By Bruce Parker | Vermont Watchdog
Only New York is worse than Vermont when it comes to tax and regulatory policies that foster economic growth, according to a new report on economic competitiveness between states.
According to the eighth annual Rich States, Poor States, Vermont is 49th out of 50 states on economic outlook due to the state’s ratings on 15 different variables, including tax rates, labor policies and overall regulatory burden.
The Green Mountain State has ranked among “poor states” every year since the report first published in 2008.
For 2015, the top five states with the best economic outlook are Utah, North Dakota, Indiana, North Carolina and Arizona. States making a race to the bottom include New York, Vermont, Minnesota, Connecticut and New Jersey.
Jonathan Williams, a former staff economist for the nonpartisan Tax Foundation and coauthor of the report, said 2015 is shaping up to be a year of tax cutting by states.
“The big story this year is the bipartisan embrace of state tax cuts,” Williams said. “States are increasingly realizing the need to become more competitive through fiscal responsibility and free market economic reforms. We anticipate 2015 will be a record year for pro-growth tax reform.”
Not so in Vermont. The litany of tax hikes proposed by the Vermont Legislature this year represents a stark contrast to the trend identified in the report.
Taxes proposed by the Democrat-controlled House so far include the following:
- The budget-related revenue bill, H.489, raises $33 million in new taxes by capping itemized deductions to 2.5 times the standard deduction and eliminating a deduction for state income taxes paid in the prior year.
- The education big bill, H.361, raises $16 million in additional revenue by increasing the non-residential property tax rate.
- The water quality bill, H.35, raises $8 million in new revenue.
- The health-care spending bill, H.481, raises $22 million with a half-cent per ounce tax on sweetened beverages (raising $17.6 million) and a 25-cent per pack increase in tobacco taxes.
- A yet-expected 0.3 percent employer payroll tax would raise $39 million to reduce high health-care premiums due to Medicaid cost-shifting.
The Rich States, Poor States 2015 report gives each state two rankings, an economic outlook ranking and an economic performance rating.
The economic outlook rating compares states on policies directly influenced by state lawmakers, such as marginal income tax rates and property taxes, as well minimum wages and workers’ compensation costs. This rating is forward-looking and argues that states that tax less and spend less on income transfer programs experience higher growth rates.
In contrast, the report’s economic performance rating looks backwards, grading a state’s 10-year performance based on state gross domestic product, absolute domestic migration and non-farm payroll employment. Vermont ranks 38th out of 50 states on 10-year economic performance.
Vermont’s property tax burden is $50.32 for every $1,000 of personal income, earning a 48 ranking out of 50 states. The state’s top marginal personal income tax rate of 8.95 percent is 43rd in the nation.
Personal income tax progression, at $28.69 per $1,000 of income, earned a ranking of 49. The “recently legislated tax changes” from 2013 and 2014 amounted to a hike of $2.60 per $1,000 of personal income — the worst hike in the nation.
Another cause of the state’s poor ranking relates to labor-related costs to businesses, such as the state minimum wage.
Vermont’s new $9.15 an hour minimum wage, up from $8.73 last year, is among the most expensive in the country, earning a 47 ranking. The only states with a higher minimum wage are Oregon ($9.25) and Washington ($9.47). Connecticut is tied at $9.15.
However, Vermont may soon become the national leader in high-cost wages. Vermont’s minimum wage is set to increase to $9.60 in January 2016 and hit $10.50 in January 2018. The federal minimum wage is $7.25.
Notably, the top four states in economic outlook — Utah, North Dakota, Indiana and North Carolina — all stick to the federal minimum wage.
Contact Bruce Parker at [email protected]