Poor state: Vermont on skid row when it comes to economic outlook

By Bruce Parker | Vermont Watchdog

If lawmakers don’t do something soon, fed-up Vermonters may just pack their things and head to Utah.

That’s because Vermont has one of the worst economic outlooks in the nation according to new report that ranks states on economic competitiveness, while Utah has one of the best.

When it comes to tax and regulatory policies that produce economic growth, Vermont ranks 49th in the nation. The ranking appears in the 2014 Rich States, Poor States report released Tuesday by the American Legislative Exchange Council.

The Green Mountain State has remained at the bottom of the heap every year since the report was first published in 2008.

“The Rich States, Poor States survey is significant in that it shows the states that value competitiveness, that value freedom and that value low taxes,” said Jonathan Williams, a co-author of the report and the director of tax and fiscal policy at ALEC.

States with the best economic outlook include Utah, South Dakota, Indiana, North Dakota and Idaho. States locked in a race to the bottom include New York, Vermont, Illinois, California and Minnesota.

Rich States, Poor States arrives at its rankings by examining 15 policy variables related to tax rates, regulatory burdens and labor policies. According to the report’s findings over the past seven years, variables such as low tax rates and right-to-work laws are powerful predictors of economic growth.

“Rich States, Poor States clearly outlines the benefits that lower taxes, sound labor policies and spending restraints can have on the economic environments in the states,” said Arthur B. Laffer, an economist and lead author of the report.

The report is of particular interest to state lawmakers who seek pro-growth economic policies for their states.

“Legislators want to know what are the variables that influence performance, and how do we change the trend line on performance through legislation,” Williams told Watchdog.org.

Vermont’s low rating is tied to its personal income tax rate (8.95 percent) and corporate income tax rate (8.5 percent), which are high relative to states ranked among the nation’s best in economic competitiveness. Vermont’s property and inheritance tax burdens are among the worst in the nation.

On matters of labor policy, the state received bad marks for its minimum wage of $8.73 an hour — the third highest in the nation.

Bad economic policies have bad economic consequences, according to the report. For example, the report show that states with the highest personal income tax rates also have the lowest job growth, gross domestic product growth and population growth, relative to states with no personal income tax.

While states with no personal income tax saw their tax revenues grow 76.3 percent, states with high personal income taxes had tax revenue growth of just 47.9 percent.

There is little indication Vermont’s elected officials are paying attention to the data. In last year’s report, analysts warned Vermonters of a smorgasbord of new tax hikes on meals, tobacco, high-priced clothing, vending machine items, bottled water and candy.

If Gov. Peter Shumlin’s single-payer health care goes forward this year, taxpayers could be on the hook for an additional $2 billion.

State Rep. Don Turner, R-Chittenden, told Vermont Watchdog the state’s push for single-payer health care has the potential to send taxes through the roof.

“I’ve seen reports that we have a 6 percent sales tax on many goods right now. If we were to raise $2 billion with a sales tax, it would have to jump up to 29 percent. Can you imagine a 29 percent sales tax in a state of 600,000 people?” he said.

The report suggests what happens when lawmakers enact burdensome fiscal policies: people leave. High-tax states like New York, California, Illinois and New Jersey are experiencing significant domestic migration outward.

That trend hit Vermont last fall when Swiss communication-component firm Huber+Suhner relocated its North American headquarters from Essex Junction to Charlotte, N.C. Company president Andrew Hollywood said high taxes were a key reason for leaving the state.

“The cost of doing business here and the tax perspective is a significant reason why we’re moving,” Hollywood said.

Contact Bruce Parker at bparker@watchdog.org