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McQuiston: Taxes

06/29/10 7:55AM By Timothy McQuiston
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(HOST) A recent survey conducted for Vermont Business Magazine has got commentator Tim McQuiston thinking about the need for an economic development plan.
 
(MCQUISTON) It was recently reported that Americans are effectively paying less in taxes than at any time since 1950. The way it's calculated is based on a percentage of total personal income. Over those last 60 years, the average tax obligation has been about 12 percent of income; for 2009 it was down to 9.2 percent. Since the recession began, households have seen an average reduction of $3,400 a year in taxes.

There are two very understandable reasons for this reduction. One is the recession. When people aren't working or have had their pay cut, they owe less in taxes. Sales tax collections across the country have declined as consumers spend less. The other principal reason is the series of federal tax cuts over the last few years. These have come in several forms as both the Bush and Obama administrations have sought to resurrect the economy.

The tax cuts are seen as finally having a positive, albeit moderate, effect on stimulating the economy. But the recovery has been slow in coming. Taxpayers used the initial cash givebacks to pay off debt, to a large extent. Individuals are also putting more into savings, as consumers are still wary of economic conditions.

That debt relief and savings should have a positive long-term effect. Putting money in the bank allows banks to lend more money to individuals and businesses, this has a more sustainable economic effect than consumers rushing out and spending it. Lending builds homes, finances business expansion and creates jobs. All that does take time. But it will come.

So if taxes are at a historic low, why, according to a survey that Vermont Business Magazine recently did, are business owners still so concerned? The explanation, as I see it, is that Vermont's state personal income tax will always be higher than Florida's, for example, since Florida has no state income tax in the first place.

Most businesses in Vermont are owner-operated. The profit of the company goes right onto the owner's personal income tax return. It's not hard to imagine that same cash, instead, going straight into the owner's pocket, or invested back into the business.

Business owners spend a lot of time thinking about these things. They also think a lot about why they live in Vermont. Vermont doesn't have the market cornered in quality of life. But we do have a head start - and, compared to many states and most places in the world, a big head start.

Public policy decisions about quality of life and taxes - or, as some might see it, VERSUS taxes - will become more crucial going forward. Most of the federal tax breaks expire at the end of this year. While I believe Congress will enact a new stimulus plan that will keep taxes somewhat lower, tax obligations, no doubt, will increase, forcing Vermonters, business owners and their elected officials to decide what is most important.
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