by Chris Campion

The GOP has recently been working on tax reform, and both the House and Senate have versions of tax reform that are currently being hashed out in conference between the two houses.  Aside from the caterwauling on the left side of the house, predictions of our moon exploding and destroying all life on the planet because taxes might be cut, reform of one kind or another is inevitable.  Why?

Because it’s not really the revenue side of the equation that’s the bulk of the problem.  It’s the spending.

Why does spending go through the roof, annually?  Because the government can.  Because politicians are rarely penalized for spending money.   They’re typically rewarded for it, by being re-elected.  They’re rewarded because they brought some of that federal pork back to their home states, and not coincidentally, their names are often found on the outsides of buildings that other people paid for.  Some states are even proud of their Congressional representatives “bringing home the bacon” for them, as if there’s just a pile of magical money in DC and the job of Senators and Representatives is to back U-Hauls up to the pile and shovel as much in as they can (or pay their staffs to shovel), then call it a day.

The result of all this shoveling is $20 trillion in debt.  That’s a $170,000 debt burden for every taxpayer – not every American, mind you, but just those who actually pay net income taxes.  As the debt has doubled in the last 8 years, and the annual federal government’s spending has followed that same doubling, what’s happened to economic activity?  Based on the hysteria of the left over tax reform, our very lives depend on government spending, because apparently all economic activity will come to a halt if we spend one less dollar next year.

But the reality of the economy is much different from those idiotic rants.  In fact, if you take a look at the data, the opposite is true.  As federal spending goes up, the M2 velocity of money goes down.

What’s the velocity of money?  Let’s let Fred tell you.  He’s got all the answers here:

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

 

If you take a look at federal debt alongside the same M2 indicator, the idea that federal spending is what keeps the economy going (according to permanently-ensconced chowderheads like Nancy Pelosi), goes “poof”.  It’s an idiotic assumption, that all federal spending is a net positive, and to even challenge that piece of it is something that’s off the Left’s table.

So as spending and debt go up, economic activity goes down.  This is apparently news to Democrats in Congress.

But that’s the crux of the argument.  You can’t have tax cuts, because we’ll be able to spend less, even though spending goes up, annually, regardless of tax revenues.  The gap between spending and tax revenues is a permanent one, and any change to the status quo is Armageddon.

As the tax bill currently stands, the corporate tax rate reduction to 20% would put the United States on a much more level playing field with other countries, even if the effective rate is always lower than the official rate (which is another argument to strip down the tax code and carve-outs, but that’s a longer conversation).  If you’re looking to free up capital that companies would use to expand and invest, that’s a very quick way to do it.  At the very least, it would bring our rate nearer to the average of the G20 countries, which improves the ability to compete:

 

While the tax reform bills are a small step forward, the really tough work is on the other side of the table, and not the ideological one.  The toughest challenge will be spending, and reducing it, so the debt above doesn’t crowd out all other economic activity, and dampen growth.  Since debt is now over 100% of GDP (below), and the economy, while growing, is growing at historically low levels, especially coming out of recession, one is left wondering if Congress has the ability to stop this descent into madness.  They don’t seem to be willing to even slow it down.

It’s an abdication of responsibility.  Considering the incumbency rate, we are going to continue to let them fail, and not hold them accountable.  Then it becomes our fault, not theirs.

 

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by Guy Page

Green Mountain Power’s proposed 2018 5% rate increase will cost ratepayers $80 million, Vermontbiz.com said November 27. GMP spokesperson Kristen Carlson blames the hike on increased transmissionregional capacity and net metering costs. The following briefly explains these terms:

  • “Net metering” refers mostly to how Vermont subsidizes solar power at three to four times the cost of buying power on the open market [emphasis added]. Thanks mostly to large-scale solar development (think acres of pasture, not rooftop), the load share of high-cost solar has grown enough to adversely impact rates. Solar capacity totaled 107 MW in 2015 and has continued to grow since then. New state policies partially restricting the sale of renewable carbon credits out-of-state is expected to impact ratepayers.
  • “Regional capacity” refers to paying the dwindling number of New England power plants (mostly natural gas-fired) to produce power on demand, as other plants (coal, oil, nuclear) retire from service. As New England’s share of intermittent renewable power grows, on-demand “backup” power becomes increasingly necessary and therefore valuable.
  • “Transmission” refers in part to the cost of building and maintaining the 9,000 miles of New England’s high-voltage transmission power lines. ISO-New England budgeted $2.1 billion for 2017, an all-time high. Vermont will pay about $43 million more in regional transmission costs in 2018, according to GMP rate filing documents.

