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The Valley Reporter
P.O. Box 119
Waitsfield, VT 05673

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An open letter to the governor and all Vermont legislators

Unfortunately the Democratic majority in Vermont hasn't studied the words of a great Democratic president. In 1962 John F. Kennedy said, "The soundest way to raise the [tax] revenues in the long run is to cut the [tax] rates now." That year the highest federal marginal tax rate was cut from 91 percent to 70 percent. I fear too many in Vermont truly believe the wealthy residents and non-residents should shoulder an increasing share of the tax burden and that government should spend more each year.

Milton Friedman, one of the greatest economists of our time (and a former resident of Ely, Vermont), said, "People spend other people's money differently than they spend their own." Welcome back to Vermont, Dr. Friedman! In my hometown of Warren, for instance, we collect over $8 million in net property taxes and a great majority of that comes from non-resident second homeowners, who have no vote on spending decisions, and businesses. Over $5 million of that gets shipped to other parts of the state. Thus, when Burlington on Town Meeting Day votes to increase their school budget by over 9 percent, they have a debate until it is made clear to the voters that they are not paying for the increase. Then the budget passes easily at Town Meeting. Nearly 75 percent of Vermonters are immunized from the full impact of property taxes, so once again they do not feel the immediate pain of increased municipal and school spending. It really is easy to spend other people's money!

With respect to Vermont's income tax, 1 percent of the residents provide 30 percent of the income tax revenue. Only 2,000 people have income at a level to be taxed at the highest marginal rate of 9.5 percent. Yet, the Democratic majority has voted to collect more revenue from this small group of people. While the marginal rate was decreased, the effect of doing away with the capital gains exemption and the ability to deduct state and local tax has the net effect of increasing taxes on this 1 percent who already pay more than their fair share. Republicans have criticized the increase, but I have not seen leadership from them either in proposing real tax reform to deal with the strategic crisis we will face in the years ahead.

As a state we may indeed collect some more revenue this year. But let's wait a year and see what happens. I predict we will actually collect less revenue because enough of these people will choose to move their residence to another state. They might not leave Vermont entirely, but many will spend enough days out of state to qualify as a non-resident. My prediction is not based on astrological signs but rather on conversations with tax accountants in the state who have seen their clients leave the state and who have numerous clients considering it after the override failed.

Rather than raising tax rates, we should follow John Kennedy's lead. We have thousands of people who love Vermont, who have second homes here and who would become residents of our wonderful state and would be willing to pay income tax here if they didn't think they would continue to be abused by legislators envious of their wealth, legislators who believe in the redistribution of wealth through taxation.

The simple fact is this: Vermont does not have enough taxpayers to sustain our state the way I believe most of us want. It is time to take a zero-base look at our system of revenue collection and motivate people and businesses to become full, tax-paying residents of our state. We already have in our neighborhoods people who own homes, who spend much of their time here and who would pay income taxes here if rates were lower and they did not fear what they perceive to be "Robber Barons" in the Vermont Legislature. I call upon the governor, the president of the senate and the speaker of the house to convene a thoughtful, educated and non-partisan committee to study our tax system and to recommend by November 1, 2009, a new tax code that will attract new citizens and needed capital to Vermont.

Wake up, Vermont. Our sustainability is at risk!

Smith lives in Warren and is the CEO of Sugarbush.


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