An analysis of the new payroll tax that hit this month

by Rob Roper

Vermonters who don’t pay close attention to politics may have been surprised this month (July 2024) to find their paychecks a little lighter than expected, the result of a new payroll tax passed into law last year (Act 76). According to the Joint Fiscal Office, this 0.44 percent tax (0.11 percent for the self-employed) applies to everyone who earns a paycheck and will collect a total of around $100 million per year in new revenue for the legislature to spend. Of course, that’s (another) $100 million less for the roughly 350,000 Vermonters participating in the labor force to spend on whatever our priorities might be. Is this fair?

The proponents of the payroll tax think so, or at least want you to think so. Their argument is, “It’s less than half a percent tax. A mere pittance! You can afford it!” As always, they’re “just asking” you to pay a little more. But try politely declining to pay up and find out what “just asking” really means!  

According to MIT’s state-by-state calculation of what someone needs to earn in order to cover their basic needs a single Vermonter with no children must earn is $47,892 before taxes. So, this new payroll tax would cost such a person $211 a year, bringing them that far below the level necessary to meet their own basic needs.

What is $211 for a person at this income level? In concrete terms, again according to MIT, it’s more than two weeks’ worth of groceries. Or two months’ worth of internet connectivity. Or four tanks of gas to get to and from work, etc. In other words, real, important stuff.

A family of four (two adults and two kids) needs to earn $91,507 to cover their basic needs. This new payroll tax impacts such as family to the tune of $403 a year. Again, the state kicking the chair out from under people working hard to keep their noses above the financial waterline.

Now, according to the US Census, the median nonfamily household income in Vermont is $46,022 – or already below the basic needs income before implementation of this payroll tax. The median household income is $96,345. According to the Vermont Tax Department over 150,000 tax returns filed in Vermont for all households (family and nonfamily) reported income of $49,000 or less. These are the people getting genuinely hammered by this tax.

But here’s where the injury meets insult. Act 76 creates a dynamic in which you can have a single mother (or many such single parents) of adolescent children working a minimum wage job paying this tax on her wages – on top of her regular income taxes – in order to subsidize the childcare of a family earning $202,055 (or 575 percent of federal poverty levels)! And that’s just obscene.

More injury, Act 76 states, “In fiscal year 2024, the amount of $4,200,000.00 is appropriated from the General Fund to the Department of Taxes to be used for the implementation of the Child Care Contribution.” This is for, “The establishment of the following 15 new permanent classified positions is authorized in the Department of Taxes in fiscal year 2024.” Over $4 million of the taxes collected on this tax go toward paying over two dozen new bureaucrats just to collect the tax. That’s $280,000 per new hire! How is that possible? But it is indicative of the real goal here: creating a well-paid class of government-employed elites funded in most part by lower and middle-income, working-class people. (Suggested Reading: The Coming of Neo-Feudalism by Joel Kotkin.)

A final warning…. This 0.44 percent payroll tax raises only a fraction of the amount necessary to cover the long-term plans for this program. According the Rand Study that formed the basis of this legislation, it will require three and a half to five times as much revenue. And childcare subsidies are not the only program our legislators have targeted the payroll tax to pay for. They are also eyeing the payroll tax to pay for a universal paid family leave program (H.66). So, this “little bit” is just about getting the camel’s nose under the tent.

And a last point…. this latest upping of “your fair share” via a new payroll tax is just one of many such cuts inflicted by this legislature in this last biennium alone. There’s also the unprecedented property tax increase (Act 183), the Renewable Energy Standard mandates that will jack up electric bills (Act 179), the 20 percent increases in DMV fees (Act 62), and the coming estimated 70 cent per gallon carbon tax on home heating fuel (Act 18). And those are just the biggest hits. The total, on top of what was already one of the highest state tax burdens in the nation, is not small. It’s not fair.

But, as Senator Mark MacDonald admitted in a moment of candor about he and his colleagues under the Golden Dome, “We don’t do things based on helping poor people.” No, they certainly don’t.

Rob Roper is a freelance writer who has been involved with Vermont politics and policy for over 20 years. This article reprinted with permission from Behind the Lines: Rob Roper on Vermont Politics, robertroper.substack.com