Whistling Past the Graveyard 
By Bruce P. Shields

In a recent essay, Speaker Gaye Symington of the Vermont House presents a legislative proposal to counter the recommendations Governor Jim Douglas has developed from his statewide listening sessions.  Gov. Douglas has identified high taxes as a serious problem for developing business in Vermont, and has been seeking to make a slight reduction in the State’s government employment roster in order to halt the rate at which Vermont State government has been expanding.  At the same time as Gov. Douglas’s proposals emerged, several studies have emerged supporting Douglas’s view that taxes and regulations are impeding this State’s economic progress.  Vermont’s Ethan Allen Institute last summer issued a demographic analysis titled "Off the Rails," which shows that young people in the age group which normally would contribute to employment in Vermont in the next decade or so have been choosing to leave the state.   

Several other studies of taxes have shown that the tax burden per capita in Vermont is nearly the highest in the country, even though Vermont’s income is not highest.  By one measure, adjusted for incomes, Vermont’s total tax burden is the highest.  Much of this goes to support our schools, which various other studies have ranked near the middle of US schools in effectiveness.  A ranking by the American Legislative Exchange Council (ALEC) rates Vermont dead last in competitiveness for development of new businesses.

Democrats took control of the Vermont legislature some years ago promising to improve the State’s employment prospects -- virtually the same program that Republican Gov. Douglas ran on at the same time -- and at the same time promising to relieve taxes on "The Middle Class."  The coalition which supports Democrats (especially government employees organized into unions) is sharply opposed to any reduction in tax collections, for obvious reasons of self interest.  A second segment of the Democratic coalition (the membership environmental organizations) opposes any reduction of regulation or of the employee base interpreting regulations.  Consequently, any Democratic response to the economic criticisms must emphasize things that are going right in Vermont, in order to reduce pressure to cut taxes or regulations.

Clearly, some features of Vermont are attractive.  Retired people are moving to Vermont, not to start businesses but to retire from business.  A number of non-profit organizations which fundraise throughout the country have established offices in Vermont because their employees enjoy living here.  Many existing businesses choose to remain for these same reasons.  The Vermont Legislature requested the Joint Fiscal Office to study the issues and report whether taxes were too high.  Using a somewhat arcane measure, the JFO reported that Vermont retained the capacity to pay additional tax.  Since the JFO study was commissioned (in effect) by Democrats, some kind of outside study was needed.

Speaker Symington found a recent study by the Beacon Hill Institute [BHI] of Boston, a free-market think tank, which rated Vermont as #12 in business competitiveness.  That was much better news than most of the other studies coming out, so in her essay, published in the Times Argus Newspaper on December 31, Ms. Symington picked up from the BHI analysis that Vermont’s natural setting and environmental quality boosted us to #12 nationwide.  Beyond question, quality of life is a positive for Vermont.

The Beacon Hill Institute created as the methodology for its report a project begun originally in The World Bank, to examine the economic effect of all kinds of laws and regulations upon the capacity of people to business, across nearly 200 countries world wide.  Published by Oxford University Press over the past 5 years as a series titled Doing Business, the series has examined on a comparative basis nearly 60 different kinds of law and regulation.  These range from whether a country requires funds to be deposited in a government bank account for a business to get a license to open, on to how many months severance pay is required upon closing a business.  Rankings are assigned based on whether these rules are positive or negative for business formation.  When regulatory rankings are compared to economic status, the correlation is quite stark: regulation of business improves business up to a certain point, and then serves to choke the economy.  Haiti, for instance, exhibits a far more detailed set of business regulations than any other Western hemisphere entity -- Haiti is also arguably the poorest.

Beacon Hill developed a pattern of comparison allowing a state by state analysis using the same general method as the World Bank study.  Because many of the issues examined by World Bank are controlled at the national level, BHI developed some other criteria which may be surrogates for more detailed study of individual regulation.  Quality of the environment was one, and in that category Vermont scored very high on the advantage side.  The entire report is well worth reading, because several of the sub-categores show that Vermont has room for tremendous improvement.  For instance, BHI reports the governmental integrity index of the Better Government Association.  Vermont ranks 49th, because of the weakness of our open meeting laws, open record laws, and the uncertainties of our audits of town and school district finances.  Ouch! 

Vermont has among the best health data in the country, and among the costliest electricity.  Our state budget is considered to be out of whack, our workers compensation insurance costs rank dead last, our bond rating is poor, and taxes as percentage of Gross State Product rank dead last.  Overall, on Government and Fiscal Policy, Vermont is ranked 47th of the 50 states, a Disadvantage.  So I hope that the BHI study referenced by Speaker Symington actually receives some serious discussion.  Vermont is a really attractive place, but we have some truly toxic government policies and regulations.
 

Bruce P. Shields, Wolcott
bshields@pwshift.com