by Rob Roper
The non partisan Tax Foundation just announced its 2013 State Business Tax Climate Index. Vermont, never popular in these things, came in 47th. Thank God for an imploding California, New Jersey and New York. “The states in the bottom 10,” warns the Tax Foundation, “suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates.” (More on non-neutral taxes in a minute.)
In each of the five categories studied, Vermont scored 43rd for corporate taxes, 47th for income taxes, 14th for sales taxes, 22nd for unemployment insurance, and 48th for property taxes for the overall ranking of 47th. This marks a decline from two years ago. In 2011, Vermont was ranked 45th.
The best three places to business in the analysis are Wyoming, South Dakota and Nevada, none of which has a corporate or individual income tax. Vermont’s neighbors to the east, New Hampshire and Maine, both distinguished themselves. New Hampshire was in the Top Ten places to business, coming it at #7. Maine, which elected Republican majorities in both their House and Senate in 2010, along with electing a Republican governor, was rewarded with the most dramatic positive move in the rankings, improving from 37 to 30. To our south, Massachusetts came in a slightly better than average 22nd.
Vermont’s poor business ranking follows a recent observation by new assistant professor of management at the University of Vermont School of Business, Dr. Allison Kingsley, that Vermont resembles a risky, third-world, emerging market. In a recent article published in the Free Press, Kingsley described doing business in the Green Mountain State as, “… eerily similar to what I hear about doing business in Kazakhstan, Argentina, or Indonesia.”
Applying a Political Constraints Index (POLCON) policy risk model to Vermont, Kingsley reports, “Vermont’s 2012 score is 0.45 out of 1.00. This places Vermont in the same policy (in)stability category as countries like El Salvador, Sri Lanka, Burundi, Panama, and Mali. In the US, Vermont ranks in the bottom quartile of states.”
A big part of the problem here is what the Tax Foundation referred to as non-neutral taxes. Non-neutral taxes exist when the tax code is politicized for social engineering purposes, ideological reasons, or simple cronyism. Government usurps the role of picking winners and losers from the free market, creating inherent uncertainty in the minds of anyone considering an investment of capital. Your investment isn’t safe if it’s subject to the whims of erratic legislators rather than stable law. Kingsley describes this phenomenon in Vermont, “What becomes clear then is that Vermont’s politics interact with its ideology-motivated opponents to create an environment of significant policy uncertainty for private business. This uncertainty makes investing in Vermont unattractive for new and existing businesses and puts their business sustainability at risk.
We know the problems in Vermont. Everybody knows the problems in Vermont. We know the solutions to the problems in Vermont. The question is, do we follow Maine’s example and actually do something to fix it?