Flemming: VT business climate ranks low

By David Flemming

Depending on what study you choose to look at, Vermont’s business climate is either slightly below average or quite close to last in the US. Just a few days ago, CNBC gave Vermont a #31 ranking. While this rank is a little below average, it is far above where the Tax Foundation placed Vermont just last December: #43. So did Vermont’s Legislature somehow manage to pass enough business-discouraging legislation between December and July that we fell so many spots? While there was some legislation that certainly didn’t help, the immediate answer is “no.”

The best explanation is that the studies chose to measure different things, with some overlap.

According to CNBC, “To rank America’s Top States for Business in 2022, CNBC scored all 50 states on 88 metrics in 10 broad categories of competitiveness. Each category is weighted based on how frequently states use them as a selling point in economic development marketing materials. That way, our study ranks the states based on the attributes they use to sell themselves…Under our methodology, states can earn a maximum of 2,500 points.”

On the other hand, the Tax Foundation’s State Business Tax Climate Index aims to “enable business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.”

For CNBC’s ranking, Vermont did better than average on (ranked from highest weighed to lowest weighed) ‘Infrastructure,’ ‘Life, Health & Inclusion,’ ‘Business Friendliness’ and ‘Education.’ We were worse than average on ‘Workforce’ (last place at 50), ‘Cost of Doing Business’ ‘Economy,’ Technology and Innovation,’ ‘Access to Capital’ and ‘Cost of Living.’

For the Tax Foundation’s ranking, we came in better than average on ‘Sales Tax’ and “Unemployment Insurance Tax’ while we were worse than average on Corporate Income Tax, Individual Income Tax and Property Tax.

While it does make some sense that CNBC ‘ranks the states based on the attributes they use to sell themselves,’ One has to wonder how states choose sales pitches- are they trying to get more businesses to start in state or change headquarters, or are they trying to sell themselves to voters who happen to like their policies?

It is unclear from CNBC’s methodology how whether they consider some impact to be negative or positive factors. They mention ‘right to work laws’ for the Workforce category. But some states might proudly advertise having them and some states might advertise not having them. A value judgement must be made which impacts a state’s score.

 ‘The availability of renewable energy’ in the Infrastructure category, ‘inclusiveness in state laws… voting rights… public health spending (the more, the better?)’ in the Life, Health & Inclusion category and the number of ‘historically Black colleges and universities’ in the Education category are all politically correct issues that I doubt many businesses would prioritize as highly as the tax climate.

It seems likely that CNBC weights Business Friendliness a bit lightly at just 8% of the total, compared to 13% for Life, Health & Inclusion. “Companies follow the path of least resistance. That includes a legal and regulatory framework that does not overburden business. We measure each state’s lawsuit and liability climates, regulatory regimes covering areas such as trade and labor, as well as overall bureaucracy.” Having heard countless stories of Vermont businesses caught in Vermont’s bureaucracy and deciding to leave the state or close down, a heavier weighting would have been better.

Overall Rank 243135394345
Workforce  (16% weight)245022144339
Infra-structure (15% weight)312247394944
Cost of Doing Business (14% weight)493932454047
Economy (13% weight)263329473241
Life, Health & Inclusion (13% weight)1311517216
Technology & Innovation (10% weight)103739254433
Business Friendliness (8% weight)21148111936
Education (7% weight)18682329
Overall Rank63334404347
Individual Income Tax Rank (31% weight)92311314047
Sales Tax Rank (24% weight)1812241623
Corporate Tax Rank (21% weight)413536374327
Property Tax Rank (14% weight)464145424950
Unemployment Insurance Tax Rank (10% weight)443550491522

David Flemming is a policy analyst at the Ethan Allen Institute.

Categories: Commentary