by Robert Maynard
When it comes to writing about the financial direction that Vermont is headed in I sometimes feel like the script writer for a soap opera. In this case the story being told is the ongoing saga of Vermont’s fiscal insanity. That is the picture which comes into focus when one looks at various news stories about Vermont’s economic health and puts these stories together in trying to spot an overall trend. As Rob Roper pointed out is a recent TNR article: “The fact is that over the past six months, as national unemployment rates have come down, Vermont’s unemployment rate has gone up 17% from 4.6% to 5.4%, while at the same time the total labor force in the state shrank.”
In the interest of full disclosure, it must be noted that not all sectors of Vermont’s labor force is shrinking. The Burlington Free Press has noted that State Government has rebuilt its workforce:
As the recession grabbed hold late in the past decade, Vermont state government shrank in size and salaries. Staff vacancies went unfilled, workers were laid off, furloughs were enacted, pay was cut.
In 2012, two years into a new governor’s tenure and with the economy arguably in less dire straits, staffing and salaries are inching back up.
If the the State Government workforce is in the process of rebuilding at the same time that the overall workforce is declining, the logical conclusion is that the private sector workforce is declining even faster than the overall workforce is. Given this worrisome trend, Vermont’s private sector workforce could use some good news. Unfortunately, the news keeps getting worse. A new study by the Tax Foundation has ranked which states have the best tax environment for business and Vermont ranks 48th out of 50. Our income tax rate was listed as “very high”. Our corporate tax rate was listed as “high” and the sales tax rate was listed as “low”, which seems to be a misprint as the text accompanying the ranking argues that our sales tax is on the “high” side:
Vermont, with its high individual and property taxes, is on the other end of the spectrum and ranks third lowest in the country.
There are five income brackets. The highest marginal rate is 8.95% on any income over $388,350. That’s on top of federal income taxes.
Businesses pay an effective property tax rate of 5.27%, the third highest in the country.
At 6%, sales taxes are also on the high side. Meanwhile, those businesses that pay corporate taxes get hit with an 8.5% rate for any profit made above $25,000.
So, at a time when our private sector workforce is struggling, we find out that Vermont ranks “the third lowest in the country” when it comes to “which states have the best tax environment for business.” This is not the kind of news that will inspire further investment of capital in Vermont’s private sector. With the looming threat of the largest tax increase in the state’s history to pay for Green Mountain Care, things are poised to get much worse. The uptick in employment among Vermont government employees seems poised to continue as we head toward greater state involvement in areas like health care.
The economic path that we are following is not sustainable. A shrinking class of taxpayers supporting a growing class of tax users, coupled with excessively high tax rates, is not a sustainable formula for economic growth and prosperity. Perhaps it is time for a new political leadership to chart a new course.