John Klar: Vermont’s giant sucking sound – engorged bureaucracy is goring taxpayers

By John Klar

In 1992, Ross Perot famously stated that NAFTA would cause a “giant sucking sound” as jobs and industries fled the U.S. for Mexico. For years, progressive Vermont’s bloated bureaucracy has increased regulations, social programs, and both income and real estate taxes in the fantasy that the rich can just be taxed more to achieve every imagined social good. But the COVID-19 crisis has pulled aside the fiscal veil, and now the Green Mountain State is careening into the red. A “giant sucking sound” is heard from Vermonters fleeing the state.

Vermont has stubbornly avoided funding its state pension system. It “boasts” the second-highest per-pupil school costs in America, the fourth-highest health care costs, and the fourth-highest welfare benefits. Unsurprisingly, it also distinguishes itself as the 49th worst business climate, and the only state to have its credit rating downgraded in 2019 — when economic times were relatively good.

Liberals scoff at supply-side economics (the idea that cutting taxes causes a “trickle-down effect” that boosts investment, income, and ultimately tax receipts).  But taxes DO matter. As a tax attorney, much of what I studied was taxpayer behavior in response to tax code changes — each change creates new loopholes, necessitating more refinements.  This is also sometimes called “human nature.” 

John Klar

Vermont’s state economists now caution that the state could lose $430 million in tax revenue next year due to this crisis, which is a lot of money when the population is merely 628,000.  Voters must anticipate that the real number is likely much higher.  As Vermont weighs how to fill in that gap, an analyst with the government warns “…if lawmakers don’t find another source to replace the lost revenue in the education fund, property taxes would have to go up dramatically in the next fiscal year.” 

Of course, that’s just the education fund!  And while Vermont wrangles to secure federal funds to bail itself out, blames the virus for its woes, and shelves its ambitious plans to implement new gasoline taxes and subsidies for Electric Vehicles (to save the planet!), it shuns the very concept of reduced government spending.  That’s because in Vermont, the fat cats have government jobs while the citizens lose income.

Many Vermonters have already packed up and fled. More are preparing to do so. If there is a mass exodus, property prices may plummet, allowing wealthy out-of-staters to buy up properties cheaply — that is, if they are prepared to shoulder those skyrocketing real estate taxes.  (Vermont ranks sixth-highest property taxes in the nation; but only 23rd in median income). 

Many argue that the response to COVID-19 must be directed by medical knowledge, while economic reality hangs over Americans like a second guillotine. We must not ignore the best medical knowledge available, but neither should we rely solely on physicians for our economic prescription.

In considering what economists teach, we return to that much-derided “trickle-down theory” to search for lessons. The general idea is that raising taxes actually reduces tax receipts.  One model for consideration is the Laffer Curve, which represents the effect on behavior of rising tax rates.  At some point, raising taxes decreases rather than increases government revenue:

A business is more likely to find ways to protect its capital from taxation or to relocate all or a part of its operations overseas. Investors are less likely to risk their capital if a larger percentage of their profits are taken. When workers see an increasing portion of their paychecks taken due to increased efforts on their part, they will lose the incentive to work harder. Put together these could all mean less total revenue coming in if tax rates were raised.

As Vermont searches for more pockets to pick, its progressive masters will scorn the Laffer model, arguing that cutting taxes helps the wealthy only (John Kenneth Galbraith famously described trickle-down theory as “feeding the sparrows by giving oats to the horses”). But in Vermont, cutting taxes would deprive the blood-sucking bureaucrats who parasitically feed off the public tab. Further, we are here considering not income taxes (Laffer) but real estate taxes, where there is a much higher risk of a mismatch between wealth and impact: many people with fixed or low incomes hold appreciated land or buildings and cannot simply grow their incomes to match swollen tax bills.

Consider state taxation of Social Security benefits — surely cutting taxes on SS beneficiaries is not a boon for the wealthy.  Only 13 states subject Social Security income to state income taxes (Vermont being one of them).  Increasing real estate taxes across the board in Vermont will disproportionately (regressively) impact retirees and those on fixed incomes. 

