Editor’s note: This commentary is by Rob Roper, the president of the Ethan Allen Institute. He lives in Stowe.
[A]t the Tunbridge Fair, Democrat gubernatorial candidate Sue Minter indicated in an interview with WDEV’s Mike Smith that she is in favor of expanding the Vermont state sales and use tax to services. Currently it applies only to goods, with a few exceptions.
About 30 minutes into the one-woman “debate,” moderator Smith of WDEV’s “Open Mike” program asked Minter about tax policy, noting that, “Governors Dean, Douglas and Shumlin avoided raising the personal income tax, sales tax and corporate income tax because they said it would be damaging to the economy in Vermont. Would you do the same?”
Minter replied evasively by answering an unasked question, “I will balance the budget. I will be a good steward of the people’s money. I will look at the economic impact of every spending and raising decision.” Or, in other words, “No.” Minter does not intend to avoid raising those taxes, and given the number of costly new programs she wants to implement, one can see why.
She went on to say, “We have a tax code now… that was really built around durable goods. And, now our economy – two thirds of it – is really a service sector economy…. We need to be thinking about the entire system. I’m interested in going back to the program [I think she meant “proposal”] we had after the Blue Ribbon Tax Commission that looked at what can we really do to lower rates by expanding the base. That would be my goal.”
Expanding the sales tax to services would exacerbate Vermont’s New Hampshire problem, as our neighbor to the east has no sales tax on goods or services.
The Blue Ribbon Tax Commission (BRTC) recommendation Minter is referring to is expanding the state sales and use tax to cover services as well as goods – everything from paying legal fees, to putting your child in daycare, to plumbing and home repair, to getting a haircut would be subject to the sales tax, and all of those businesses would have to bear the new cost and hassle of collecting, tracking and remitting the revenue to the state.
The BRTC identified in its report 168 services from a Federation of State Tax Administrators study that would be eligible for taxation and specifically mentioned the following examples: “Lawn and garden, personal transportation, residential utility, financial and insurance, misc. personal (child care), clothing-related, other professional (legal), personal property rentals, vehicle repair/maintenance, housing and real-estate, pet-related, storage and moving, telecommunications, personal care, home cleaning/maintenance, education-related, admissions/recreation/travel, medical, residence construction/repair, and misc. repair/installation.” That’s a lot of day-to-day expenses that will all of a sudden be between 2 and 6 percent less affordable for Vermonters.
Which gets us to the promise to lower the overall sales tax rate. If all services were subject to the sales tax, and the policy change was revenue neutral, the overall rate could be lowered to around 2 percent from 6 percent where it is today. However, if health care and educational services remain exempt, as most people think they would be, the rate only comes down to between 4.5 and 5 percent. And, Minter did not say if she were in favor of a revenue neutral sales tax shift, or one that lowered rates but still raised revenue.
Expanding the sales tax to services would exacerbate Vermont’s New Hampshire problem, as our neighbor to the east has no sales tax on goods or services. Lowering Vermont’s sales tax from 6 percent to 5 or even 4 percent would not prevent shoppers from crossing the Connecticut river for savings on goods, and expanding the tax would just encourage the same kind of border jumping regarding services. The disadvantages Montpelier has placed on Vermont retail businesses, especially through sales tax policy, has been devastating. Do we really want to do the same thing to our service sector?
It’s worth noting that there was a dissenting minority report issued by the BRTC in regard to expanding the sales tax that touches on the issues mentioned above, but also raises the distinct possibility that an initial lowering of the sales tax rate in connection with expanding it to services may not last very long. Can we trust the politicians who are facing annual budget deficits and seem to have an insatiable desire to spend money to keep the rate low? Or will they conclude that Vermonters are used to a 6 percent rate, and there’s not that much difference between 5 and 6 percent anyway, so….
If expanding the sales tax to services really is, as she says, Minter’s goal, Vermonters need to have long and detailed conversation about it between now and November, and decide if this is something they really want.
