Come On Down to Big Phil’s Big Incent-a-palooza!

“YOU get a tax incentive! YOU get a tax incentive! And YOU get a tax incentive! In fact, ALL of you get a tax incentive!”

This appears to be the nuts of Phil Scott’s plan for boosting our economy. The guy who once told VTDigger “I like incentives” certainly does; over the course of his gubernatorial campaign, he’s floated tax-incentive ideas that cover just about every contingency.

It is his favorite approach to boosting growth. It costs nothing up-front; you can stage a shiny photo opportunity with every recipient; and the fallout is vague, hard to measure, and located somewhere in the future.

Unfortunately, there is little to no evidence that tax incentives accomplish anything. At best, they are blunderbusses in a target-shooting contest. At worst, they are just plain giveaways that hurt necessary government programs.

Officially, the state calls these programs “tax expenditures,” which is the appropriate term. It reminds us that every time we offer an incentive, we are forgoing tax revenue. It should be evaluated the same way we’d review a government program: does it work, and is it worth the money?

What’s worse, Vermont’s existing incentives are problematic due to a lack of documentation and oversight. And we need more of that?

There has been, naturally, no counting the cost of all these giveaways. Perhaps that’s why Scott’s own website fails to disclose any specific incentive ideas; if he presented the list all in once place, it’d be downright embarrassing.

Instead, you have to search through news reports of his public statements, where you find incentives scattered liberally across the rhetorical landscape.

So let’s take a tour, not guaranteed to be complete, of Big Phil’s Incent-a-palooza!

— Tax break for young adults. The details are vague and inconsistent, two of the hallmarks of Phil Scott’s agenda. The basic idea is, you give young people a big tax break for some number of years after college. This incentivizes them to stick around or move here, right?

Well, no. Tax implications are far down the list of factors considered when people are relocating. And if taxes were foremost in the minds of the young, wouldn’t they just move to New Hampshire? I mean, really.

If that’s not enough for you, in one report Scott admitted that he hadn’t costed out his proposal. Whaaaat? A guy with broad government experience who’s  been running for office for nearly a year, and campaigns on responsible budgeting — and he hasn’t bothered to discern the cost of a key policy idea?

This is the kind of thing that earns Donald Trump the ridicule of a nation. But we’re talking Good Ole Phil here, so I guess it’s all right.

— Scott would restore a research and development tax credit enacted in the depth of the Great Recession in 2009 and meant as a short-term economic stimulus. It was cut back by lawmakers in 2014, presumably for good reason.

The problem with this kind of thing is that it’s very difficult to tease out which activities are truly job-creating research, and also which activities would have been conducted even without the tax credit. If businesses would do R&D on their own, thanks to good old market forces, the tax credit is a needless giveaway. And if market forces don’t undergird an R&D program, it’s not going to be productive anyway, tax credits or no.

— Next we have an angel investor incentive, which would reward those who invest in Vermont companies with a 60 percent tax credit. Here, the devil’s in the details — and I bet Scott doesn’t have any.

How do you define a qualifying investment? Does it have to be a startup? How big can it be? Does it have to be entirely located in Vermont? If not, how Vermonty does it have to be?

And even if it’s well-defined, most of the foregone tax revenue will be wasted. Investors don’t put down their money simply because of a tax credit — they want to back winners. They won’t support marginal firms for the sake of a tax credit, if they’re exposing their capital to excessive risk. And if you give a tax credit to an investor who’s cashing in on a good bet, you’re just giving money to people who don’t need it.

Go read David Cay Johnston’s books on tax policy. You’ll see how tax incentives are a great way to transfer wealth toward the top. They’ve done a great deal to widen the wealth gap in America.

— Some sort of undefined tax incentive for housing development. He told the Burlington Free Press he would be “talking to developers and looking at tax incentives, but “didn’t specify what the tax incentives would look like.”

I’m sure the developers will be full of ideas on how they can benefit from state largesse. Maybe he should talk to a few economists and housing policy experts instead.

This is another instance of Scott refusing to provide any specifics whatsoever, just glittering generalities. Again, Donald Trump gets roasted for this; Phil Scott gets a pass.

Giving downtowns a boost. I found this in a brief item on the Channel 22/44 news. Here’s the quote:

“We can do so with developers and incentives and tax incentives in our downtown and really help out in a broad perspective.”

Leaving aside the marginal literacy, what can we tell from that? Nothing, except that Scott sees tax incentives as a way to promote in-town development.

Of course, he sees tax incentives as the way to do just about everything.

