Vermont needs more business investment, but not from tax incentives

Linda Sullivan, D-Dorset, has recently written a series of insightful commentaries that discuss why “why we seemingly are doing very little to attract business to Vermont.” It is clear that Sullivan has put a lot of thought into answering this question. And for the most part she gets it right:

“We’re going to need to figure out how best to attract external investments if we are going to have much chance of increasing economic opportunities for Vermonters, of achieving meaningful and sustainable increases in wages, of expanding revenue and tax bases so as to begin to lessen our reliance on property taxes, and of obtaining sorely needed transportation, housing, health care and communications infrastructure improvements. We are in a competition with other states for those investments — a competition in which we’re not competing in any significant way.”

Bravo. That needed to be said. Still, Sullivan needs to be corrected on one point: She claims that “developing the right strategy to attract business … will likely also require careful design of specifically tailored economic incentives (yes, even tax incentives).” Attracting new businesses to Vermont is a laudable goal, but tax incentives are not the way to do that.

state of Vermont

Rep. Linda Sullivan, D-Dorset

Granting subsidies on a case-by-case basis is the wrong approach to economic growth for two reasons. First, there is little evidence that subsidies and tax breaks for select companies will help spur economic growth. From 1998 to 2015, Vermont handed out over $235 million of subsidies (taxpayer dollars) to companies in the form of grants, low-interest loans, tax credits and training reimbursements. These subsidies have not made Vermont a business powerhouse.

Second, if Vermont extended its subsidy programs, it would inevitably end up prioritizing established businesses that are on good terms with politicians/regulators, over new businesses and potential start-ups that lack these connections. Subsidies also inevitably prioritize larger businesses. Many government grants have a low probability of going to any one business, so the only businesses that are willing to accept the risk in obtaining these grants are those that have multiple and sizable revenue-generating assets which would preserve their business in the event that the business does not receive the grant. Once several businesses suddenly reapportion their budgets away from satisfying customer demands and toward subsidy-seeking, Vermont consumers will necessarily be worse off. Worse still, tax incentives undermine the notion of our government as a neutral arbiter that protects the right of Vermonters to operate businesses without favoring one business over another.

Nevertheless, many of Sullivan’s proposals are worth considering. (Or rather, her willingness to identify all too prevalent “half solutions” that have been proposed by those who refuse to admit that Vermont needs more business investment.) Sullivan acknowledges the impossibilities of:

  • “train(ing) people to hold diverse, higher-paying jobs that either don’t exist or are geographically dispersed”
  • “creat(ing) more housing for a workforce that is only marginally growing”
  • “bring(ing) more doctors to service small and sometimes distant patient population”
  • “forcibly increas(ing)labor costsfor our small-business economy unable readily to raise prices to cover wage increases” (Sullivan’s take on the minimum wage).
  • “prompt(ing) business investment in communications infrastructure to service a relatively small consumer base.”

Sullivan is astute to note the impossibilities of finding solutions that involve extensive government involvement in the Vermont economy. She should recognize that tax incentives are also incompatible with a vibrant business environment. It is only through creating a business environment with predictable regulation and reasonable taxation that we can truly make Vermont an economy that leads the way in New England.

Reprinted with permission from the Ethan Allen Institute Blog.

Images courtesy of Flickr/401kcalculator.org and state of Vermont
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One thought on “Vermont needs more business investment, but not from tax incentives

  1. Was that a tiny speck of light at the end of the tunnel that I just saw? I sure hope so! If Vermont is serious about attracting business to the state it is going to need a serious attitude adjustment. First, start by cutting the staff of every government agency in half. Second, for those remaining, every single employee of the state of Vermont should be given a homework assignment of writing 1000 times “business is not our enemy”. Third, we have all seen “take your daughter to work days”. Well, I would like to see a “take a bureaucrat to work day”. Maybe if some of those who have never once held a job in the private sector were introduced to the realities of life they might change their attitude a bit. Fourth, another homework assignment, all government employees should be forced to write 1000 times that “companies do not exist to serve as social service agencies” . Companies exist for one purpose…………to make a profit on the investment of capital and not for the purpose of being a babysitting service for snowflakes. Finally, I am not fond of President Trump the person, but I wholeheartedly agree with the changes he is making. Start cutting the ridiculous red tape, unnecessary regulations, and over reaches of government so prevalent in Vermont. No one honestly trying to work their way through the insane maze of rules and regulations should ever receive an answer from a bureaucrat saying “well, there are regulations that govern what you want to do, but our agency will not likely take jurisdiction over that”. Great, based upon that answer you expect me to invest a pile of money with the hopes that some other bureaucrat won’t decide to take jurisdiction? It doesn’t work that way. There are too many places that will welcome a new business and will bend over backwards to help. Vermont seems intent on the exact opposite. Finally, I agree that offering tax incentives is not the answer. There is little more disheartening to a business owner who has played by all of the rules, paid taxes and supported the state, only to see some newcomer from out of state offered my tax dollars as an incentive to come here and compete with me.

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