Taxes

Governor Phil Scott’s 2026 budget address, the second major policy speech of the session following the State of the State, reinforces a clear throughline: Vermont’s affordability crisis is the product of structural imbalance, not a lack of spending. With a $9.4 billion budget proposed without broad-based tax increases, the Governor framed the year ahead as a return to fiscal reality after years of federal stimulus, emphasizing discipline, prioritization, and reform. 

Governor Scott’s budget priorities closely align with the Vermont Chamber’s legislative priority framing to find a unified path toward affordability and economic resilience. The Governor underscored that rising costs in education, healthcare, and energy are crowding out investments in housing, workforce, and community vitality—an assessment consistently reinforced by employer feedback and reflected in the Vermont Competitiveness Dashboard, which shows Vermont’s cost structure as a persistent barrier to growth. This framing is reinforced with targeted investments and policy tools aimed at reducing cost drivers while maintaining support for housing, workforce pathways, and community stability. 

Education: Cost Containment Must Follow Reform 

Education dominated the address, and for good reason. The Education Fund has grown nearly 40 percent in five years, with property taxes rising more than 40 percent over the same period. At the same time, Vermont continues to face declining enrollment and demographic pressure, underscoring a growing mismatch between cost and scale. The Governor’s call to complete Act 73, paired with targeted property tax relief and an openness to spending caps, aligns with the Chamber’s position that affordability cannot be achieved without bending the cost curve. 

Notably, the budget pairs cost containment with continued investment in workforce-aligned education pathways, including dual enrollment, early college, adult education, and the Vermont Trades Scholarship Program, reinforcing the need to connect education spending with labor market outcomes.  

Housing: Aligning Investment with Permitting Reform 

The budget continues strong support for housing, including permanent funding for the Vermont Housing Improvement Program and renewed Downtown and Village Center Tax Credits. Just as important is the focus on reducing the regulatory barriers that slow housing construction. The Vermont Chamber has long argued that money alone cannot solve Vermont’s housing shortage without regulatory alignment, and the Governor’s emphasis on both supply and speed reflects that reality. 

Energy and Healthcare: Affordability as a Competitiveness Issue 

The Governor’s critique of rising energy and healthcare costs mirrors what Vermont employers experience daily. Vermont consistently ranks poorly on energy affordability and healthcare cost indicators relative to peer states, placing upward pressure on wages, benefits, and operating costs. Within the proposed budget, this focus is reinforced through tools aimed at stabilizing healthcare costs and premiums, including authority to pursue federal waiver strategies and investments designed to preserve access while improving affordability. The Governor’s call to recalibrate energy policy toward affordability and reliability, and to expand healthcare choice while lowering costs, aligns with the Chamber’s advocacy for pragmatic solutions that protect both households and job creators. These systems directly shape Vermont’s cost structure and its ability to attract and retain workers. 

Public Safety and Workforce Stability 

In his FY26 budget address, Governor Phil Scott framed public safety investments, accountability reforms, and expanded treatment and recovery services not simply as social policy, but as essential economic infrastructure. The Governor’s budget proposal reinforces this framing through targeted investments that expand pretrial supervision capacity, strengthen accountability measures, and increase access to treatment and recovery services, explicitly recognizing that public safety, stability, and workforce participation are deeply interconnected. Safe downtowns, reliable workforce participation, and functional systems matter to every sector of Vermont’s economy and are foundational to business confidence and community vitality. 

The Bottom Line 

The budget reflects a disciplined approach grounded in the reality that Vermont cannot spend its way out of an affordability crisis. The Governor has laid out a framework that prioritizes reform over rhetoric. The challenge now shifts from diagnosis to execution. 

As the session advances, the Vermont Chamber will remain focused on ensuring these proposals translate into durable policy that restores affordability, predictability, and long-term economic resilience for businesses and communities statewide. 

