$100 million childcare is tax the straw that broke the camel’s back.
The Vermont State House recently hosted “Manufacturing Day” to highlight the successes and concerns of a key – and it turns out declining – sector of our economy. Amy Spear of the Vermont Chamber of Commerce kicked off testimony before the Economic Development Committees, “Manufacturing employment in Vermont has declined 11.3% since 2020. And Vermont is one of only a small number of states to see this, and we’re projected to see continued decline in manufacturing employment over the next decade.” Yikes. So, not a fun start to the day’s festivities.
There are a couple of alarms going off here. The first one is that jobs in the manufacturing sector tend to be good paying and we, or more specifically the folks that have these jobs, can’t afford to lose them. The second, as Spear points out, is that these private sector businesses generate tax revenue. While manufacturing is shrinking as a percentage of our state GDP, the sectors that are growing the fastest are government and healthcare – both tax eaters, not tax payers. And you can’t pay for the tax eaters unless you have healthy, productive, sustained growth (a.k.a. profits) by the tax payers.
What’s at the root of this drop in manufacturing? There were a number of opinions all roughly along the same theme that surfaced after the obligatory obsequious genuflecting before the masters in the legislature about how well intentioned they are and all the good things they’re doing. But then comes the “but”…
I thought Dave Laforce of Built by Newport, a furniture manufacturer out of, you probably guessed it, Newport put it most poignantly when he said,
But [Yup, there it is!] in my thirty-five years of being in this business, I have not seen the escalation of fixed costs that we’ve experienced in the last three years. It’s absolutely insane! Between property tax, electrical costs, insurance, health insurance. It’s been a huge challenge to manage that because in our industry we still compete with overseas. So, we can’t simply just pass on fixed cost increases to our customers…. So, when the childcare [payroll] tax came in, it seems like a small number. But when we’re faced with all these massive, fixed cost increases and you add that to the top, it just magnifies things even more.
“Insane.” Yeah, that’s the descriptor that jumps out. And so does the specific mention of the childcare tax.
Laforce wasn’t the only business owner to poke a finger at the new payroll tax. According to a report in VT Digger, Janette Bombardier of Chroma Technologies also had serious issues regarding the payroll tax, noting that that their employees aren’t seeing any benefit in increased childcare opportunities as a result of the tax. The added cost hasn’t increased accessibility. Quoting Digger, “’I’m not sure it’s doing what we’re all hoping it would do in terms of creating spaces,’ Bombardier said of the payroll tax.” It’s not.
The tax in question, Act 76 of 2024, coming in at roughly $100 million per year and impacting everyone in Vermont who earns a paycheck, is one of the many unaffordability laws the Democrats rammed through over Governor Scott’s veto during the heady – and it turned out waning – days of their supermajority.
What’s interesting about this is that advocates for the payroll tax insist businesses are the ones that wanted the program (and the tax to pay for it), and it’s true that pro-payroll-tax-for-childcare businesses were trotted out as the poster adults for Act 76 while it was being debated. So, is this a case of buyer’s remorse? A recognition that the program isn’t working and isn’t worth it. Or was the broader business community never really all that on board with the program to begin with?
Is there now a backlash against management who pushed the program because employees figured out that their bosses stuck them with another tax coming straight out of their paychecks to pay for someone else’s childcare? I do know employers who tell me their employees are not at all pleased with new government taking. And the political demographic math was always bad for this policy. Even if advocates are telling the truth that this $100 million payroll tax has resulted in a thousand new childcare slots, that means a thousand households are benefiting while 315,000 workers are taking it in the wallet. One person one vote, and the toddlers don’t get to vote.
What’s even more interesting is the Democrats are now touting Aly Richards of Let’s Grow Kids fame (perhaps increasingly infamy) as their Great White Hope versus Phil Scott. And this unpopular $100 million tax that has failed in its mission to create childcare availability, and now comes with the unintended consequence of its killing good-paying jobs in our manufacturing sector and dragging down our economy is this woman’s primary resume bullet point. I’m sure it’ll make for one helluva campaign speech!
Of course, the payroll tax certainly wasn’t the only beef manufacturers had with the lawmakers. It was just the straw that broke the camel’s back. There’s also over-regulation…
One story sums it up neatly. Kevin Moyer of Vermont Frames told a tale of true regulatory ridiculousness. “This summer we went through an endeavor to build three three-sided storage sheds on already impermeable land at our facility. Basically just trying to get raw materials covered from the rain and sun. No electricity, no plumbing, no additive permeable [surface]. It took six months, $3,000, and five Vermont state agencies to get an approval for that. Pretty painful.”
Painful indeed. Leading to an observation by Ben Bristow of Nolato (formerly GW Plastics) about interstate competitiveness, “And another challenge, we are within a thirty minute commute of Lebanon, New Hampshire, area. There’s a lot of industry down there, and… generally tax implications are lower, which makes it hard to drag people or bring people up to the Vermont side.”
Yes, it seems the programs that were supposed to bring working people back into Vermont such as “free” childcare are actually driving folks — and jobs — away.
Rob Roper is a freelance writer with 25 years of experience in Vermont politics including three years service as chair of the Vermont Republican Party and nine years as President of the Ethan Allen Institute, Vermont’s free market think tank.