–  Guy Page is affiliated with the Vermont Energy Partnership, Divestment Facts, the Vermont Alliance for Ethical Healthcare, and the Church at Prison. He is a member of the coordinating committee for the Consumer Liaison Group of ISO-New England, the operators of the regional transmission grid.

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by John McClaughry

Here’s a news item some will find surprising. The American Legislative Exchange Council is a conservative business-oriented association of legislators and corporation interests. Recently it debated a resolution calling for a review of the Environmental Protection Agency’s 2009 “Endangerment Finding.” That’s the finding that the Obama EPA made that carbon dioxide emissions are pollutants that endanger human health.  This is ridiculous, but in a 5-4 decision the Supreme Court said that EPA could do it.

A group of corporate members, led by ExxonMobil and the Edison Electric Institute trade association, packed the meeting room with lobbyists and allies and indicated they would vote against the resolution. The sponsor, a state legislator, realized the corporate opposition was intense, and although a straw vote showed that the legislators favored it, he withdrew it.

The conservative Heartland Institute, which had helped draft the resolution, said “Big corporations like ExxonMobil and trade groups like EEI have put their profits and ‘green’ virtue signaling above sound science and the interests of their customers….Rescinding the Endangerment Finding is the logical and necessary next step. We are optimistic that the self-serving regulatory capture and green preening of big corporations like ExxonMobil may delay but will not prevent that step.”

Remember that the New York attorney general, flanked by Al Gore and Vermont’s AG Bill Sorrell, held a news conference in April 2016 to vow a legal war against ExxonMobil. Now it looks like ExxonMobil changed sides.

- John McClaughry is vice president of the Ethan Allen Institute.

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by Rob Roper

The New Hampshire Union Leader recently posted an editorial about their legislature’s 2015 decision to cut taxes on New Hampshire businesses. The tax cuts are still in the process of being phased in, but when fully implemented, the Business Profits Tax will be reduced by nearly 12 percent, and the Business Enterprise Tax by 33 percent.

When these tax cuts passed, the article reports, “State House Democrats warned that shaving the state’s high tax rates slightly would ‘blow a hole in the budget.’”

Nope:

According to the Department of Administrative Services’s monthly revenue report, general and education fund revenues were $5.5 million ahead of the budget plan adopted earlier this year thanks to the state’s two main business taxes generating more revenue than anticipated. [emphasis added].

For the year to date, revenues are $11 million, or 1.6 percent, ahead of schedule.

This is important to mention for two reasons. First, there is the general lesson to be learned that when you reduce the barriers (such as cost) to doing business, you get more activity that generates more revenue. And, when you increase those costs you get less of both.

The second is the fact the New Hampshire, which we are all well aware has no income or sales taxes, is taking steps to make their business climate even more competitive. And, it’s working.

Let’s hope Vermont’s legislature considers both of these lessons as they debate things like $15 minimum wage, a new payroll tax to cover the cost of a government-run Paid Family Leave insurance program, and a Carbon Tax.

Rob Roper is president of the Ethan Allen Institute

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Do you support the new “ESSEX” Carbon Tax proposal? This would ultimately be a $240 milliondownload-6 tax on gasoline (32¢/gal), heating oil and diesel fuel (though not dyed diesel) (40¢/gal), and natural gas and propane (24¢/gal). Fifty percent of this revenue would be used to subsidize Vermont’s electric utilities for the purpose of lowering electric rates, and the other half would be redistributed to low-income and rural Vermonters via a rebate scheme. 

          Yes.
          No. 

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by Rob Roper

As the legislature plans its agenda for the 2018 session, our elected leaders might consider addressing some of the issues highlighted by the business magazine, Forbes, regarding our economic situation. Out of the fifty states, Forbes ranks Vermont 48 for business climate. Only Alaska and West Virginia project a more dismal future than we do.

Among the categories the magazine looked at, Vermont ranked 47th for business costs, 44th in regulatory environment, 44th in economic climate, and, most worrisome, 49th in growth prospects. The “bright spots” for our state were middling scores in labor supply (28th) and quality of life (23rd). That poor score on quality of life for Vermont, where we usually score in the top ten, was a bit of a shocker.

The report also notes that the cost of doing business in Vermont is 12 percent above the national average, our job growth rate for 2017 was just 0.9 percent, and our net migration in 2016 was -1900.

From the report:

At $31 billion, Vermont has the smallest economy in the U.S. Its five-year average unemployment rate of 4% was the fourth lowest among states, but Vermont suffers from business costs that are 12% above the national average. The state’s economic outlook is also weak—projected to be the second worst in the U.S. over the next five years. Income growth is also expected to badly lag the rest of the country. 

The policies and Progressive political philosophies of the past several decades have put us in this mess. Getting out will require a very different mindset and priorities. It can be done. In just a few political cycles, North Carolina has reformed its tax and regulatory environment dramatically. Forbes now lists it as the Number One state for business.

Rob Roper is president of the Ethan Allen Institute.

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by David Flemming

Last month, environmental advocates released the ESSEX plan, which endeavors to drive down the price of electricity by driving up the price of fossil fuels. The Vermont Public Interest Research Group (VPIRG) and Vermont Natural Resources Council (VNRC) hosted a joint webinar last week that sought to answer questions posed by online audience members. Before long, one member of the audience decided to ask Ben Walsh (VPRIG) and Johanna Miller (VNRC) about the impact the ESSEX plan would have on the purchase of energy-efficient appliances.

A good question! By artificially lowering the price of electricity, Vermont consumers would be more willing to purchase energy inefficient appliances that cost less upfront, knowing that the extra electricity used will be subsidized through the ESSEX plan. Therefore, with their earnest endorsement of the ESSEX plan, these environmentalists inadvertently created an obstacle to another of their environmental policy goals: motivating people to buy energy efficient appliances. Clearly, this outcome cannot be tolerated.

And so, Walsh decided to let us in on one of VPIRG’s future policy proposals: “it is something that VPIRG is going to be working on this coming legislative session, (to) go beyond what the federal government does. Look for more information on that in the next few weeks. We think there are some really exciting opportunities for Vermont to keep inefficient appliances off store shelves and protect Vermont consumers from those added energy costs.”

Yes, they are talking about banning products, and taking choices away from Vermont consumers.

Forget merely taxing inefficiency, VPIRG now wants to “keep inefficient appliances off store shelves” and eliminate any possibility that a Vermonter could purchase a washer and dryer that VPIRG believes consumes too much electricity. This really is a paternalistic mentality, and demonstrates clearly that groups like VPIRG and its allies with the policies they promote are really about controlling the population.

There are plenty of rational arguments for purchasing energy efficient appliances. Make a persuasive argument. But abusing the government’s monopoly on legitimate violence to force your neighbor to buy the dishwasher you think they should buy is not moving a free society in a healthy direction. Then again, VPIRG et al have no interest in our remaining a free society.

- David Flemming is a policy analyst for the Ethan Allen Institute

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by Rob Roper

The Wall Street Journal recently looked at IRS data and noticed “an accelerating flight from high-tax states.” The editors conclude, “The liberal tax model is to fleece the rich to finance spending on entitlements and government programs that invariably grow faster than the economy and revenues. IRS data on tax migration show this model is now breaking down in progressive states as the affluent run for cover and the middle class is left paying the bills.” Though the editorial focused on larger states, such as Illinois, New Jersey and Connecticut, Vermont lawmakers should take warning. This is you.

It used to be that the people moving into Vermont brought in more revenue than what was lost when others moved out. However, this has not been the case for several years. Writing a year ago about 2013/14 Census statistics, UVM economist Art Woolf noted that among taxpayers earning over $75,000, the income group that provides the majority of Vermont’s revenue, “people moving out took with them $78 million more in income than people moving in earned.  That is, middle and high income people moving out of Vermont tend to be richer than people moving in.” (BFP, 9/15/16)

What’s worrisome is that this was occurring before the US Senate joined the House in passing a federal tax reform bill that will in all likelihood lead to the elimination of the state and local tax (SALT) deductions on the federal income tax. This will mean a big hit for taxpayers in high tax states like Vermont, increasing quickly and dramatically the incentives for people with already high tax bills to flee.

Vermont’s tax and spend business model was failing already. Federal tax reform, assuming that it passes, will be the final fatal nail in that coffin. Our lawmakers’ challenge is to implement a new business model that conforms to both the old and the new economic realities and makes our state economically competitive on a national and global scale. The status quo is no longer an option.

Rob Roper is president of the Ethan Allen Institute.

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John McClJohn 2aughry

On December 18 Gov. Phil Scott will convene an Education Summit, to address “the crisis of affordability and how it impacts the opportunities we are able to provide our children.”  In his letter announcing the Summit to “education leaders” – apparently referring to the public school establishment – the governor wants long-term cost containment in the public school system.

So did Gov. Dean, who urged a statewide teachers’ salary contract and threatened to micromanage high spending school districts (but didn’t). So did Gov. Douglas, who in his final state of the state message in 2010 proposed that the State mandate acceptable teacher-to-pupil ratios (the legislature declined).

