Commentary: Tax Reform 1, Bigger Government 0

by Rob Roper (November, 2013)Rob Roper

Vermont Business Magazine recently reported that Huber & Suhner, a high-tech manufacturing company employing 63 people in Essex, decided to close its Vermont facility after nearly a quarter century. The company will be relocating those jobs to North Carolina and New Jersey. If Justice Louis Brandise was correct that states are “laboratories of democracy” where various policies can be explored to see what works and what doesn’t, this provides us with some interesting experimental outcomes to ponder.

Vermont’s strategy for attracting good paying jobs and spurring economic growth, particularly since the election of Peter Shumlin (D-VT) to the governorship, has been built around subsidizing “green” energy, moving toward a government monopoly, single payer healthcare system, and expanding publicly funded early education. All of these initiatives rely on expanding the size and influence of government over the economy – higher taxes, more mandates, forced redistribution of resources, and the centralized picking of winners and losers.

This year, North Carolina under Governor Pat McCrory (R-NC) embarked on a different strategy — a complete overhaul of the North Carolina tax code. The reforms include, among other things, flattening and lowering the individual income tax to 5.75%, reducing the corporate income tax rate to 5% by 2015, 4% by 2016, and 3% by 2017, capping the gasoline tax, capping individuals’ mortgage interest plus property taxes at $20k, and fully repealing the estate tax.

According to the 2012 Tax Foundation’s ranking of most business friendly (or unfriendly as the case may be) states, Vermont and North Carolina were not all that far apart at the bad end of the spectrum. Vermont was ranked 47th, North Carolina 44th. However, after North Carolina’s new policies are fully in place, that state’s ranking will rise significantly to around 17th. Now, it’s fair to say these kinds of rankings paint a limited view of a much larger picture. But, the big picture here is this: North Carolina now has a bunch formerly Vermont jobs, and we don’t.

Huber & Suhner spokespeople listed a number of reasons for leaving Vermont. Quoted in a recent news article, the company’s president stated bluntly, “Obviously, the cost of doing business here and the tax perspective is a significant reason why we’re moving.” The other big reason cited for the move was a more diverse and better qualified labor market in North Carolina.

The lesson to be learned from this Brandisian democratic laboratory experiment is this: the prospect of single payer healthcare getting the burden of insurance off its back was not enough of an incentive to keep this company in Vermont. Nor was the promise that universal preschool might eventually develop a more qualified workforce. Nor was the prospect of leading the Green revolution from the Green Mountain State. But, the reality of more tax-friendly environment for employers in their business lives and employees in their personal lives succeeded in convincing a company to tear out 24 years of community roots and relocate 800 miles away.

I know many people will say that Vermonters expect more from their government that it seems North Carolinians do. That may or may not be the case. But the fact is that without the tax revenue from Huber & Suhner – and nearly 500 ex-IBM employees, and over 600 Entergy employees, and 165 ex-Energizer employees, and 35 ex-General Dynamics employees, all gone or going so far in 2013 – Vermont is creating a situation in which we will have less capacity to help those in need while we are also creating more unemployed families who need help. This is a death spiral.

You don’t help the hungry by salting the fields where you grow the food. All Vermonters want to help our neighbors in times of trouble, but before you can spread the wealth you have to earn it. If we don’t focus seriously on implementing policies that are proven to drive economic growth, to attract good paying jobs, and to generate stable and sustainable tax revenue, Vermont’s private sector economy will continue to deteriorate, and our social safety net will go right along with it. Nobody wins that game. Except, perhaps, states like North Carolina.

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{ 2 comments… read them below or add one }

Bradford Broyles November 4, 2013 at 2:19 am

One of your best pieces yet. Well said.

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Mark Donka November 4, 2013 at 2:09 pm

Well written Rob as usual. I just wonder if people will wake up before the state goes bankrupt. With our unfunded liabilities and Shumlin care, the only way that the current administration can get out of this is to raise taxes and do so in a big way.
Mark Donka for Congress 2014

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