Vermont’s business climate

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(Host) Commentator John McClaughry says that there’s both good news and bad news on the current Business Climate in Vermont.

(McClaughry) Much economic analysis has been devoted to how much businesses weigh tax rates when deciding whether to expand or locate in a state. One of the most used comparisons is the State Business Tax Climate Index published each year by the nonpartisan Tax Foundation. The 2003 edition has just appeared, and it should be interesting to Vermonters concerned about economic growth.

First, the good news: Vermont ranked 20th overall on the index. It would have ranked higher but for its high corporate tax rate, 43rd among the states. On the other four indices Vermont ranked between 8th and 17th.

Next, the cautionary news: the Index was compiled before the acts of the 2003 Legislature took effect. That legislature raised the sales tax rate from five to six percent, and raised the state property tax on nonresidential property to $1.59.

Since businesses in some towns paid more than $1.59 in 2002, and some paid less, it’s not clear yet whether Act 68 raised or lowered business property taxes statewide. Only a few states levy a state property tax, so this factor is not included in the Index. But business decision makers considering expansion in Vermont will certainly factor this tax in when making decisions.

Finally, the bad news: Vermont’s chief competitor, New Hampshire, came in 2nd in the Index rankings. It was 8th in individual income tax – actually, the business profits tax – and first in both sales tax (none) and “fiscal balance.” New Hampshire’s state and local tax burden placed it 43rd from the top, compared to Vermont’s 16th ranking.

Business decision makers have good reason to view New Hampshire as a state where the prevailing political philosophy favors low tax rates, limited government, and high opportunity for growth and wealth building. It’s hard to imagine anyone viewing Vermont in that light.

The challenge for Vermont policymakers is to preserve its quality of life advantages, while at the same time creating a favorable climate for business creation and expansion. Everyone but the most anti-growth enviros agrees to this in principle. It would be helpful if today’s political leadership vowed to do something measurable to create a better business climate: cutting back on the size and reach of state government, cleaning up the regulatory morass, bringing in competitive forces for the delivery of public services, reinforcing the ideas of personal responsibility and consumer choice, and driving tax rates back down.

This is John McClaughry. Thanks for listening.

John McClaughry is president of the Ethan Allen Institute, a Vermont free market policy research and education organization. He spoke from our studio in Norwich.

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