Tax Reform

Vermont’s State of the State Address Highlights Difficult Hike Ahead

Vermont Governor Phil Scott (R.) exemplified non-partisan, economic realism during his state of the state address. Over the past decade, the state of Vermont has faced extreme economic difficulties, many of which have been self-inflicted in addition to swiftly changing macroeconomic trends. As the governor said, the state legislature “must first restore our economic and fiscal foundation to ensure we have the funding needed to achieve our aspirations for Vermont.”

Vermont ranks second to last in the Rich States, Poor States ALEC-Laffer State Economic Competitiveness Indexwhich uses 15 variables associated with economic growth such as top marginal income tax rates, public employment as a percentage of total population, and tax expenditure limits. As a slow-growth economy with a much smaller tax base than other, high tax states, any additional tax burden is one Vermonters “cannot afford,” as Gov. Scott rightly points out.

Gov. Scott gave voice to an uncomfortable truth: social services are largely contingent on economic growth. The governor bravely warned that without broad, economic growth, even core services such as infrastructure could be curtailed. Without a strong economic foundation, there is no wealth to redistribute. Despite the best of intentions, Vermont’s recent “Medicare for all plan” would have further hindered economic growth with an explosively higher tax burden.

High taxes, particularly progressive income taxes and estate taxes, drive small businesses and high-income households into other, lower tax states. Chittenden County has experienced the most out-migration, particularly since 2010, to states such as Florida, North Carolina and Colorado. Gov. Scott acknowledged the eroding tax base, saying that high “costs deter young people from moving or staying here and encourage older Vermonters to leave for a more affordable retirement elsewhere. In fact, from 2013 to 2016, 2,000 more tax filers moved out of state than moved in, according to IRS data. This alone represents $150 million in adjusted gross income leaving our state.” Any increase in taxes will compound the out-migration problem, shrinking the tax base even faster.

In 2017, Gov. Scott successfully fended off tax hikes that would have accelerated Vermont’s downward spiral. He promises to do so again in 2018, in spite of a projected budget deficit. In his address, the governor explained the decision is not a binary choice of “cut programs we value, or raise taxes.” The third way to confront the crises is to “come together, and focus our efforts on growing our working-age population. If we do this, we can expand our tax base.” The latter choice is the only long-term solution for Vermont’s demographic and fiscal crises.

Gov. Scott promised to “present a budget that continues our transition to a strategic and results-based approach” which will allow the state to provide more services to residents without raising taxes. The address included recommendations such as developing metrics, budgeting for performance and weeding out inefficient practices (see the Program to Improve Vermont Outcomes Together). Numerous programs and goals outlined by the governor in his address reflect the recommendations outlined in the ALEC State Budget Reform Toolkit.

Gov. Scott possesses a clear strategy of no tax increases, the continuation of budget reform and exploration of ways to reduce the cost of living in the Green Mountain State. Economic opportunity can reverse the population trend by ending the exodus of young adults and attracting new workers and businesses to communities in dire need of revitalization.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth