Commentary: A Carbon Tax Will Not Help Vermont’s Economy (January, 2016)

By Rob Roper Rob Roper

Why would Vermont enact a Carbon Tax that would add roughly a dollar per gallon to gasoline, diesel, home heating oil, natural gas and propane? One claim proponents make is that such a tax will somehow benefit the Vermont economy. Will it?

The primary support for this notion comes from a study prepared by Regional Economic Models, Inc. (REMI). This was released through the “Energy Independent Vermont” coalition, but paid for in part by David Blittersdorf of All Earth Renewables, who would likely receive considerable subsidies for his solar projects from Carbon Tax revenues. For that reason alone it should be taken with a grain of salt.

But even REMI describes the anticipated job creation resulting from a Carbon Tax as “relatively small when up against the macroeconomic baseline.” Indeed, REMI only predicts an increase of about 2,300 jobs by the year 2040 in an economy that currently generates 450,000 jobs.

These modest benefits are based in great part on an assumption that 23 percent of the total revenue raised through the Carbon Tax would be used to reduce Vermont’s corporate income tax rate. Another 22 percent would fund rebates to employers. (That’s 45 percent of total revenues according to the breakdown on page 10 of the study). But the legislation being discussed in Montpelier (H.412) does not include any corporate income tax cut whatsoever. The latest version of the bill:

… proposes to offset 90 percent of the revenues from this carbon pollution tax through reduction of the sales and use tax, a refundable tax credit to personal income taxpayers, a low-income taxpayer rebate, and a per employee rebate to employers.


What legislators are proposing is that after the state takes 10 percent off the top for new or expanded programs, and after the sate covers the bureaucratic costs of implementing and collecting the tax, and after the reduction to the sales tax takes place, a portion of the remaining revenue would be allocated to a per employee rebate program. So, overall, the legislature is discussing a much smaller economic stimulus package than REMI accounts for. It’s safe to assume it will not yield the results predicted by the study.

The real lesson here is to remember what politicians do to an idea (and with our money) once they get their hands on it.


Interestingly, one word never appears in the REMI study at all: “tourism.” There is no accounting for how significantly higher gasoline prices will affect people’s willingness to drive or fly to Vermont, nor how the impact of industrializing our ridglines and pasture lands with wind and solar facilities, which the Carbon Tax would in part be subsidizing, will impact one of our largest economic drivers (not to mention real estate values and sales). A rather bizarre omission from an economic impact analysis of Vermont!


In this vein, REMI anticipates there will be zero impact on air transportation insofar as it affects gross state product. The assumption is that having to pay an extra dollar per gallon for aviation fuel will not impact airlines’ decisions to either terminate routs through Burlington International Airport or raise the cost of flights, making BTV less desirable than alternatives in New York and Canada. Roughly one third of BTV travelers are from Canada. This is a silly assumption.

And, while the report does consider impacts to transportation businesses (they will be significant), the analysis doesn’t appear to take into account the many Vermont businesses that, while not cab or trucking companies, require pick-ups, vans, or tractors, to do their work, such a plumbers, electricians, landscapers and farmers. It also fails to account for the fact that many of our citizens need to commute many miles a day just to get to and from their jobs.

A Carbon Tax in Vermont would give Vermonters just one more reason to cross the Connecticut River. Even if the current proposals pan out in regard to reducing the state sales tax from 6 percent to 5 ½ percent and, over time, down to 5 percent, that would hardly be an incentive to stop shopping in tax-free New Hampshire, especially when you add the new incentive to save $15 to $20 dollars per fill up, as well as to save on fuel for your lawn mower, chain saw, space heater, grill, etc.

And, lastly, the REMI study reminds us that the government does not have any obligation to redistribute any of the revenue generated by a Carbon Tax, and has every right to spend it however it sees fit. Is this too big a temptation for legislators dealing with a $100 million structural deficit, and a programs wish list that is seemingly endless? Who wants to find out?


– Rob Roper is president of the Ethan Allen Institute

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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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