News Analysis

Proposal would tax haircuts, private school education – almost everything

by Rob Roper

The Vermont Tax Structure Commission released its 180 page draft report to the legislature, and one of the major recommendations it makes is to expand Vermont’s 6% sales tax, currently limited to goods and a few singled out services such as ski rentals, to everything but healthcare, and to reduce the overall rate to 3.6%.

In addition to taxing things like haircuts, lawn care, auto maintenance, education, plumbing, carpentry, legal aid, and education (the list goes on and on), current exemptions to the sales tax such as food, clothing, and residential energy would also be taxed.

This is a terrible proposal.

First of all, the service sector of our economy has been devastated by Covid restrictions. One can still sell goods through the mail or curbside if the government shuts down your store (not to insinuate that retail has it easy during the pandemic), but you can’t give someone manicure, or provide physical therapy at all under the same circumstances. Whacking these businesses as they try to re-establish themselves with not only the cost of a new tax but the logistical responsibility of collecting, accounting for, and remitting the tax would be especially cruel.

Second, even in good times, lest we forget, our neighbor to the east, New Hampshire, has zero sales tax on goods or services. We’ve seen what Vermont’s competitive disadvantage in this area has done to retail businesses along the Connecticut River. Increasing our sales tax on services from 0% to 3.6% would create a similar giant sucking sound.

The Commission admits this. “[O]ur recommendation to broaden the base and lower the rate would mean that there would be a slight decrease in demand for the roughly 50% of purchases of goods and services that are not currently subject to the sales tax.” (P.65) But, they argue that this would be offset by increased demand for goods where the tax is lowered from 6% to 3.6%. This is flawed logic.

As noted before, New Hampshire’s sales tax is zero. Vermonters are already conditioned to jump the border to purchase goods with zero sales tax – it’s “FREE.” Lowering the Vermont rate by 1.4% is not going to influence that dynamic. However, raising the tax on Vermont’s service sector from “FREE” to 3.6% while simultaneously competing with a free alternative just spitting distance away will not end well for Vermont’s service sector. (Recommended: check out this article on the behavioral impact on consumer behavior of free.) Our prediction: all that will happen is that Vermonters who now cross the river to buy their TV’s and toasters (not to mention liquor), will start getting their hair cut and nails done on those trips as well.

But, isn’t it unfair to businesses that sell goods to slap them with a tax but not businesses that sell services? Sure. But let’s not remedy that by equally spreading misery, and rather work to eliminate the Vermont sales tax altogether. If Alaska, Delaware, Montana, Oregon, and New Hampshire can do it, so can we!

– Rob Roper is president of the Ethan Allen Institute.

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11 replies »

  1. FOOD??? WE need NO NEW TAXES in VERMONT AT ALL !!! EVERYTHING IS ALREADY VERY EXPENSIVE. HOW BOUT THE LEGISLATURE CUT SOME PROGRAMS AND STOP SPENDING AND STAY ON A BUDGET ? THEY HAVE GOTTEN A LOT OF MONEY FROM PRESIDENT TRUMP AND WILL BE GETTING MONEY FROM THE BIDEN ADMINISTRATION SO WHY THE NEED TO RAISE NEW TAXES ???? DON’T THEY REALIZE PEOPLE WILL NOT ONLY GO TO NEW HAMPSHIRE TO SHOP BUT WILL BE GOING THERE AND ELSEWHERE TO LIVE. BUSINESSES ARE TRYING TO GET BACK ON TRACK- AS EVERYONE IS – AND DON’T NEED NEW TAXES !!! WE THE PEOPLE OF VERMONT DO NOT HAVE MONEY TREES AND WE CAN NOT AFFORD ANY NEW TAXES WHICH I WOULD THINK THE WAY THINGS ARE MONTPELIER WOULD KNOW!! THEY ARE THE ONLY ONE WHO GET A RAISE IN THE GOVERNORS BUDGET NOT THE PEOPLE TRYING TO MAKE ENDS MEET WHO A LOT DON’T EVEN KNOW WHERE THEIR NEXT MEAL IS COMING FROM ! MY ADVICE TO MONTPELIER IS STOP SPENDING !!!!!

  2. “If Alaska, Delaware, Montana, Oregon, and New Hampshire can do it, so can we!”
    I have my doubts that as long as the Socialists, excuse me “Progressives”, and left leaning Democrats under the “Golden Dumb” think that everybody needs big government to take care of them from cradle to grave, that we the people are to stupid to take care of our selves without their “help”, I don’t see taxes being anything but a debilitating weight dragging us down to the depths poverty. By the way, if I am not a “Progressive” does that mean that I am a “Regressive” ?? Or in the words of George Carlin, if pro is the opposite of con, does that mean the opposite of Progress is Congress ????????

  3. What always happens with “broadening the base to lower the rate” is that every special interest assaults the State House to get their service exempted – education and health care, of course, lawyers, architects, on and on. When the smoke clears, the new rate is 5.8%. If you’re lucky.

  4. Looks like the way this state is going with spend, spend, spend, with no thought to how we are going to be able to afford to live here? I am thinking it’s time to sell up here in vermont and find a friendlier (Tax and spend wise ) state to live in, with less regulation, less endless increases to state government, less give away programs that this state seems to favor. Anyone else thinking the same thing? Maybe we can all move to the same place? I’m going to start doing some serious research on the best states to move to.

  5. This is really a slap in the face from the Vermont Tax Structure to the legislators!After total miss handling of State finances for years,now they ,want to tax everything?Our Governor waits for the Federal Government for a bailout that we can’t afford,and we are going to be taxed more?This is taxation without representation , and we the people have to unite and put an end to this tax and spend attitude in the Vermont Government! There are limits,and Vermont with its D tax rating will be no help! WE need to close public Schools for they are too expensive,and shrink the size of the State Government which is the largest employer in the State! Also,the social justice and illegal aliens schemes will have to stop,and put a total effort towards helping legal residents work and pursue Life ,liberty ,and the pursuit of happiness through hard work!!this is America!!Oh yes I almost forgot,get rid of the GWSA and the 23 member unelected burocrates!!

    • This free federal money puling up in Montpeculiar, is not money – is not money – it is MORE national debt.

      Spending it makes more debt.

      How about we divide up this stupid free money into the underfunded pensions, and a dozen other economic disasters already looming in Vt? Then we get some elbow room – some stability !?!?!?!

  6. We need less taxes and less services from any government…not more taxes & more services so that we are all then dependent on Big Government.. Definitely time to replace many, many legislators who only know how to spend, spend, spend, and Tax, Tax & more Tax.

  7. The cost of government services continues to climb. Education costs continue to increase despite the promises made during the consolidation of school districts. Monthly healthcare premiums are and will soon be unaffordable for too many Vermont families. For those that commute to work, gasoline prices are headed up – again! For those that have jobs, wages are stagnant. Social security recipients saw a mere 1.3% increase in their monthly checks. And now we are in a pandemic that has people scared, angry, depressed, and all of the above. And now, new taxes! There are only about 623,000 people in this state to pay the bills our legislators accumulate. When will they realize that they are breaking the backs of every honest, hard-working, Vermonter? I wonder what would happen if every Vermonter, every business owner, and every homeowner banded together and refused to pay their taxes in 2021? Maybe, just maybe, the people under the Golden Dome would remember for whom they work?

  8. The biggest expense for me is the EDUCATION PROPERTY TAX !! If something could be done about lowering (getting rid of) that tax I could breathe.

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