make each tax reflect ability to pay.

The income tax does this by not taxing those with the lowest incomes at all and having graduated rates so that those with higher incomes pay a higher percentage of their income. The sales tax does this since it is not imposed on food or pharmaceuticals or some other basic necessities.

The property tax is imposed at a uniform rate on the fair market value of all property, but it attempts to achieve fairness with income sensitivity provisions so that owners of a home need only pay a limited percentage of their income in property taxes on their homesteads. This seems to be a fair and reasonable provision, but Vermont has carried it to an unreasonable extreme, unmatched by any other state.

Under the Vermont system, there is no limit to the size or value of the home that can escape the full burden of taxes as a result of state rebates to the homeowner. In the past year, the Tax Department sent out tax rebate checks of up to and above $20,000 each to homeowners with homesteads valued at more than a million dollars.

This seems to me to raise some very serious policy issues: Should a person’s ability to pay taxes be measured only by that person’s income in any one year, or should it also consider the person’s wealth? Is it reasonable to expect all Vermont taxpayers to pay more taxes so that we can reduce the normal tax burden on homesteads worth many times the value of the average home in Vermont? In other words, should the State of Vermont tax the rest of its citizens so that some citizens can live in homes that they can’t afford?

I think that the answer is no, and I believe that reasonable limits on the extent to which some property wealthy citizens can avoid paying their share of taxes should be imposed by the legislature, when it next revisits the school funding formulas.

This is Dick Mallary in Brookfield.

Dick Mallary has served extensively in state government and is a former U.S. Congressman from Vermont. He spoke from our studio in Norwich.

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