The Anti-Business Scorecard 
By John McClaughry

Suppose you - or your brother, or your neighbor - owns or works for a small business - plumber, convenience store, homebuilder, auto repair shop, restaurant. How did the owners and employees of those independent businesses fare at the hands of the 2009 legislature?

The cost of motor fuel will increase for everybody - gasoline by 2 percent, diesel at 3 cents per gallon. Since the motor fuel tax rates haven't been raised since 1997, while the backlog and costs of highway and bridge maintenance have steadily increased, most business owners probably grudgingly agree with the increase - although a much better solution would have been to restore the third of the 6% vehicle purchase and use tax rate to the Transportation Fund from which it was diverted in 2003.

The Unemployment Insurance fund, drained by the recession, will be short $160 million by the end of this year. Business is resigned to paying a higher assessment to maintain the fund's solvency. But in return, business asked that the very generous UI benefit structure be reduced. If benefits in Vermont were proportional to the average of the other 49 states, in relation to our wage levels, our maximum would be $355/month. Vermont's is at $425 and was scheduled to rise to $438.

Business asked that the benefit level be dropped back to the July 2008 level ($409). The legislature refused. The most it would do was freeze the scheduled benefit increase for a year. It also jacked up penalties for "misclassification" of employees as independent contractors, intimidating business from contracting with other small businesses.

One new hidden tax became law when Gov. Douglas chose not to risk a veto override. That was the renewable energy corporate welfare bill demanded by enviro lobbies. The bill requires utilities to pay up to six times the nuclear power rate for electricity generated by wind, solar, and landfill methane projects. The utilities will necessarily pass the higher cost on to all ratepayers, increasing everyone's electric bills by as much as 3%.

Initially the legislative leadership agreed to lower the top marginal income tax rate from 9.5% of taxable income - one of the highest in the nation - to 8.95%, and the lower bracket rates accordingly.

But in a last minute effort to persuade wavering House members to override the Douglas budget veto, the legislative leadership added two largely meaningless sales tax holidays and reinstated the research and development credit (that affects very few businesses). To pay for these plums, they had to jack up the income tax rates for all but the lowest bracket.

In another last minute adjustment, special transitional capital gain benefits were provided for farms, timber sales, and over-70 seniors until 2011.Then the present 40% capital gains exemption from the Vermont income tax will be repealed, except for the first $5000.

The state expects to pocket $3 million a year from reducing the estate tax exemption from $3.5 million to $2 million. This will have a major negative impact on small businesses whose owners die, leaving the business to heirs.

New taxes were levied on music, videos, books, and cell phone ring tones downloaded over the internet. Hard liquor and wines will pay a 6% retail sales tax, and tobacco product taxes will go up across the board (to $2.24 per pack of cigarettes).

One non-tax bill that will have significant impact on landowners and businesses making use of land is the wetlands expansion act. It mandates stringent Class I wetland protection upon any real or imaginary wetland that the state envirocrats believe is "exceptional or irreplaceable in its contributions to Vermont's natural heritage and therefore merits the highest level of protection."

As the Vermont Chamber of Commerce noted in its legislative wrapup, "[This FY 2010 budget] sets the state up for a $67 million shortfall for next year's budget and a further $141 million in 2012. The budget does appropriate enough money to run the state for the year to come, but it does so only by raising more than $26 million in new taxes." And, it might have added, the temporary infusion of federal stimulus funds that are not likely to keep coming.

The legislative leaders can point to some tax rate decreases (income tax and business property tax) beneficial to business. But its liberal urge to constantly pile on taxes, mandates, regulations, and labor benefits while leaving a gaping hole in the state's fiscal future, will only further inflate Vermont's unhappy reputation as a notably poor place to try to make a decent business profit  - unless the business is deemed sufficiently green to be eligible for subsidies, preferences, exemptions, cheap loans and tax credits.

John McClaughry is President of the Ethan Allen Institute .