Tax Foundation - Press Room
- Tax Foundation Experts Tell Vermont Legislature: Smarter Tax Policy Will Best Help State
Proposed tax reforms built on bad assumptions, policy ideas
WASHINGTON, December 11, 2007 - Two tax policy experts from the Tax Foundation, the nonprofit, nonpartisan tax policy research group in Washington, testified today on tax reforms before Vermont's Ways and Means Committee. They told the legislators that the state should enact more sound tax policy if it seeks to increase revenues and better distribute the tax burden among its citizens.
"If Vermont is going to use the income tax, they should do it right—with a broad base and few deductions," senior economist Gerald Prante said in his testimony. "If you are going to remove the education portion of the property tax, it may be beneficial to simply eliminate the property tax altogether. It's clear that the current statewide education property tax needs to be fixed and enacting sound tax policy is the best way to go about doing so."
Vermont's legislature is currently discussing a proposal to change its funding mechanism for education from the property tax to an income surtax. The surtax is based on adjusted gross income (AGI), which is a positive in terms of tax policy as it allows for a lower rate and has fewer economic distortions. Prante urged legislators to hold firmly to AGI, despite the lobbying attempts which will almost certainly come against it. Doing so would allow Vermont to impose a lower income tax rate overall.
The property tax change would only apply to residential property, leaving an even more complex property tax structure that would raise limited revenue at the same fixed administrative cost of implementing the former, "full" property tax. Because Vermont funds all schools from the state level, removing the education portion of the property tax would result in a hollowed-out property tax that would raise comparatively limited revenue. For that reason, under such a plan, Prante suggested that it may make more sense to simply eliminate the property tax.
Prante concluded with a policy suggestion: keep education funding in the property tax, remove the special income-based provisions from it, and, if so desired, help the poor in more effective ways, such as through the income tax, by lowering the sales tax or some combination thereof. The resulting flat-rate property tax and progressive income tax would accomplish the same ends Vermont appears to desire through more effective means.
"Vermonters are paying the highest taxes in the nation this year, 14.1% of total state income," testified communications director William Ahern. "Any tax reform should focus on making the tax system simpler and helping Vermont become more competitive. The education property tax is the most nightmarishly complex property tax I've ever seen."
Ahern added, "Vermont's legislators would be well-advised to plot a course for somewhat lower tax rates."
Vermont's income tax is especially hard on high incomes with a top rate on wages of 9.5%, third highest nationwide. It is also hard on the upper-middle: the 7.2% rate on couples' taxable income between $50K and $120K is only exceeded in six states.
Ahern added two policy suggestions as well: first, Vermont has a 6% sales tax, ranking 25th highest nationally, and it shares its border with New Hampshire, which has no sales tax. Vermont collects so little in general sales tax revenue that it might consider scrapping the tax entirely, both for progressivity and to compete with New Hampshire retailers along the river.
Second, Ahern asserted that there was no progressive logic whatsoever to Vermont's corporate tax structure, and recent corporate tax improvements haven't gone far enough to give Vermont a competitive advantage. He recommended enactment of a one-bracket 7% corporate tax rate so that Vermont could start getting the word out that it has the lowest rate in the Northeast.
Read the testimony here: http://www.taxfoundation.org/publications/show/22797.html.
The Tax Foundation is frequently requested by state legislatures to testify and offer advice on proposed tax policy changes. The Tax Foundation will continue to monitor Vermont's legislation and offer analysis as events warrant.
The nonpartisan, nonprofit Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization.
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- Supreme Court, Agreeing with Tax Foundation Brief, Protects Taxpayer From Discriminatory Property Taxation
WASHINGTON, December 4, 2007 - This morning, the Supreme Court announced a unanimous 9-0 decision in CSX Transportation, Inc. v. Georgia State Board of Equalization, ruling in favor of a railroad seeking to challenge Georgia's property tax assessment methods, a change in which resulted in a 47 percent increase in its property tax bill over the previous year. The Tax Foundation filed a brief with the Supreme Court in support of CSX's challenge.
The Tax Foundation's brief argued that the federal 4-R Act allows railroads to challenge assessment methods as a way to prevent discriminatory taxation. "Discriminatory assessment methods cannot be shielded from legal challenge because Congress has exercised its power to limit states' ability to use any conceivable method of assessing and taxing railroad transportation property." We argued that the ability of taxpayers to challenge flawed property tax assessment methods is important for ensuring transparency and stability in the tax system.
Chief Justice John Roberts wrote the Court's opinion, which echoed many of our arguments. "The total lack of textual support for Georgia's position is not surprising," the opinion states. "The dichotomy the State presses would eviscerate the statute by forcing courts to defer to the valuation estimate of the State, when discriminatory taxation by States was the very evil the Act aimed to ban." The opinion also notes that "preventing courts from scrutinizing valuation methodologies would render [the 4-R Act] a largely empty command."
The Supreme Court opinion in CSX can be read here.
The Tax Foundation's brief in CSX can be read here.
- Tax Foundation Continues Its Analysis of Maryland Tax Plans
The Tax Foundation has produced a comparison of three tax proposals put forth by the Maryland House, the Senate and the governor. The study shows how Maryland would rank under each proposal relative to other states in the region on sales taxes, personal income taxes and corporate taxes.
This study complements recent Tax Foundation research on Governor Martin O'Malley's tax proposal, which showed that Maryland's competitiveness would fall sharply if the tax changes proposed by the governor were enacted.
Read the new Fiscal Fact, "Maryland Legislature Approves New Taxes Across the Board: A Regional Comparison of the Three Possible Alternatives."
Read "Governor O'Malley's Tax Plan Puts Maryland at Risk in Regional Tax Competition."
Click here for more on Maryland taxes. - Tax Foundation Offers a First Look at the Rangel Tax Reform Legislation
Contact: Nate Bailey (202) 464-5102 or nate@taxfoundation.org
WASHINGTON - The Tax Foundation has begun dissecting Ways and Means Chairman Charlie Rangel's tax reform legislation. While more detailed studies will be forthcoming, here are some initial thoughts on various components of the Rangel bill:
Top Combined Income Tax Rate Would Climb Over 50%, World's 7th Highest
For the first time since the Tax Reform Act of 1986, the top combined (federal and state) marginal tax rate on individual income would climb above 50 percent under the Rangel plan. When the rate reaches that peak in 2011 with the expiration of the 2001 tax cuts, the U.S. will have the 7th highest individual income tax rate in the developed world. The U.S. currently ranks 21st in that comparison.Corporate Tax Cuts Would Move U.S. From World's Second-Highest to Fourth-Highest Rate
Chairman Rangel's proposal to