Recently, the announcement of Vermont’s reputation as “a [tax] punisher” has gone national. The U.S. Census Report ranked Vermont as the nation’s leading state in terms of state taxes per capita. In a subsequent Forbes Magazine editorial (April 10, 2006), the author argued that these high costs and hostile attitude toward business are reasons why Vermont’s young people are leaving the state for better job opportunities elsewhere.
Unfortunately, as we have seen in recent years, Vermont’s high costs of living and doing business have had a number of adverse consequences. For example, increasing numbers of high net-worth individuals no longer claim Vermont as their primary residence and have moved their considerable discretionary spending and income tax revenue to other states. Vermont’s multi-national companies, faced with decisions to locate or create new jobs, find the economic incentives and tax structures more favorable elsewhere. Tax-exempt, major employers such as hospitals and higher education institutions cannot relocate, and are forced to pass along their increasing costs of living/business (e.g., energy, health care) to their customers. In a Rutland Herald article on April 11th, Vermont Tax Commissioner Tom Pelham acknowledged that, “Vermonters do pay a high share of taxes, given the economy.”
Steve Forbes in his editorial, “Taxaholics, Take Note” stated that, “If Vermont were to take on the tax structure of neighboring New Hampshire (e.g., no income tax or sales tax), the state would have no shortage of people moving in to pursue jobs and set up businesses.” Forbes believes that, “New Hampshire and Vermont are laboratory cases of how state tax structures affect local economies.”
Certain qualitative measures also demonstrate that Vermont’s business climate is in need of medical attention. According to the Roundtable’s Pulse of Vermont Quality of Life Study 2005, an increasing number of Vermonters responded that jobs and job security are their number one concern, yet at the same time, they are concerned that economic growth will harm their quality of life. Clearly, the employer community has its work cut out for it, to help Vermonters understand the “Circle of Prosperity;” the connectedness between their own job security or quality of life and a supportive business climate.
Investments in the economy that are based on leading-edge economic development strategies generate greater public revenue that can be invested in improvements in social services, educational opportunities, and greater environmental security. In turn, these societal improvements engender a greater quality of life, which tends to attract a larger and more diverse industrial base, as well as an increased and more varied workforce. More businesses employing more people then complete the circle.
Unless the public’s support for reasonable economic growth improves, the ever increasing costs of state government will be shouldered by a decreasing economic base. As we see today, health care and education costs are rising at 15 and 11 percent a year, respectively; several times higher than the growth in average incomes (3.7% per year). Without adequate revenues from a growing economic sector, government must necessarily reduce its appetite for road and bridge repairs, education funding, health care reform, aid to children and families, drug and alcohol addicted individuals, corrections, etc.
Given our economy of scale, perhaps we are spending and taxing beyond our means. There are difficult choices ahead that no one wishes to make, but which must be made if funding levels are unsustainable. Let us remember that fostering economic growth also fosters individual improvement and enhances one’s standard of living. But, we cannot achieve the latter without support from the former.
Staige Davis is the President of Lang Associates and Chairman of the Vermont Business Roundtable.
