Tax Structure Commission Promotes Regressive Taxes

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I recently explained how Vermont’s Tax Structure Commission (VTSC) used upside-down tax theory to advocate for implementation of a magnified tax “structure” to charge a sales tax on bread and other groceries. There are other hidden designs woven into this tax-inflating Trojan horse-belly, under the disguise of “helping the poor.”

It is increasingly evident that the Legislature has zero intentions of cutting expenditures simply because the Vermont economy, taxpayers and businesses are suffering economically. Before COVID, state employees and state bureaucracy received increased money from Vermonters every year — even when citizens’ real incomes were declining.

That has not changed — if anything, all these new race initiatives, poor-people plans, and global warming salvations require more money from the broke-backed Vermonters. Like a greedy king, this disconnected Bloated Dome just seeks new areas to squeeze.

The Tax Structure Commission was evidently charged with the task of justifying tax increases in the name of “equity.” But as with all these newfangled ideological schemes, there is no concept of economic limitations — let alone equity. Consider these not-merely-technical points:

Bait-and-switch on sales tax rates

Advocating for a sales tax on groceries, the report suggests that it would reduce overall sales taxes to less than 4%. But the fine print reveals that that goal is sought only after the money is reallocated to the poor (no methodology offered for an impossible task). Of course, there will be no reduction of the overall tax rate. And even if there were, it would creep up again in future years when the big-government spenders milk a few more drops of blood from taxpayer brows. The VTSC also estimates a 15% administrative cost to implement this scheme, and ignores the massive drain on small businesses that would be compelled to comply. (p. 8)

Implementing a pass-through tax for nonresidents

Pass-through entities are partnerships, S corporations or LLCs that do not pay a corporate level tax — income flows directly through such entities to the individual owners. The historical purpose of these business structures (long recognized at the federal level) was to support small businesses. The VTSC proposes studying a new “entity-level” tax, in conflict with decades of tax policy, but also creating an extremely complex differentiation from federal tax code and return preparation — not more efficient, just more complexity to siphon money for bloated state coffers (p. 8).

Climate change and land use

Incorporating climate ideology into tax structures (p. 104) requires infusing the report with all sorts of non-factual conclusions  (e.g., that solar panels are a net energy saving investment) and speculative predictions about what the future “may” bring:

This may lead to what is perhaps the most significant consequence of climate change on the Vermont economy: in-migration. … Because lower income households pay a higher percentage of their incomes in fuel, any increase in fuel prices is likely to be regressive. … Whether the pricing mechanism is called a tax or not, the Commission recommends returning enough of the resulting revenue to households to offset the regressivity … 20 years from now, the vast majority of cars on the road will be electric. (pp. 104-109).

The same pattern again — taxing gas, then skimming for the state for administrative expenses and revenue, cloaked as collecting money to the poor, to save the planet from CO2.

Stacking regressively on electric rates

Under current similar money-monkeying schemes, Vermont transfers money from poor electricity ratepayers to residents who purchase net-metering solar arrays, a patently regressive and unfair policy. The Commission Report recommends stacking (“pyramiding”) an additional layer of sales tax on these ratepayers’ backs, adding regressive insult to regressive injury:

Using a 6% tax rate as an example, in home energy consumption, the State is foregoing roughly $42.1 million in revenue (Feldman, Schickner, Stein, Campbell, & Dickerson, 2019) to protect low-income Vermonters from a $13.2 million expense. As with groceries, as part of a comprehensive review of the income, benefits, and taxes in low-income households, we note that Vermont already has a mechanism for providing support to low-income Vermonters’ residential energy purchases in the Low-Income Heating Assistance Program (LIHEAP). If you extend the sales tax to residential energy, the State could collect the $42.1 million in tax revenue, distribute $13.2 million back to low-income Vermonters through LIHEAP, and end up (again assuming a 15% administration cost) with $26.9 million per year for increasing spending and/or decreasing the rate. (p. 65)

There it is right there — the state has dollar-sign eyes, and says “Hey, if we take the whole pie, give part to one group and keep a chunk for our good deeds, we expand government infinitely while taxpayers’ real incomes shrink and they flee the state!” This vicious cycle erodes real wealth — while bloating government yet larger! This is what Milton Friedman was referencing when he observed that “socialism is when A and B decide how much money C should give to D.”

Vermont’s regressive net-metering program transfers millions of dollars from the poorest of Vermonters to those who buy renewable solar panels. This proposal would compound that burden, while pretending it would return the confiscated funds through heating assistance. But electric rate customers may not receive heating assistance.

Groceries, again

Back then to groceries, to see the real plan:

Based on data from the U.S. Bureau of Labor Statistics (2020), we estimate low-income Vermonters spend about 27.8% of Vermont’s total private spend on groceries. That means that right now, by exempting groceries from the 6% sales tax, Vermont is giving up about $126.1 million in sales tax revenue (Feldman, Schickner, Stein, Campbell, & Dickerson, 2019) to provide $35.1 million in relief to low-income Vermonters. ….At this point, our goal is simply to think through whether or not exempting groceries is an efficient way to protect low-income Vermonters from a sales tax of any level on groceries. If Vermont levied the 6% sales tax on groceries, collected the $126.1 million in taxes, and refunded that $35.1 million in grocery sales tax collected from low-income Vermonters, there would be no harm to low-income Vermonters. Conservatively assuming a 15% cost to administer a rebate program, the State would have an additional $85.8 million which it could put toward lowering the sales tax rate and/or increasing spending, in whatever ratio the Legislature decided was appropriate. (p. 64)

This is not tax policy; this is social justice ideology feigning to be tax policy, to create ever more regressive “structures” in the name of progressivism. It is Orwellian: “taxes will free you,” and “taxing groceries is an efficient way to protect low-income people from grocery taxes.”

There was brief lip service toward the working Vermonters, but in a typically dismissive way:

We did, of course, hear a great deal from Vermonters about how the State spends money. We acknowledge the concerns of Vermonters around spending, and in particular around education spending, and we recognize and are grateful for the work the Legislature has done and is doing in those areas. (p.3)

Most Vermonters would not select the word “gratitude” for plunging us into spiraling expenses and an unfunded pension crisis in the midst of COVID. Whatever happened to “no taxation without representation”?