Roper: Commission says expand Vermont sales tax to services and necessities

By Rob Roper

The Vermont Tax Structure Commission released its 180-page draft report to the legislature in January, and one of the major recommendations it makes is to expand Vermont’s 6% sales tax, currently limited to non-essential goods and a few select services, to all goods and services except healthcare. Doing this would be accompanied by an overall rate reduction to 3.6%.

This move would have serious implications for Vermont’s economy. In addition to adding new taxes — and thus cost to consumers — to services like haircuts, lawn care, auto maintenance, education, plumbing, carpentry, legal aid, financial services, and education (the list goes on and on), current exemptions to the sales tax for food, clothing, and residential energy would also be repealed, making these necessities of life more expensive — and regressively so. Low income consumers spend higher percentages of their income on necessities, therefore, under this scenario, a higher percentage of their income on the tax.

Rob Roper is the president of the Ethan Allen Institute.

This is a terrible proposal.

First of all, the service sector of our economy has been devastated by Covid restrictions. One can still sell goods through the mail or curbside if the government bans customers from your retail store (not to insinuate that retail has in any way had it easy during the pandemic), but you can’t give someone a manicure, or provide physical training services at all under the same circumstances. Whacking these businesses as they try to re-establish themselves with not only the cost of a new tax but the new logistical responsibility of collecting, accounting for, and remitting the tax would be especially cruel.

As our state college system struggles on the brink of financial collapse and declining enrollment, adding a 3.6% sales tax to the tuition at Castleton University, for example, would increase cost to an in-state student by $450 and an out-of-state student by over $1000, and as much as $1400 at UVM. This is not a good way to “keep and attract” young people. Similarly, as Covid has brought new residents to Vermont who are able to telecommute to their jobs in other states – and we would presumably like to keep them here – making their services less competitive and more complicated via this tax isn’t exactly welcoming.

The Commission is not oblivious to the regressive nature of their proposal, but their suggested remedy is grossly unattractive: expand the welfare state. “[W]e refer to our recommendation … that the legislature look at the full financial picture for low-income Vermonters including income, transfers, and taxes in the context of our recommendations, and adjust the programs that support low-income Vermonters accordingly. (p.68)” In other words, squeeze far more money out of taxpayers in general, and use a portion of it to expand the bureaucracy, “even at a 15% cost of administration (p.67),” and foster increased dependency on government programs. Pocket the difference.

Second, even in good times, lest we forget, our neighbors to the east in New Hampshire have zero sales tax on goods or services. We’ve seen what Vermont’s competitive disadvantage in this area has done to retail businesses along the Connecticut River. Increasing our sales tax on services from 0% to 3.6% and adding groceries and clothing to the mix would create a similar giant sucking sound.

The Commission admits this. “[O]ur recommendation to broaden the base and lower the rate would mean that there would be a slight decrease in demand for the roughly 50% of purchases of goods and services that are not currently subject to the sales tax.” (P.65) But, they argue that this would be offset by increased demand for goods where the tax is lowered from 6% to 3.6%. This is flawed logic.

As noted before, New Hampshire’s sales tax is zero. Vermonters are already conditioned to jump the border to make purchases with zero sales tax – it’s “FREE.” Lowering the Vermont rate by 1.4% is not going to influence that dynamic. However, raising the tax on Vermont’s service sector from “FREE” to 3.6% in the face of a free alternative just spitting distance away will not end well for Vermont’s service sector. Our prediction: all that will happen is that Vermonters who now cross the river to buy their TV’s, toasters and liquor tax free will start getting their groceries, haircuts, and nails done on those trips as well.

But, isn’t it unfair to businesses that sell goods to slap them with a tax but not businesses that sell services? A strong case can be made. But let’s not remedy that by equally spreading misery, and rather work to eliminate the Vermont sales tax altogether. If Alaska, Delaware, Montana, Oregon, and New Hampshire can do it, so can we!

Rob Roper is president of the Ethan Allen Institute. He lives in Stowe.

Image courtesy of Public domain

14 thoughts on “Roper: Commission says expand Vermont sales tax to services and necessities

  1. Recently, I recalled scene from an old black and white comedy movie, from many years ago, of a Medieval King asking his financial advisor to think of something else in the over taxed kingdom that could be taxed to raise money for king’s extravagant life style. Giving the matter a bit of thought, the advisor smiled and suggested, “We can tax the King’s Air!”
    Today, Vermont’s financial advisors are suggesting something almost as ludicrous. The line I recalled is from an old movie, probably from the 1950’s, and was comedy and supposed to be funny. What’s happening in Montpelier these days, in living color, is Political Circus and meant to be serious. But it’s not; it’s tragedy. Unfortunately, the clowns that have been elected to Vermont’s government are very real. A read of the pending legislation for 2021 is ample evidence of that. Too bad the legislative clowns that infest our State cannot be recalled as readily as a line from an old movie…

  2. ” Roper Commission says to expand Sales tax !!!”

    My top false teeth fell out, then I squinted and saw the colon :::

    Rob Roper Writes report on the commission which always wants more darned tax money however they can grab it!!

