Month: December 2024

Last week’s lesson introduced three typical Vermonters — a teacher, a landlord, and an investor — as they were visited by the Big Bad Tax Man. Let’s see how the taxman’s takings fit with the balance sheet of property and income of our three.

	Teacher	Landlord	Investor	Total
Property Value
Property, house	$300,000	$300,000	$300,000	$900,000
Property, other	$0	$0	$1,000,000	$1,000,000
Property total	$300,000	$300,000	$1,300,000	$1,900,000
Income
Income, wages	$60,000			$60,000
Income, capital growth			$40,000	$40,000
Income, rents		$60,000		$60,000
Income, Social Security			$60,000	$60,000
Income total	$60,000	$60,000	$100,000	$220,000
1040 AGI income	$60,000	$6,003	$30,000	$96,003
Taxes
Vermont Property tax	$5,100	$2,000	$5,100	$12,200	1.7% of value
Rebate	$0	$0	$2,000	$2,000
Net property tax	$5,100	$2,000	$3,100	$10,200
Federal income tax	$7,200	$720	$3,600	$11,520	12% of AGI
Social Security tax	$4,800	$0	$0	$4,800	8% of wages
Total  Federal tax	$12,000	$720	$3,600	$16,320
Vermont income tax	$3,600	$360	$1,800	$5,760	50% of Federal
Vermont sales tax	$2,000	$2,000	$2,000	$6,000	$2000 per family
Total Vermont tax	$10,700	$4,360	$6,900	$21,960
Total Taxes	$22,700	$5,081	$10,500	$38,281

From our Three little Vermonters, the State and Federal governments collect about $38,000 per year, most of it from the teacher. (A similar burden would apply to an office worker, a small business owner, a firefighter, a carpenter, a technician, a cook, anyone who earns their income in wages.) That’s a heavy tax burden, heavier even than in the progressive countries of northern Europe.

It’s no wonder these middle-class families — the kind we need to strengthen Vermont’s economy and society — find our state unaffordable and its tax burden inequitable. And it’s no wonder that we see a growing influx well-to-do retired folks and real estate speculators moving into our Green Mountain State: they enjoy significant tax advantages. 

Between them the three own $1.9 million of property, and receive an income of $200,000. Yet Vermont collects only $10,000 from that property each year (most of it from the teacher), an overall rate of one-half of one percent. And from their income it collects $5760 (again, most of it from the teacher), an overall rate of about 3%. The effective Vermont tax rates for our three are:

	Property tax rate	Income tax rate
Teacher	1.7%	6.0%
Landlord	0.6%	0.6%
Investor	0.2%	0.2%

Perhaps Vermont is overtaxing some of its citizens, and undertaxing others.

Next week’s lesson will propose a simpler and fairer way to collect the funds that Vermont needs to operate its schools and highways and other necessary functions of government. A proposal that would reduce the tax burden for most Vermonters.

…and the Big Bad Tax Man

Once upon a time, there lived three average Vermonters, neighbors in the same town. They were very much alike. Each lived in a home of about 1700 square feet on a small plot of land and enjoyed an income of about $60,000 per year. 

One was a teacher. One was a landlord. The third lived off his investments. They loved living in the Green Mountain State.

One day the Big Bad Taxman came along. He knocked on the door of the first house.

“Little teacher, little teacher, let me in!”
(He was correcting papers with a pencil and pen.)

“I see that your income is about 60K.”
“That’s right Mr. Taxman, it’s on public display.”

“So first six percent for Social Security,
Then another for Medicare, to support your maturity.”

“That seems like a lot — four thousand at least,
And by the time I can use it, it might not exist!”

“Let’s move on to income: for the Feds twelve percent,
Then five more for the State – all money well-spent.”

“Twenty-four percent, it looks like you’re taking;
This makes me sad, it’s my bank you are breaking!”

“But that’s not all: there’s your Property Tax:
For your house and land, we’ll need 5K in my sack.”

“Twenty-one thousand! You’ve got to be joking;
I’m not a rich man; my finances are choking!.”

“And don’t forget sales tax: a full six percent
And nine for your meals, that you can’t circumvent.

For you that’s another two thousand dollars…”
“Please stop! I give up! I just want to holler!

Of my income you’ve grabbed thirty-eight percent.
It doesn’t seem fair, though I see where it went.”

Next day the Big Bad Taxman knocked on the door of the second house.

“Little landlord, little landlord, let me in!”
(He was counting his rent receipts money within.)

Cash and checks piled up on the table
The Taxman would have seen 80K if he were able.

“How much is your income?” asked Taxman at first;
“That’s none of your business,” was Landlord’s outburst,

“I’ll file my taxes with the feds when I must,
“And whatever my figures, you’ll just have to trust.”

“With deductions and credits and depreciation,
Six thousand and three’s the net taxable notation.”

“Well, none of that’s wages so no contribution
To Medicare, Social, or redistribution.”

“Now as to your income…”
“My fed AGI
Is practically zero; my accountant is wise:

She makes sure that number is so very small
That to the Feds I pay almost nothing at all.”

“So half of that,Vermont gets three-sixty.
Please pay that in April, and don’t be too tricky.

Now property tax: how much is it worth?
Your house with four apartments, sitting here on the earth?”

“It’s considered as rentals, so its tax assessment
Is based not on its value, but return on investment.

They take the net profit, and multiply by twenty;
On that basis: a hundred thousand is plenty.”

“Okay then, please give me seventeen hundred;
I hope that’s not too much, that you don’t feel plundered.”

“Now finally your sales tax: two thousand will do;
Your total: four thousand, and three sixty-two.”

“Goodbye, Mr Taxman, I’m pleased to oblige
With a small contribution to keep government alive.”

Over to the third house, the retired investor. The Big Bad Tax Man knocks at the door.

“Little investor, little investor, let me in!”
(Checking his stocks, his bonds, on his screen.)

(Year-to-date growth shows positive gains,
Equal to forty thousand and change.)

“Let’s see what you’ve got there, these tidy investments;
How much are they worth? What’s the assessment?”

“That’s none of your business, you lowly civilian;
Suffice it to say, it’s more than a million.”

“I can’t tax you on that, it’s fully exempted;
Nor state nor federal, though we be tempted

To ask to you pay a fair share of that money.
(With all that you have it does seem kind of funny.)

How about your income? Let’s see your ten-forty.”
“Not much to report there, nothing too sporty:

Our social security’s taxed but in half;
Subtract from that deductions on my behalf,

And you’ll see that my taxable income is slight:
For Feds and the State my tax burden is light.”

“None of it’s wages, so there’s no benefaction
To Social Security, not any subtraction.”

“For income you owe me five thousand and three;
Let’s talk now of tax on your nice property.

It’s valued at 300K like your neighbor’s
So I’ll need five thousand, that’s this year’s flavor.”

“From that five thousand, to be fair to me,
A homestead break of two thousand and three.

I’m old, and my income is under the limit;
I owe you three thousand, and that’s what I’m giving.”

“Now sales tax is easy, same as your neighbors:
About two thousand, and I’m doing you a favor.

Your net contribution to the commonweal
Adds up to ten thousand: how does that feel?”

At the end of the day, the Big Bad Tax man carries $38,281 in his sack:

$22,700 from the teacher;

$  5,081 from the landlord; and

$10,500 from the investor.

Does this seem fair to you?