High taxes, heavy regulations and other policies that depress economic growth have made Bernie Sanders’ home state of Vermont a difficult place to create jobs, earn a living and raise a family. Underscoring this is the fact that Vermont saw a net outmigration of more than 5,000 residents over the last decade. Now Gov. Peter Shumlin (D) and state lawmakers are looking to double down on their anti-growth policies with the state house’s approval last week of another round of tax hikes of individuals, families and employers in the Green Mountain State.
The Vermont House of Representatives recently approved $48 million in higher taxes and fees. Levies were raised on home heating oil, mutual funds, banks, drivers, and the Employer Health Assessment Tax on businesses who don't provide health insurance for employees was hiked.
The $48 million tax hike package, if approved by the Democrat-controlled state senate and signed into law by Gov. Peter Shumlin (D), would come on top of the $30 million in higher state taxes signed into law by Gov. Shumlin last year, and the more than 20 federal tax increases signed into law by President Obama over the last seven years. Forty-five states have a better business tax climate than Vermont, and the $48 million tax increase passed by the Vermont House last week will only make the state business tax climate less hospitable and put Vermont at a greater competitive disadvantage.
Raising taxes in order to avoid necessary government reforms and spending restraint is nothing new to Vermont. Bruce Lisman, Republican candidate for Vermont governor, recently penned a column highlighting how during the last five years “Governor Shumlin has overseen an increase in taxes, fees, and surcharges of more than $640 million, a staggering 23 percent increase for a state of Vermont’s size and declining population.”
The Employer Assessment (a tax on employers who do not provide health care insurance for employees) increase, which accounts for just under $6 million of the $48 million hike package, was one of the more contentious provisions approved by the Vermont House, and understandably so, as a recent Supreme Court ruling calls into question the constitutionality this tax. Some argue the federal Employee Retirement Income Security Act (ERISA) pre-empts Vermont's employer assessment tax and similar levies in others states.
“Due to United States Supreme Court’s recent ruling in Gobeille vs. Liberty Mutual, Vermont’s Employer Health Care Assessment tax – which was first enacted in 2006 to help pay for Catamount Health Care and is now used to help pay for Vermont’s failed Health Care Exchange and additional Obamacare subsidies – may be unconstitutional,” says Darcie Johnston, president of Vermonters for Health Care Freedom.
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Johnston points out that in Gobeille vs Liberty Mutual, the Supreme Court affirmed its position that states could not preempt ERISA companies for the purpose of burdensome compliance and taxation, which Vermont does with its Employer Assessment tax.
“Vermont ERISA employers will be thrilled to have relief from Vermont’s Employer Assessment tax, which should have been repealed long ago and upon which the state is heavily relying on to help support a failed and non-functioning website,” said Johnston.
The tax debate now moves to the Democrat-controlled Vermont senate, where Republicans are arguing to spending restraint instead of higher taxes.
“By increasing the general fund spending by four percent, even though revenue is to grow at a mere two percent, this budget will perpetuate the state’s budget problems,” said House Minority Leader Don Turner (R). “When a state’s spending outpaces the economy by 2-3 percent every year with no end in sight, it’s a prescription for fiscal disaster," said Randy Brock, a former Franklin County senator and state auditor who is running for Lt. Governor.
Brock, Turner and Lisman’s assertion that Vermont has an overspending problem and not a revenue problem is backed up by the numbers. In fact, had Vermont kept state spending in line with the rate of population growth and inflation during the last decade, the state would’ve spent $6 billion less than it did. That’s $6 billion that could have been put in a rainy day fund, returned to taxpayers through tax relief, or both.
The $48 million in higher taxes approved by the state house last week aren’t the only rate increases still pending in the Green Mountain State. Vermont lawmakers are also considering standalone legislation that would impose a massive tax increase on electronic cigarettes and vaping devices. Taking products that are saving lives by helping people quit smoking and making them more expensive with discriminatory excise taxes is both terrible tax and health policy.
“The bill, which was introduced by Representative George Till (D), would lump e-cigarettes, as well as vape pens, mods, e-liquids, and even nicotine-free e-juice, under the state’s tobacco tax laws,” reports Motherboard’s Kayleigh Rogers. "Vermont’s 92 percent tobacco tax rate puts it at one of the highest in the US. Minnesota currently has the highest e-cigarette tax rate at 95 percent, but that does not apply to nicotine-free juice or empty vape pens and mods; if Vermont passes this bill, the state would arguably be home to the most severe vape tax in the country.”
While Vermont lawmakers are getting ready to increase their state’s tax burden, many other states are moving in the opposite direction. In North Carolina, for example, Republican Gov. Pat McCrory and Republicans who control the state legislature have put the Tar Heel State in a much better position than Vermont (and other high tax states like Illinois, California and Connecticut) to compete for new business, investment and residents by significantly reducing and flattening personal and corporate income tax rates. North Carolina lawmakers have been able to accomplish this by doing something that Vermont lawmakers refuse to do: exercise spending restraint. Ensuring the size of government grows at a sustainable clip has allowed North Carolina lawmakers to provide tax relief while also increasing teacher pay and achieving budget surpluses.
Other states like North Carolina that have experienced some of the strongest economic growth in the country are also moving in the opposite direction from Vermont when it comes to fiscal policy. Take Texas, a state that already has a much more attractive business-tax climate than Vermont. Lone Star State lawmakers increased Texas' advantage over Vermont and other high tax states by enacting $4 billion in further tax relief for employers and property owners last year. Republican Florida Gov. Rick Scott, who has provided his constituents with more than $2.6 billion in tax relief since taking office, is poised to enact an additional $1 billion in tax relief this year. Tennessee, which does not tax wage income, is already a much more attractive place than Vermont to do business. Yet Volunteer State lawmakers are getting ready to increase their advantage over Vermont and other high tax states in the coming weeks by passing legislation to repeal the state’s 6.0% tax on investment income, making Tennessee a true no income tax state.
Some states that are progressive strongholds like Vermont are being forced to admit Vermont’s high tax, high spending model is a loser. In 2014, New York Gov. Andrew Cuomo, signed into law tax reform that, according to the non-partisan Tax Foundation, “reduced unnecessary complexity in the corporate tax base and lowered the corporate income tax rate to the lowest level since 1968.” Gov. Cuomo has admitted the Empire has “no long-term future if you are the tax capital of the nation.” Vermont lawmakers would be wise to heed Cuomo’s advice, which is just as applicable to Vermont as it is to New York.
Florida, North Carolina, Texas, Tennessee and other economically successful states are passing regulatory reforms, reducing tax rates, giving workers the freedom to decide whether to join a union, and offering parents more options for providing a better education for their children. Compared with where Shumlin and Democrat legislators are taking Vermont, these successful states are moving in the opposite direction.
Vermont has already demonstrated that single-payer would require economy-crippling tax increases. Now Gov. Shumlin and Democrats who control the state legislature seem dead set on showing the country why raising taxes to avoid necessary reforms is not a recipe for economic success. As American for Tax Reform president Grover Norquist has famously said about the likes of Vermont, California, Connecticut, and Illinois -- no state is a total failure, some just serve as bad examples.
Patrick Gleason is director of state affairs at Americans for Tax Reform, a policy research and taxpayer advocacy organization founded in 1985 at the request of President Ronald Reagan. Follow Patrick on Twitter @PatrickMGleason
