In Fiscal Year (FY) 2013, Vermont collected $3.4 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Vermont taxpayer can afford this level of taxation.
As shown in Chart 1, Vermont’s state and local tax burden (tax collections divided by personal income) was the 6th highest in the nation for FY 2013 at 11.9 percent—or 16 percent above the national average of 10.3 percent. As shown in Chart 2, Vermont’s tax burden has grown over time by 27 percent to 11.9 percent in FY 2013 from 9.3 percent in FY 1950.
One cannot talk about Vermont’s high tax burden without mentioning property taxes. Vermont has the 3rd highest state and local property tax burden in the country. In large part because Vermont relies so heavily on the property tax. In fact, state and local property tax collections make up 42 percent of all tax collections—the 4th highest percentage in the country.
Vermont’s property tax system is also unique in that it now mostly resides at the state level. In FY 2013, the state property tax raised $971 million while local property tax raised $444 million. This is due to Act 60 (Equal Educational Opportunity Act off 1997 (pdf)) which mandated a uniform state-wide property tax in order to “equalize” access to education.
So far Act 60 has mostly resulted in a tax shift to the state from local government, whether it results in higher and/or lower property tax burdens overall is yet to be seen.
On the other hand, Vermont compensates for a high property tax burden with a low sales tax burden of 1.27 percent—the 44th highest in the country. However, this may not all be by choice. Rather, it may be a rational response to the fact that neighboring New Hampshire does not have a sales tax.
This dynamic has created a situation where Vermont taxpayers can arbitrage the sales tax differential in their favor through cross-border shopping in New Hampshire. In fact, Dr. Art Woolf found in a recent study on Vermonters cross-border shopping that (pdf):
If the level of retail sales per person had remained identical in the two border areas, which it was in the years before Vermont implemented its sales tax, Vermont’s border communities would have had $540 million more in retail sales in 2007 and 3,000 more retail jobs. This would have contributed to healthier, more vibrant, communities and downtowns
As such, Vermont’s low sales tax burden may not be solely due to a statutorily limited sales tax, but rather that a significant portion of taxable sales has already shifted across the border into New Hampshire. Of course, it is a chicken-and-egg problem. Perhaps Vermont’s sales tax is statutorily limited because policymakers know that it will drive more taxable sales into New Hampshire—so why bother making the tax bigger.
Whichever the case, taxes matter!
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Vermont—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The Vermont counties with the highest local government tax burden include: Windham County, VT (2.4 percent), Grand Isle County, VT (2.2 percent), and Essex County, VT (2.1 percent). The Vermont counties with the lowest local government tax burden include: Franklin County, VT (1 percent), Washington County, VT (1.5 percent), and Chittenden County, VT (163 percent).
J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.