Vermont legislators gathered Friday for the inaugural meeting of the Caucus for Vermont’s Economy, a bipartisan group of legislators that represents communities around the state, focused on advancing policies that strengthen the state’s economy and improve the well-being of Vermonters. The timing could not be more critical. The recently released Vermont Competitiveness Dashboard from the Vermont Futures Project underscores why: Vermont ranks last in the nation in economic momentum, 50th in workforce retention, 49th in population growth, and near the bottom in housing permits and business competitiveness. 

While these rankings paint a sobering picture, the caucus demonstrates that data is not destiny. By bringing together legislators from both the House and Senate, leaving party roles at the door, the group is creating a forum to turn information into action. The Caucus is led by Co-chairs Rep. Abbey Duke and Rep. Ashley Bartley, Rep. Jonathan Cooper (Clerk) and Reps. Chris Morrow and Kate Lalley (Communications). In preparation for the caucus, all legislators were surveyed to gauge interest and collect insights on the expertise members could bring. The result is a diverse and talented group, committed to looking at Vermont’s economic challenges from a “big picture” perspective. 

At the inaugural session, caucus leaders emphasized breaking down committee silos, fostering collaboration across the legislature, and bringing diverse perspectives to complex problems. Members shared priorities and ideas ranging from Vermont’s highly restrictive regulatory environment, housing, and creating a state in which Vermonter can thrive. The conversation highlighted that while Vermont faces real challenges, it also has clear opportunities to reverse trends when lawmakers act decisively together. 

The caucus aims to translate urgency into action. By focusing on adopting policies that grow the economy, and expanding opportunity for all Vermonters, the group hopes to move beyond gridlock and build a more resilient, competitive Vermont. For businesses and communities, the caucus launch is a signal that the state’s leaders are confronting difficult data with collaboration, creativity, and optimism, turning insight into meaningful solutions.  

The Senate Committee on Economic Development, Housing, and General Affairs took testimony from both the Vermont Futures Project and Vermont Chamber of Commerce, grounding the conversation in data and employer experience. Committee Chair Sen. Alison Clarkson framed the discussion by stressing that understanding economic trends early will help shape meaningful economic development and housing policy this session. Lawmakers acknowledged that without aligning policy with economic realities, Vermont risks perpetuating trends that weaken its competitive position.

The data presented by the Vermont Futures Project highlighted that while quality of life remains a strength, core structural challenges, especially population decline and limited housing supply, are holding the state back. Vermont ranked near the bottom of the nation in population change and housing permits, as one of only three states experiencing net population loss in 2024. Committee members appreciated the comparative context, noting the recently released Vermont Competitiveness Dashboard from the Vermont Futures Project helps shift debate from anecdote to measurable outcomes.

Building on that foundation, the Vermont Chamber’s testimony focused on a set of pragmatic, data-informed economic priorities designed to support workforce availability, improve regulatory predictability, and align state policy with business needs. Businesses consistently report workforce scarcity, housing limitations, regulatory complexity, and cost pressures as interconnected constraints. Members around the table noted how these challenges play out in their districts, especially when companies cannot expand due to permitting uncertainty or cannot recruit due to housing shortages.

The Vermont Chamber’s workforce and economic development policy recommendations this year focus on six priority areas:

• Regulatory Predictability and Streamlined Permitting – Compile and coordinate regulatory requirements across agencies to reduce uncertainty and delays
• Effective Outreach and Coordination for Workforce Investments – Improve employer awareness of existing programs through trusted intermediaries and clear communication
• Expanded Access to the Green Mountain Jobs Program – Broaden eligibility to include associate degrees and industry certifications reflecting the reality that nearly 70 percent of Vermont jobs do not require a four-year degree
• Strengthened Hospitality and Visitor Economy Workforce and Funding – Align training with industry needs and support data informed marketing to stabilize demand and employment
• Preservation of the Vermont Employment Growth Incentive VEGI – Remove the sunset on this investment tool to provide long term predictability for business decision making
• Support for Automation to Preserve Jobs and Increase Productivity – Launch a study to design incentive structures that balance technology adoption with workforce upskilling

The testimony emphasized that the agenda is rooted in long-term strategy, realistic budget expectations, and employer feedback from across sectors. Committee members engaged deeply with each recommendation, expressing particular interest in regulatory transparency, workforce marketing, and expanded retention incentives. Questions underscored a shared understanding that Vermont’s economic challenges are intertwined, and effective policy must be coordinated, measurable, and grounded in data.