And he hasn’t costed out any of this stuff. If we adopted all of Scott’s ideas, fully- or half-baked, how much tax revenue would we lose? And how much tougher would it be, to meet Scott’s target of balancing the budget without any tax or fee increases?

Tax incentives have been studied at length by a variety of experts and institutions. The practically universal conclusion is that incentives are a blunt instrument employed surgically. Much of the effort is wasted. The costs are never truly counted.

Most of all, there is no way to prove that the incentive was responsible, even when a given sector experiences growth. Phil Scott likes to point to the solar power industry as proof that incentives work. Well, maybe; but stronger forces were at work as well. First, public policy that encourages renewable power development; second, technological advances that have dramatically lowered the cost of solar power.

Correlation does not equal causation. It’s a lesson rarely applied in the case of tax incentives.

Then, of course, there are the spectacular failures of incentive policy, which Phil Scott never mentions. Right next door, the much-ballyhooed StartupNY program has produced a mere handful of jobs in its first two years.

When StartupNY was rolled out, there were widespread fears in Vermont that it would siphon jobs and development away from our precincts. There was wailing and gnashing of teeth over our inability to match StartupNY’s generous benefits. There was criticism of the Shumlin administration for failing to be as business-friendly as the Democratic Governor to our west.

And it’s all created virtually nothing.

Take a lesson, Phil.



7 thoughts on “Come On Down to Big Phil’s Big Incent-a-palooza!

  1. Cynthia Browning

    Just for the record, the Administration is actually required to report on the cost in lost tax revenue of many tax expenditures — credits, deductions, and exemptions — in the budget report each year — look towards the back. I think that every year one third of them are reported. However, just estimating the lost revenue does not tell us whether the provision is worth it if matched up with some measure of direct identifiable benefits. In many cases it may not be possible to point to specific attributable benefits. Which is, of course, the problem. Another problem is that the Legislature has excluded certain income tax expenditures from having to have the costs reported. … Altogether, Tax Expenditures probably amount to about $1.3 billion in foregone tax revenue. You would think we would want to be sure we are getting our money’s worth for that amount. For several years I have been pushing to have the cost of Tax Expenditures related to certain activities or agencies to be listed next to the spending lines for that policy area in the budget. People tend to acknowledge that this might be a good idea, but they don’t want to do it. Too much transparency and accountability?

    Tax incentives should be designed in a way that their costs and benefits are fully estimated ahead of time and fully auditable afterwards.

    Rep. Cynthia Browning, Arlington

  2. Brooke Paige


    For once, I think, we are in full agreement. Tax incentives rarely create real sustained economic growth, while they do punish taxpayers by creating additional burdens for them to bear. They also wind up depriving the state of needed revenue for operations. A real loser for everyone except the beneficiary of the largess.

    I would seem more prudent to try to limit overall taxes and reduce (or at least hold the line) outlays on the expense side of the ledger. Tax burdens and regulation are the real culprits, causing businesses to consider relocating or not considering Vermont as a place to locate or expand. Throwing a few bucks at a business is not real incentive, creating an environment where they can grow and thrive should be incentive enough.

    H. Brooke Paige

  3. Doug Hoffer

    Re. tax break for young adults: Since Vermont has a progressive income tax, the effective tax rate for those at the beginning of their careers is likely to be quite modest (i.e., 2% +/-), which means a tax credit wouldn’t really be worth much. Moreover, and perhaps more importantly, the tax credit would not address the core of the problem, which for many is excessive education debt. Shouldn’t that be our focus?

  4. Walter Carpenter

    ‘Go read David Cay Johnston’s books on tax policy. You’ll see how tax incentives are a great way to transfer wealth toward the top.”

    Although he has never said it up front, of course, this is most likely the point of Scott’s economic agenda. If transfer the wealth to the top, maybe it will trickle down to the rest of us in the dirt.

  5. Carlton Lowe

    “It should be evaluated the same way we’d review a government program: does it work, and is it worth the money?”

    Written as if there is in fact such review of government programs exists in any meaningful way.
    Once taxes are passed, in your opinion the money belongs to government and your squabble is really only with the intention of those spending it, not the actual impact of the tax or “does it work, and is it worth the money?”. If that standard was actually applied your argument and analysis would matter more than another meaningless “how many angels can dance on the head of a pin”, made to entertain, distract and more useful than re-arranging deck chairs on the Titanic.

    1. John S. Walters Post author

      When did I say the money belongs to the government? It is given to the government, which is responsible for stewardship of the money and proper disbursal — under the aegis of representatives elected by the people.

      I strongly believe that government must meet high standards in carrying out its duties. That’s why I have been so frequently critical of the Shumlin administration. I would have the same expectations for a Minter administration.


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