In his letter, Gov. Scott took the mandate plunge. “We need to establish the same boundaries for per pupil spending across the state… if your student count is declining, districts should do everything possible  [italics in original] – including consolidation of grades and schools or other innovations  – to lower per pupil expenditures.”

Perhaps recognizing that objections will arise to any proposal for the state to enforce mandates on school spending, the governor hastened to add, hopefully,  that “this standard does not [bold face in original] have to result in cuts to programming for kids, and in fact can increase academic opportunities.” At the same time he reiterated his call for “a cradle-to-career continuum of learning that understands the capacity to invest more in early care and learning.”

The governor is mindful that taxpayers are facing $80 million in school property tax increases in 2018. He never hints that the savings from consolidation, efficiencies, economies of scale and mandates will put the brakes on ever rising taxpayer burdens. Not at all:  he reiterates his support for ever more “investments in early care and learning” to consume the savings hoped for through cost containment, instead of reducing school property tax rates to make them more affordable.

Most disappointing about the governor’s letter is the complete absence of the two words that most alarm the public school establishment:  “competition” and “choice.” He seems content with Act 46’s forced school district consolidation that will at best offer parental choice among the surviving public schools in new unified school districts, but offering choice and competition is clearly not on his agenda.

While the governor promises to unveil some “concepts for consideration” at the Summit, and while some of those concepts may alter power and money relationships within the current system, not one of them is likely to pose the tiniest existential threat to the public school establishment.

Twenty one years ago I suggested an alternative to Gov. Dean’s proposals in a similar vein. “Now look at a key feature of the Governor’s property tax solution, putting the state in charge of local education costs which are ‘out of control’. .. Montpelier will impose mandates and penalties to control local school spending.”

“Of course the underlying rules and economics of education will not have changed. Local school districts will still be teaching pupils forced to attend government-run schools under penalty of truancy. Pupils will still be taught by a ‘sage on the stage’ certified by a state bureaucracy, unionized by the Vermont-NEA, and virtually immune to removal for poor performance.”

“These teachers will be supervised by layers of expensive administrators whose job it is to make sure everyone complies with the state Board’s current version of The Green Mountain Challenge, and above all, doesn’t make any waves.”

“The “solution” for education costs, and thus property tax relief, will not be found in Montpelier-imposed cost control. It lies in changing the rules of the system to expand competition among providers, local initiative, consumer information and choice, and innovative learning methods ranging from apprenticeship and mentoring to distance learning via Internet. That will result in more satisfied and better educated children, more efficiency in the use of tax dollars, and lower property tax burdens.”

“Unfortunately a reform built on those ideas is thoroughly unpalatable to the teachers’ union, most administrators, most elected school boards, and most legislators fearful of the political power of all those groups.”

“And so we are likely to end up with state government trying to control local educational costs in the same way that it attempts to control health care costs: mandates, caps, limits, ceilings, penalties, and lawsuits to make sure such spending stays within some state-determined budgetary target.”

“Real reform means customer choice, flexibility, competition, innovation and opportunity – not a Montpelier bureaucracy using an ever-bigger hammer to enforce its budgetary will on an ever more costly government-run school system long overdue for radical change.”

As for the forthcoming Summit: “Plus ça change, plus c’est la même chose”.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).

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by John McClaughry

Matt Ridley is a noted British science writer who recently wrote in the Times of London, “Many Africans rely on corn, but it is threatened by a rapidly spreading pest called the fall armyworm. A native of the Americas, it has now turned up in Nigeria and quickly spread across most of Africa. This is fairly terrifying news, threatening to undo some of the unprecedented improvements in African living standards of the past two decades.”

“Fortunately, there is a defence. Bt maize, grown throughout the Americas for many years, is resistant to insects. Organic farmers have been using the bacterium as a pesticide for more than five decades, but it is expensive.”

“However, influenced by European environmentalists, most African countries forbid the growing of genetically modified crops. This is a pity, because unless they change their attitude fast, they will face the prospect of using far more pesticides, which small-scale farmers cannot afford, and which come with environmental and safety risks, or suffering famine, relieved by expensive imports of food.”

“Some years ago” Ridley concludes, “I spoke to the leaders of a large charity working with African farmers and asked them why they did not come out in support of biotechnology. They replied that they dared not do so for fear of retribution from the big environmental pressure groups, such as Greenpeace.”

Thanks to Greenpeace, Africa is facing a tradeoff between GMO corn and millions of starving people.

- John McClaughry is vice president of the Ethan Allen Institute.

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