Created on Wednesday, 22 October 2008 20:00
Last Updated on Wednesday, 22 October 2008 20:00
By Win Smith
Vermont has a fundamental problem. And this was true even before the current economic and market turmoil. Our population is neither large nor affluent enough to generate the tax revenue we need to fund the important projects that will make us sustainable as a state and maintain the quality of life we have come to love.
We need to attract more environmentally friendly businesses, more tourists and more people who want to live here as tax-paying residents. Attracting more businesses will require that we create a more business-friendly environment and create specific incentives so that we are more competitive with other states. These incentives should promote job creation and capital investment and recognize that entrepreneurs who risk their capital should receive a rate of return after-tax that compels them to invest in Vermont. Even if the right programs are put into place immediately, it could take a number of years for a significant number of new businesses to move into the state.
However, we have a more immediate opportunity to gather more tax dollars: "There is gold in them hills" as one once said. Today, we have thousands of second homeowners throughout the state who spend a considerable amount of the year here and yet are residents and taxpayers in other states. Yes, they pay what they believe to be egregiously high and unfair property taxes, but Vermont collects no income tax from them. If it did, this could add materially to our tax base. Currently, at 9.5 percent, Vermont has the highest state income tax in the United States for income over $350,000.
States like New Hampshire and nations like Ireland learned a fundamental economic law years ago. Lower the tax rate and they will come. I know many affluent families who live here part of the year but are residents of high-tax states like New York where their marginal income tax is eight percent or higher. If Vermont were to have an income tax rate no more than let's say four percent or five percent, a family with $350,000 in income would pay $14,000 to $17,500 in income tax to Vermont rather than $28,000 to New York.
The only thing they would have to do is to spend a few more days in Vermont and a few less in New York. This would be a win-win. People who are already living here nearly one half of the year would be happy to save some money and generate tax revenue for our state. Since they already have homes and do not send their children to our schools, there would be very little if any burden on our towns, and the revenue would be used to further needed programs and importantly reduce the tax burden on the rest of us. And, since they will be spending more time in our state and feeling wealthier, they will spend more on food, recreation and other services that will additionally benefit the other citizens of Vermont.
The time has come for some new thinking which really isn't that new to many others in the world. Lowering tax rates is not a new idea. It has worked elsewhere and may be just what will keep our state sustainable into the future. I would encourage whoever is elected governor in Vermont to assemble a bi-partisan group of knowledgeable thinkers to explore this idea. Of course, we also need to spend less in many areas and run our state more efficiently. However, we need more tax dollars, not higher tax rates.
Win Smith is the current principal owner of Sugarbush Resort, a resident of Warren, VT, and the former chair of Merrill Lynch International.