Suggested New Tax Clouds Vermont’s Future

by Robert Maynard

There is not a lot that I agree with Governor Shumlin on, but I have to admit that he hit the nail on the head a couple of times in 2007 regarding our spending and tax capacity.   On  WCAX’s  You Can Quote Me he had this to say: “We are spending too much, and have used up our tax capacity.” 1/14/07   On February 1st he followed up with the following in the Rutland Herald: “There is no more tax capacity left in Vermont. There is no more money in the bank.”   Given these expressed sentiments, it will be interesting to see his reaction to House Speaker Shap Smith’s stated intention to push for a tax on cloud computing in a recent press conference as reported by Vermont Digger:

The surprise of the presser? An open declaration that not only would Smith pursue sales tax reforms that would include cloud computing, but also that he would use it as a campaign issue. Smith said he wants to lower the sales tax to a nominal amount, from 6 percent to a much lower amount suggested by the Blue Ribbon Tax Structure Commission (between 1 percent and 2 percent) and expand the assessment to services. The sales tax currently applies largely to goods.

Needless to say such a tax is not popular among Vermont’s business community.  Back in early April True North Report’s Rob Roper had an article on the opposition to such an approach that quickly formed: “In just a matter of days, the Vermont-based Facebook group, Stop the Cloud Tax has accumulated almost 1800 followers with tens to a hundred or so joining each day. It’s unusual for such a complicated and wonky issue to capture the imaginations and the ire of so many members of the Vermont business community.”

There is a good reason for the almost instant appearance of such opposition.  Cloud computing is a key information technology that greatly levels the playing field for small businesses.  This technology moves computing and storage capacity to servers, that provide these services to a community of end recipients.  This gives small businesses and individuals access to the kind of computing and storage capacity that, in the past, would have required them to own such servers.  The Information Age is greatly accelerating the ability of small businesses to compete in the global economy and cloud computing is a vital part of that.  Vermont can be an economic powerhouse in this arena as it is no longer necessary to locate one’s business near a major harbor, or other transportation network to be competitive in the global economy.  Living in an attractive rural environment no longer means being cut off from the heart of economic activity.  Furthermore, we can be an Information Age mecca without despoiling our environment. IBM is already looking to develop some of its land as tech park and lease out space in hopes of attracting other companies.

The problem is that high tech companies are less likely to take the bait if they see Vermont as a hostile environment to do business.  Unfortunately, Vermont already has that perception.  A 2012 Small Business Survey, conducted in partnership with Kauffman Foundation, awarded Vermont with an”F” overall when it comes to “Small Business Friendliness”.  We do get an “A+” for  “Training programs” and an “A” for health and safety, but get an “F” for “Ease of staring a business”, “Environmental” and “Zoning” and a “D” for “Regulations”and Tax code”.  The only state in the whole country that scored worse than us was Rhode Island.

Perhaps it is time to reverse our spending spree instead of seeking out yet more taxes to raise.  A 2010 article by the Cato Institute titled “The Moocher Index” indicates that there is a lot of fat to be cut out of our social service budget.  Vermont leads the nation by a large margin when it comes to providing welfare services to the non-poor.  Coming in second behind Vermont is Mississippi, but the gap between the two is far greater than the gap between any two states who are rated next to one another.  It is clear that we cold make substantial spending cuts without affecting programs for the truly needy.

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