 As one source offers:

There’s been some backlash against state income taxes on Social Security, stemming largely from the fact that retirees often leave a state if it costs them money to get their retirement benefits there. States don’t want to take the economic hit that results when relatively wealthy retirees go to tax-friendlier states to spend their golden years.

Vermont is home to large numbers of these retirees — slamming them with spiraling real estate taxes on top of a state income tax on retirement benefits is not exactly equitable.  But to the point at hand, cutting those taxes would not be a windfall to the rich.

The Laffer Curve predicts that at some point, increased taxes do cause people to change behaviors in a way that undermines tax revenue. Vermont is well past that point, by every standard — and people are leaving. It’s not the wealthy fleeing, but the common workers and businesspeople who see greener tax pastures over most all neighboring state fences. Reducing taxes in Vermont by reducing expenditures would help these residents, not imaginary tycoons who don’t reside here.

Vermont does not need to cut taxes for the rich — it must cut spending by the bloated bureaucratic behemoth that has become the state’s largest employer. That money will not “trickle down,” it will simply stop trickling up from regular folks’ wallets. 

Ross Perot was lampooned for his critique of NAFTA, but events proved him right: The Economic Policy Institute, a left-leaning think tank, concluded that the U.S. lost about 850,000 jobs from 1993 to 2013 as a result of NAFTA and that number has undoubtedly risen.

 As Vermont workers and retirees are compelled to tighten their proverbial belts to endure the COVID-19 impacts on the economy, the shocking idea might occur to Vermont legislators that state government may also do some belt-tightening. This could reverse the giant sucking sound of Vermont homeowners fleeing for friendlier tax climates, before it’s too late.

John Klar is an attorney and farmer residing in Brookfield, and former pastor of the First Congregational Church of Westfield. He is running for governor in 2020.

Image courtesy of Flickr/401kcalculator.org
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14 thoughts on “John Klar: Vermont’s giant sucking sound – engorged bureaucracy is goring taxpayers

  1. I recently commented on Don Keelan’s Article addressing non-profits in Vermont, I believe that observation also applies to what John Klar is pointing out in this article.

    Many of these non-profits are heavily involved with central planning efforts that cripple Vermont’s business climate and stifle growth as well as interfere with our free markets. They form coalitions of influence that overpower and dominate our state’s legislative agendas in favor of global world order agendas. This creates negative financial pressures on average Vermonters and that in turn is perhaps why we have so many charitable non-profits in our state.

    Non-profits seeking global goals are part of a very powerful lobby that also funnels their agendas through at least 11 regional planning commissions put in place some 50 years ago, these commissions act as a conduit that feeds these foreign agendas to our municipalities, were they are sometimes perceived as mandates and adopted as zoning ordinance, even when there is no state statute requiring it.

    Unfortunately this type of non-profit has deep pockets and will continue to tamper with the sovereignty of our governance, while insisting the green new deal will save our state from the ravages left in the wake of the COVID – 19 crisis.

    We have been separated from our governance and are living in a parallel universe, one segment, our government, going through the motions as if nothing has changed and the other, the new world order, non-profit sector, chipping away at our fundamental principles and freedoms while hiding behind a shield of doing good work.

    A curse has been placed on us; I have dubbed it “The Curse of a Benevolent Cause” because it is all based on the premise of doing good work. And the first thing required to set this in motion is a manufactured crisis, after that, it’s all downhill.

    Non-profits are activated and or more are created, then lawmakers pass token legislation that requires bureaucrats to draft rules that force our compliance, while at the same time absolving legislators of any responsibility for those rules as they were crafted by so-called experts! The bureaucrats running our state!

    Over the last 50 years Democrats, Republicans, Liberals and Conservatives alike have all ignored the takeover of our governance by a structure that promotes the goals of a New World Order over the livelihood of average Vermonters. If we are generous perhaps we didn’t see what was happening to us, after all it was incremental, at least in the beginning. I didn’t see it myself until 3 years ago after becoming involved with my town’s recertification of our town plan.

    I can assure you Keith real Conservatives have to bear as much blame for not seeing this as do real Liberals, speaking as a Conservative who did not understand what was going on until recently I must conclude we all have blame for allowing this parallel government to exist, even if we are not able to see it. Knowledge that our founding principles are being violated should be enough to tell us something is wrong.