As the session unfolds, the Chamber will continue to work with legislators to refine and advance these priorities, ensuring that state policy supports economic competitiveness, workforce stability, and predictable conditions for business growth across Vermont

“I think” is not an economic strategy. Yet too often, tax debates drift away from data and lived experience and toward short-term fixes that feel expedient in the moment. This week’s discussion in House Ways and Means around H.R.1 and selective decoupling from federal tax provisions puts Vermont at a familiar and consequential crossroads following testimony from an expert witness that emphasized professional judgment, with limited supporting data or publicly shared analysis available at the time of publication. 

The issue before lawmakers is not whether Vermont faces fiscal pressure. It is whether the state continues a pattern of treating businesses as a fiscal backstop or chooses a path that strengthens affordability, predictability, and long-term economic stability. 

The lived experience of Vermont employers is clear, and it is not theoretical. Business Climate Survey results consistently show that employers’ top challenges are workforce shortages, taxes and fees, and housing. These pressures are interconnected. When costs rise in one area, they compound strain across the entire system. 

The overall business climate rating of 2.86 out of 5 captures that reality. Employers remain deeply committed to Vermont and their communities, but they are operating under rising costs, limited labor availability, and regulatory processes that often feel unpredictable or misaligned with economic conditions. That uncertainty is not academic. It directly affects business decisions. 

We see it clearly in investment behavior. More than one-third of Vermont employers anticipate making no investments in the next 12 months, while many others expect only minor investments. When asked how Vermont’s tax policies influence investment decisions, 56 percent say negatively, and zero percent say positively. This is not a signal to raise the cost of doing business. It is a warning that confidence is fragile and that policy narratives untethered from data carry real risk. 

This moment also deserves context. Just last year, lawmakers rightly expressed concern about the impact of federal tariffs on Vermont businesses. There was bipartisan recognition that when external forces raise costs and disrupt supply chains, state policy should not compound that harm. That same logic applies here. Selectively decoupling from federal tax provisions that support investment and innovation would stack new state-level costs on top of existing federal pressures, undercutting the very stability policymakers sought to preserve when tariffs hit. 

Importantly, this is not a question of tax fairness or progressivity. Vermont already has one of the most progressive tax systems in the country, ranking near the top nationally according to the Institute on Taxation and Economic Policy. Thoughts that Vermont’s tax structure lacks progressivity are not supported by the data.   

The real issue is cost containment and fiscal discipline. Vermont ranks 46th nationally in state government spending per capita. At the same time, nearly two thirds of employers say public funds are not being used efficiently to support economic growth. That disconnect matters. Businesses are being asked to absorb higher costs without seeing corresponding improvements in affordability or outcomes.

This is why proposals to decouple from federal provisions like R&D expensing are so concerning. Decoupling would raise the cost of innovation in Vermont relative to neighboring states, increase tax code complexity, and penalize firms investing in productivity, technology, and higher-wage jobs. In a state with a shrinking workforce, productivity-led growth is not optional. It is essential. 

The Competitiveness Dashboard reinforces this point. Vermont ranks near the bottom nationally for business formation, investment momentum, and economic growth, while also ranking poorly on tax competitiveness. These are not isolated data points. They are signals of a system under strain that demand data-informed responses. 

This week’s tax hearings and briefings at the State House were largely foundational, but they set the stage for the most consequential fiscal debates of the session. With federal support uncertain, budget constraints tightening, and cost pressures continuing to build, lawmakers are beginning to confront a central reality. Without meaningful cost containment, tax policy will once again become the primary tool for closing budget gaps. 

