Economic and Tax Policy For 2008

The public policies essential for economic growth, job creation, and a strengthened tax base for financing essential public services can be concisely stated: low and stable tax rates, few costly mandates on businesses; efficiently managed, fiscally responsible governments; a quality educational system; good transportation and telecommunications infrastructure; high personal security and quality of life; and regulation that may be strict in its defense of important public values, but is viewed as reasonable, fair, swift and certain. To all of this should be added a strong public view that entrepreneurship, opportunity, and economic growth are positive values, and that those who create new wealth deserve recognition for their contributions to society.

1. Fiscal responsibility – and a strong bond rating - requires balanced budgets. Balanced budgets achieved by fund robbing, date shifting and accounting gimmicks are suspect.

2. Vermont has become the highest state in the nation in total tax burden: state and local taxation as a percentage of personal income (13.9% in 2006). (New Hampshire was 49^th). The legislature should enact a Taxpayer Bill of Rights (TABOR), a statutory cap that limits the growth of state taxation to the combined rate of growth of population and inflation, and requires that any revenues collected above that cap be promptly returned to the taxpayers. The 2008 legislature should begin the process to present this policy to the voters as a constitutional amendment to be voted on by the people in 2010.

3. The legislature should permanently cap tax rates for the income tax, sales and use tax, property transfer tax, and rooms, meals and liquor taxes. Statewide property tax rates should be permanently capped no higher than $1.00 for homesteads and $1.50 for non-homestead property. These rates are higher than the 2007 rates in effect, but a credible assurance that they will not be increased above a permanent cap will be an important inducement to economic growth.

4. The legislature should require that any increase in the tax rate caps will take effect only when ratified by the voters in a statewide referendum.

5. All motor vehicle and fuel taxes should be assigned to the Transportation Fund and (with the exception of the JTOC contribution) should be retained in that fund to pay for needed maintenance and improvements to the state’s transportation system.

6. The telecommunications tax levied to finance income sensitivity subsidies in 1997 should be reduced from 4.36% to 4% or lower, while preserving the lifeline exemption.

7. The legislature should enact insurance and tax law reforms to encourage consumer driven health care, focusing on consumer choice of insurance protection, Health Savings Accounts, portability, and direct payment to providers. The state should not impose mandates on employers to pay for employee coverage, or require that persons of all ages pay identical premiums.

8. The legislature should bring Vermont in line with national norms by amending the workers compensation law to, apportion responsibility among employee and employer for aggravating and preexisting injuries, eliminate cost of living adjustments for temporary benefits, limit lost time benefits to 90% of wages lost, and limit coverage for recreational injuries.

9. State regulation of business can be strict, to protect important environmental values, but it must be reasonable, fair, swift, and certain. State regulators must be made to adopt a policy of assisting businesses to correct problems and act responsibly, instead of a "gotcha" policy of enforcing penalties for often far-fetched technical violations. Regulators cannot be allowed to be accomplices to anti-business and anti-growth forces.

10. The legislature should comprehensively review and rewrite the ten permit criteria of Act 250 to establish a strong presumption that state agency permits are dispositive, minimize the use of permit requirements to protect worried competitors, and tighten subjective criteria (such as esthetics, historical preservation, water quality "impairment", and endangered species). Appeals to the Supreme Court should be limited to statutory parties, not including activist groups that generally object to development but have no direct affected interest.

11. The state’s high energy costs are a significant deterrent to business growth. Legislation cannot create cheap energy, but it can create expensive energy, notably by forcing adoption of a Renewable Portfolio Standard requiring utilities to buy specified amounts of high cost power to satisfy special interest generators like small hydro, solar, and wind farms. Legislation that leads to enforcement of an RPS (Act 61 of 2005) should be repealed.

12. The legislature should adopt a Regulatory Accountability Act, by which one fifth of the members of House or Senate can force a vote to approve or disapprove any agency rule or proposal for a rule.

13. The legislature should minimize opportunities for obstructionist organizations to block the construction of badly needed cell phone towers. Antennas in silos and steeples provide an economic benefit to landowners as well as better service to cell phone users. State regulators should strongly encourage expansion of broadband digital services throughout the state.

14. The legislature should jealously guard the employer-financed unemployment insurance fund against fund raiding and overly generous payouts.

15. Continual labor price fixing, as in minimum wage increases, put government-created upward pressure on all wage rates, and have the unfortunate effect of creating new unemployment among the least skilled workers (notably youths and minorities).

16. Government loan and tax credit subsidy programs (VEDA and VEPC) have evolved in Vermont mainly to allow favored applicants to get government support that partially offsets the higher costs of development caused by Vermont’s high tax rates, mandates, and regulations. As wise policy choices reduce those higher costs, VEDA and VEPC activity should be reduced and eventually eliminated.

Ethan Allen Institute
4836 Kirby Mountain Road, Concord VT 05824

Phone: 802 695 1448 Fax: 802 695 1436 Email: eai@ethanallen.org