    Make no mistake we are governed by nonprofits and bureaucrats, our elected officials on the other hand are just window dressing, and or useful pawns. However the many non-profits in Vermont are not just used for lobbing, they are also used for recruiting more activists and so grows the parallel government controlling us.

    If we as Vermonters do not insist in our sovereign right to govern ourselves without interference from foreign agendas, nothing will change, no matter who is in power, Liberal or Conservative, Democrat or Republican, we must reject the concept of a parallel government and central planning, as well as the idea of regional planning commissions, they are merely road blocks obstructing our sovereignty.

    Many if not most Vermonters still do not understand or see the existence of a parallel government running our state, I believe John Klar does, this is why I am supporting him in his bid for governor!

  2. John, if half of the folks in Montpelier were honest with their constituents concerning their thinking about taxes as they relate to their “feel good” priorities BEFORE election day, they’d never get to Montpelier. Think back on the past few years, it was all about fiscal responsibility then come January, it was legalization of marijuana or same sex marriage. The real important stuff.

  3. The only reason I am still in VT is because my children and grand children are living here. I advise anyone I know not to buy a house in Vt. If you must be here rent, then get out and heaven forbid you have a business here. This state will suck you dry.

  4. I’m trying to figure out which John Klar is running, the one who talks about cutting government spending or the one who said he voted for Obama over Romney because he liked his economic policies. There is a huge disconnect there, one not worth risking my vote for especially when a true conservative in Kevin Hoyt is also a candidate.

    • A major burr under Hoyt’s saddle is the corruption factor he continues to address on his Facebook page. I’m seriously considering a vote for him on that basis alone. Exposing the corruption and dealing openly with it is an important issue that must be dealt with if Vermont is to regain fiscal control and solvency.

    • Did not vote Bush even as conservative – what a dummy but considered the ‘weapons were not found’ unfounded. Voted Obama 2008. McCain bringing Palin clan aboard – a nonstarter and showed breathtakingly poor judgement – was not alone here btw. Again in 2012 – Binders-of-Women Romney has shown dark and glaring character flaws which continue both were simply more terrifying than Obama who I came to loathe and still do. Boca Raton said it all – he’s really a jerk at best.

      Voted Snelling, Douglas, Dean, Shummy -1 and Scott -1 – all but Snelling and Dean huge disappointment.

      What we did or didn’t do in the past doesn’t matter if change has taken place. Is continually derailing these threads to slam a serious candidate worth it. Perhaps closet-dweller Mr. Hoyt or one of his supporters could start own thread explaining positions and run own ‘campaign’ – that is unless he has something(s) to hide lol.

      • I’d love to hear you thoughts re the degree of corruption in VT. Start with the real estate thingy and stiffed foreign investors. Lord knows there’s more.
        I’ll wait.

        • No one is obligated to respond to issues which do not reflect objectives presented by the author of post. Anyone can submit articles for publication and discuss them there.
          Looking forward to responding to your or Mr. Hoyts publication and campaign announcement.
          KLAR2020

  5. When we sold our business after nearly 4 decades of operation, the buyer agreed to lease our property for 5 years with the expectation that they would purchase it at the end of the lease. They have notified us that, once the lease period is completed, they will likely move to New Hampshire. Taxes and a bloated and highly intrusive bureacracy are the reasons given for moving out of Vermont.
    Many folks found it curious when, over many years, I confided that, at anytime, I would rather deal with the IRS than the State of Vermont. Our business straddled the border. New Hampshire was always a pleasure to deal with. Vermont was always a stinking nightmare probably somewhat akin to trying to do business in Moscow, Russia.

    • I was looking at a very successful business on the bank of the Connecticut River for sale but there is no way I would own another business in this state. The present problems dealing with the government is bad enough but on our present course the future risk is far too great.
      If the business was on the other side of the river it would be owned by me now.

  6. I grew up and they are forcing me to leave. An analysis of my disposable income after state and town taxes, fees and costs of living shows a monthly difference of $1000 between living out my life here and moving to Georgia.

    If I live as long at projected by family history and IRS distribution tables the $1000 a month becomes $300,000 that I get nothing for here.

    • Got a spreadsheet? Inquiring minds might have some data of their own to plug in.

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