WASHINGTON, D.C. - Vermont has done better than many states to tax according to ability to pay, but low- and middle-income Vermonters still pay more of their income in state and local taxes than do those in the highest income brackets.
That is the finding of a new report released last week by the Institute on Taxation and Economic Policy based in Washington, D.C.
"Vermont lawmakers may be forced to make difficult tax and spending decisions in the upcoming year," said Matthew Gardner, ITEP's executive director and lead author of the study, titled "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States".
"They should be mindful that the Vermont tax system already falls most heavily on the very poorest families in the state," Gardner said.
According to the study, which was based on taxpayers under 65, the poorest 20 percent of Vermont families are paying, on average, 8.2 percent of their income in state and local taxes, while the richest 5 percent of Vermont families pay 7.5 percent on average. For the middle-fifth of Vermont families, those with income between $34,000 and $54,000, 9.4 percent of their income, on average, goes to state and local taxes, the report found.
"No one would ever design an income tax with lower tax rates for the best-off taxpayers," Gardner said. "But that is exactly what Vermont's tax system overall does: it allows the very wealthiest individuals to contribute less of their income, on average, than middle- and lower-income families must pay. In other words, Vermont has an unfair, regressive tax system."
Gardner claims Vermont sales and excise taxes fall more heavily on low- and middle-income taxpayers than on the wealthy. The Vermont income tax is progressive: the middle fifth of Vermont families pay, on average, 1.7 percent of their income in income taxes, while the richest 1 percent pay, on average, 5.4 percent of their income in income taxes. Taken all together, however, the entire tax structure is tilted in favor of those with higher incomes.