(Host) Just over 300,000 Vermonters file personal income tax forms every year. But the financial fortunes of the top 3,000 filers have an enormous impact on the state’s overall revenue base.
Vermont’s income tax revenues are running more than 10 percent higher than a year ago.
And, as VPR’s Bob Kinzel reports, the revenue resurgence is largely due to the improving financial condition of a very small number of people.
(Kinzel) Between 2007 and 2009, state income tax revenues declined by roughly $72 million. 70 percent of the decline or $50 million, came from Vermonters who make more than $300,000 a year largely due to a big decline in revenue from their capital gains.
Now that the stock market is higher, state revenues are benefiting from a resurgence of investment gains from people in Vermont’s top three tax brackets.
Economist Dick Heaps says it’s clear that the state’s revenue base is tied directly to the fate of the top 1 percent of all tax filers because Vermont has a progressive income tax system:
(Heaps) "It is the high income group that pays a very disproportionate share of the tax and during booms and busts their income rises and falls disproportionately so they are the ones that are the reason behind what we see happening in our General Fund."
(Kinzel) And Heaps says the sizeable growth in state income tax revenues this year reflects gains made by this small group of wealthy Vermonters:
(Heaps) "Right now the fact that this group is probably doing better than most Vermonters is good for the tax department because they’re the high income people they’re the ones who pay the tax."
(Kinzel) Jack Hoffman is a senior policy analyst at the Public Assets Institute in Montpelier. He agrees with Heaps’ analysis:
(Hoffman) "I think it makes sense that that’s what’s happening because we’ve seen this concentration of wealth toward the top so as more money gets in the hands of fewer and fewer people what happens to the income for those people is going to have a greater effect on our revenue collections."
(Kinzel) Hoffman says new studies show that in the 1970s, the top 1 percent of Vermont’s population accounted for 6 percent of the state’s overall income. By 2005, their share had more than tripled to 20 percent. He’s concerned by this trend:
(Hoffman) "If you look in the 50s, 60s and 70s, we in fact had much better distribution of income and I think it was a much more prosperous period for this country and I do think you have a more equal society if you don’t have such wide gaps between rich and poor."
(Kinzel) Hoffman says the revenue figures show that wealthy people aren’t leaving the state because of Vermont’s progressive income tax system. But Heaps says the data should also make lawmakers understand that there could be negative consequences to raising tax rates on the wealthiest Vermonters in the future.
For VPR News, I’m Bob Kinzel in Montpelier.