Vermont

Outgoing Vermont State Auditor Randy Brock was kind enough to give the Rutland Herald an interview during his final days on the job. Perhaps his last task was a review on the Vermont Economic Advancement Tax Incentive Program. But . . .

While the review looks backward at past incentives, it does not address the most recent statutory changes signed into law last year as a sweeping overhaul of the program.

Those changes go into effect starting this week. Lawmakers and officials have said the changes should further streamline the program and make companies more accountable.

Under the changes, companies will not be awarded incentives until after they have expanded their workforce. And instead of tax breaks, they will get money from the state's general fund, allowing for more rapid evaluation of the benefits they receive, and more rapid reductions if they fail to meet their requirements.

It seems that past incentives, awarded only upon the promise of job creation, have not been so incentivizing. Now, under the guise of accountability, companies will be entitled to actual monetary credits only after showing documentation that there has been an expansion in the workforce.

Rules like these make the inefficient policy of tax incentives even worse. Usual incentive programs allow companies wiggle room to deal with the ups and downs of the business cycle. Under the new rules, however, a business may plan for an incentive and wish make the corresponding hiring decision, but an unexpected shift in the economy could perhaps change these plans. These are the times when such a business will be in no position to hire but will likely be in strong need for a tax break. If the original goal is to give a break to business so as to allow them to compete, the new rules prevent the businesses from getting help when they most need it.

One can look at the opposite situation and see an unintended consequence of the new rules. If a company is doing well and in a position to expand, not only will they likely do so, but they will basically be re-imbursed for doing so. My thought is that your overall tax rate should be the same in good times and in bad -- this allows for the government to get away from deciding exactly when a company is doing well and and exactly when a company needs help and instead lawmakers can concentrate on more important things, such as protecting life, liberty, and property. But if there is to be a discrepancy, tax schemes should help those in need and not those in an advantageous market position. What the Vermont rules do, however, is kick a man while he is down and distort the market so as to allow better performing companies to further separate from their competitors by giving them job creation reimbursements.

Not surprisingly, the outgoing and incoming bureaucrats also fail to discuss the cost of oversight that comes with "accountability." There is also a "but for" test, which is "the requirement that company officials testify they would not make certain investments in Vermont unless they were awarded incentives." At least the outgoing auditor had the decency to note that this test "is a decision that can be very subjective" and one that is "very hard, if not impossible, to audit."

Incentive programs began as a well-intended effort to ease the tax burdens businesses often face. But, as so often happens with such programs, the Vermont government has used the program to further entangle themselves in the day-to-day decisions of companies across the state. If you're a company in the Green Mountain State wishing to add a few jobs, be prepared to consider the time and cost of compliance if you wish to be reimbursed at all for this expansion. And if you wish to given an incentive for the essential decision to upgrade your equipment, better off moving to another state.