Commentary: A Lot of Little (and Some Big) Taxes Add Up (April, 2019)

by Rob RoperRob Roper

Let’s say you run a small, struggling business in Vermont and, like many if not most, are operating on thin profit margins.

If our legislature has its way, after this year you will have to pay your employees a higher minimum wage on the way to $15 an hour, devote time to the paperwork required by a new 0.57% payroll tax, and deal with the labor complications associated with a mandatory Paid Family Leave program. There will be a doubling of your fuel tax, making it more expensive to heat your shop, prepare food, etc. You will also have to eliminate the use of convenient “single use” plastic bags and start charging your customers at least ten cents for each leaky paper bag instead. No Styrofoam coffee cups or food containers can go into those leaky paper bags, or you’ll face state imposed fines, and heaven forbid you offer a customer a plastic straw.

This, of course, doesn’t take into account any increased fees that may apply, which are going up this year as well. Good luck staying in business.

And, by the way, if you say “enough of this” and sell your business with plans to retire on the proceeds, the legislature is poised to reduce the percentage exclusion for the Capital Gains Exclusion from 40% to 30% and limit the percentage exclusion to up to $450,000 in capital gains, so the state will keep more in taxes (and out of your wallet) from the sale of your business. Isn’t that nice?

How does any of this signal Vermont is “open for business” or a good place to set up shop?

What if you’re a working family? During the debate on the House floor over how much to raise the tax on heating fuel  (50%, 100% or 200%; not raising it was never a consideration for the majority because they have to save the planet), one legislator snarkily quipped about the regressive penalty, “$15 a year,” the estimated amount the average household would pay in increase, “isn’t going to break anybody.” But add to that the $70 or so dollars that will come out of your paycheck for the Paid Family Leave payroll tax, a 25 percent increase in the “universal service charge” tax on your phone bill, increased costs for goods and services due to the higher minimum wage, and the extra $30 to $50 a year you’ll have to pay for non-plastic shopping bags, and pretty soon you’re talking about real money.

If you have kids in child care, one Lamoille County provider estimated the increased cost per child brought on by the $15 minimum wage alone would amount to $40 per week – and, yes, that could break somebody.

Again, how does any of this signal Vermont is a good place to settle down, work hard, and invest in your own future?

On a macro-scale, our legislature is asking our little state of 620,000 souls to shoulder an additional $75 million from a new payroll tax to fund a new entitlement program likely to explode with future cost growth, $4.5 million in heating fuel tax increases, and over $70 million in increased education spending for a system with fewer kids in it every year. We’re looking at $8 million in increased fees, and the $15 minimum wage will cause an estimated $60 million in new Medicare and Medicaid costs. Where’s that money going to come from?

And, they’re not done yet. The legislature is still looking for tens of millions of dollars ($50 million per year?) to fund lake and waterway clean up, our chronically underfunded and mismanaged state pension fund crisis is creating an annual $120 million (and growing exponentially) black hole in the budget that will have to be filled at some point. The debate continues over whether or not to fine citizens as much as $675 for not having health insurance they can’t afford in the first place.

All on top of what is already considered to be one of the highest tax burdens in the nation.

This is not sustainable or responsible governance. Maybe it’s time for our elected officials to consider that this approach to policy is why we have a stagnant population, anemic economic growth, and trouble convincing young working people to come or stay here. Maybe, if you really want to help people instead of continuously causing harm, it’s time to take a cue from Sienfeld’s George Costanza and start doing the opposite of whatever your policy instincts are telling you to do. Because this stuff isn’t working.

Rob Roper is president of the Ethan Allen Institute.

 

{ 1 comment… read it below or add one }

Deanne April 4, 2019 at 1:23 am

Interesting you wrote this article, as I’ve been thinking quite a bit about a legislated increase in the minimum wage. Over the past 35 years, I have worked my way up from earning 50 cents an hour in high school. In my early twenties, I earned $4.75/hour (my first full time job) while also taking on a babysitting job at $2.00/hour to help out a lady whose husband left her for another woman. At about age 30 (before and after), I was earning about $5.00/hour. A few years later, it was up to $7.00/hour, then $9.00/hour. Over the years, I worked my way up to $25/hour by my early 40s. I realize there is this thing called inflation, which makes the money one has earned worth less each year, but inflation by legislation is unconscionable. I worked very hard to get to the place I am now, and young people with no experience doing anything may be given through legislation the wage I worked up to with sweat, hard work, and commitment at age 38. If this legislation passes, it means the money I earned will immediately plummet in purchasing power. It also means that my current income will be worth less than what I was making fifteen years ago.
This legislation would not only hurt those of us who have put in our time, it will also hurt young people – not only because some of them are likely to either not be hired or to have their hours reduced, but because inflation – in this case, legislated inflation – hurts everyone in the long run.
And this is just one of the things mentioned. Tax upon tax upon tax. You have to wonder why these legislators like adding more and more taxes. Are they exempt from paying these taxes, or do they have ways to avoid them or are they so wealthy that it doesn’t hurt them in their pocketbooks? I find it completely mystifying. It makes a person wonder what is really going on.

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