  3. It just seems like common sense, if each state is a “laboratory” why not learn from other states which are successful and go that route? Our legislators always seem to do the opposite. VT is always likely to make it somewhere in the top ten worst states’ advisories as the worst state to retire, to start or have a business, most expensive education but not the best education, highest real estate taxes, highest taxes etc. Does it ever occur to our legislators to try the opposite approach? To be one of the best and most affordable states to live in/move to. And it baffles the mind why not?

  4. The sign says “lube oil,, filter $39.95! What is to tax
    Oil and filter – already taxed, grease – already taxed, garage – already taxed, lift – already taxed, tools – already taxed, labor – already taxed. Taxes on taxes?

    Kid mows lawn, mower – taxed, gasoline, taxed, pickup truck taxed, labor taxed!
    What’s to tax?

    How many NEW EXTRA bureaucrats to “educate”, receive reports, enforce laws, bookkeep, this dumb tax?

    NO to the Service tax!!

  5. If the VT Legislature would mimic’s NH’s for salary and more politically balanced and cooperative with the populace this constant desire to tax and spend would be mute. But the air blows west to east and Montpelier is overcome with that political drunkenness. Chittenden County alone has 6 Senators and 40 Representatives, the first to breathe that air, and to include the other counties on VT’s west side. Must be some reason for all these taxes and proposed taxes. NH has proven taxes don’t improve anything, in fact they are reducing taxes on businesses.

    Ever notice that over time taxes incrementally increase a penny here and a penny there? It’s like the example that if you start with a penny, then double that the next day, then double that the next day in 30 days it’s become $5,368,709.12.
    Taxation will accomplish the same affect over time. Observe what inflation has done to the dollar over time. Taxes go up, real income decreases.

    • I keep asking???

      Does NH, few taxes, have twice the population of VT who has horrible taxation.

      Is it?, Twice as many residents in NH, and twice as many bureaucrats in VT???

      Has anybody figured it out? Urban myth??

  6. Neil,
    You are exactly right. in 2,4,or six years the legislature will need more money and just raise the tax. How many tax sunsets have come and gone. How many times have they raised the current sales tax, cigarette tax, property taxes on second home owners, etc. The only tax the legislature ever actually ever sunset was the 1% income tax increase Gov. Snelling instituted to help eliminate the Gov.Kunin deficit. Snelling promised to eliminate the one percent increase in a year and he did.

    This bill should never pass but if it does, it should be put in statute that the only way the tax could increase would be by a 2/3 majority vote in both the House and Senate. Let’s hope this idea dies a quick death..

  7. There are two side to the ledger. Revenue and expenditure. There is enough revenue coming in and we need to focus on the expenditure side and make better use of the ample sums already provided.

    A case can be made that the income inequality in our nation, where the top 1% has far too much in comparison with the rest of us, should be addressed. This however, is a national issue and Vermont which already has one of the most progressive State tax systems in the nation has gone about as far as it can on taxing its most prosperous citizens without driving these people elsewhere.

    • John; where have you been?

      People have been leaving VT for several years now, especially the high achievers because the left succeeded in driving out the good paying jobs from the b & i they forced to close.
      Just look at Rutland, if you want an example of what I am talking about. And, along with these good paying jobs went many higher end restaurants, and jobs there as well. This started the day Phil Hoff was sworn in…. bigger government that turned out to be unaffordable, and still expanded later under Maddie, Howard Dean, and of course the real loser, Shumlin.

    • It may be a national issue. In reality, it’s a worldwide issue. But more importantly, in our context, it’s a Connecticut River issue. New Hampshire gets it. Vermont doesn’t.

  8. Any move to accomplish this plan which is being hatched in LA LA Land is, if it passes, is DOA in the hands of individual VT’ERS. The people will not support this nonsense; we have seen over time, what the rates do: up, up up just as sure as God made green apples. This is so because THERE IS NEVER ENOUGH MONEY to satisfy these do gooders from away. Makes me wonder how we ever made it all those years prior to their arrival. Revenues are not the problem; it is spending,and spend some more. I am paying enough to VT now, I will not pay more, trust me.

  9. This is their quick two – step to a European style VAT tax. Like every other tax idea, they say it will lower the taxes, see from 6% to 3.6%, but you’ll have more out of your pocket, it will only be coming from other sources!

    Then 2-4 years later they incrementally raise it back to 6%, well because that’s a reasonable tax and every other state has a higher tax then our 3.6%

    They are sophists extraordinaire.

    The mob has nothing on our NWO pimps from Montpelier. With the help of a compliant and ever censored press they will get promotions and coverage with no questioning.

    I notice when I sell yard sale stuff on Ebay…..VT is getting their 6%, even on the boots I sell. This will be yet another great swindle from the average Vermonter. They will increase the tax burden immediately and more to come, all while “lowering the tax rate”

    A slight of hand. A slight of truth.

  10. so they think I will base my purchases on those items taxed less instead of just buying things where there is no taxes… They really do think we are fools! Lets import some more morons from southern new england and new york and new jersey – yup yup yup

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