Public Assets Institute > Blog > The governor’s U-turn

The governor’s U-turn

Give Gov. Phil Scott credit for having the humility to reverse course and abandon a bad idea. A few days after announcing a plan to exempt young adults from the Vermont income tax, he scrapped the proposal. He changed his mind when he found out it would cost $14 million in lost revenue. (It’s another point in his favor that he didn’t buy into the supply-side myth that cutting taxes would magically generate more revenue. More on that later)

Vermonters 18 to 26 were the target of the governor’s tax break. We don’t have data on that exact cohort, but the IRS does track tax filers under 26. According to IRS statistics, there were about 21,600 tax filers in that age group in Vermont in 2018, and another 2,100 had moved to other states that year.

One of the biggest problems with tax incentives is that they often pay individuals or businesses to do things they were going to do anyway. Here we had a plan to give tax breaks to more than 20,000 people to try to induce them to remain in the state when it appears only 10 percent were at risk of leaving. Meanwhile, according to the IRS, almost 1,700 tax filers under 26 moved to Vermont in 2018. They didn’t need to be lured with a tax break. They came, presumably, because they wanted to live here.

So in 2018, Vermont had a net loss of 400 tax filers under the age of 26—a time in life when we’d hope people would stretch their wings and see some of the world. Even if the plan had “only cost a few million dollars,” the original estimate, it would have been an extravagant expense.

A better approach, as we’ve said before, would be to talk to some of the 34,000 couples and individuals under 35 who moved to Vermont from 2012 to 2018. Find out what attracted them to the state and then build on Vermont’s strengths.

Unlike President Trump and the Republican-controlled Congress that have driven up the federal deficit with the Tax Cuts and Jobs Act of 2017, Governor Scott didn’t try to hoodwink Vermonters into believing that a $14 million tax cut would pay for itself—by stimulating job creation and new investment. The tax cuts were going to cost a lot, and he decided Vermont couldn’t afford it.

Now if we can just get him to rethink his proposal to eliminate corporate taxes for the so-called green jobs creators.

Posted by Jack Hoffman on January 23, 2020 at 4:07 pm

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