Several interconnected tax issues were discussed this week, including federal conformity, education finance, and Vermont’s existing tax structures. Together, they set the context for a session where fiscal discipline will determine whether Vermont strengthens affordability or compounds existing pressures. Data from the Vermont Competitiveness Dashboard shows that affordability pressures tied to taxes, housing, and workforce availability are already constraining business growth and labor force participation. How lawmakers respond this session will influence whether Vermont closes or widens those gaps relative to peer states. 

Federal Tax Policy, Vermont Choices 

This week’s joint hearing of House Ways and Means and Senate Finance focused on H.R.1 and the fiscal impacts of its tax provisions. Vermont conforms to the federal tax code selectively, not universally. Changes that affect the calculation of federal taxable income itself generally flow through unless Vermont explicitly decouples, while changes that occur below the line, create new deductions or credits outside taxable income, or are structured differently may not flow through at all without state action. Understanding how and where federal changes apply is central to the tax discussion this session, as lawmakers weigh affordability, predictability, and revenue impacts. 

Fiscal analysts noted that accelerated deductions reduce near-term state revenue, prompting discussion about selective decoupling. Provisions such as research and development expensing, interest deductibility, and accelerated depreciation were highlighted because of their fiscal impact.  

For businesses, the risk of focusing solely on short-term revenue is significant. Decoupling would raise the cost of investment, increase complexity, and weaken incentives for innovation and expansion at a time when employers are already facing higher interest rates, workforce shortages, and rising costs. Dashboard indicators show that states with stronger investment and productivity growth are better positioned to grow wages, retain workers, and stabilize tax bases over time. 

Federal conformity provides predictability and aligns Vermont’s tax policy with national investment signals. Moving away from that alignment would introduce uncertainty and place Vermont at a competitive disadvantage. How lawmakers approach these decisions will be a defining test of whether tax policy this session supports affordability, predictability, and long-term economic growth. 

Education Transformation and Vermont’s Tax Outlook 

The Governor’s State of the State reinforced a central reality shaping Vermont’s tax outlook. Education spending remains the single largest driver of property tax pressure and broader affordability challenges. Education costs now exceed $2.5 billion annually, a sharp increase over the past decade, with current projections pointing to another significant rise next year. Education is funded not only through property taxes, but also through substantial diversions from sales, meals, rooms, and other taxes. As those costs grow, they increasingly limit the state’s ability to invest in housing, workforce development, infrastructure, and broad-based affordability. 

This week also marked the start of formal legislative review of Act 73, the education transformation law passed last session. Committees focused on understanding the structure and fiscal mechanics of the new system, laying the groundwork for more substantive policy discussions in the weeks ahead. Act 73 represents a meaningful structural shift in education finance intended to improve equity and long-term sustainability. Whether it delivers on affordability will depend on disciplined implementation and sustained follow-through. 

The December 1 letter provided the baseline for these discussions and formally begins the annual process of setting education property tax rates. While the letter is a forecast rather than a final decision, it shows continued upward pressure on property taxes driven by rising education spending and declining enrollment. For businesses, the key takeaway is that the Yield Bill is where forecasts become tax rates. Decisions about how costs are allocated, whether one-time funds are used, and how nonresidential taxpayers are treated will directly affect employers and shape predictability for the year ahead. 

Short-term fixes and one-time funds may soften immediate impacts, but they do not change the underlying cost trajectory. That is why education transformation and cost containment are now central to every tax conversation at the State House and to Vermont’s long-term affordability and economic competitiveness. 

The Bottom Line 

This week made one thing clear. Vermont is entering a session where tax outcomes will be shaped less by new ideas and more by whether the state can control costs, align with federal policy, and avoid short-term decisions that undermine long-term stability. The Competitiveness Dashboard makes clear that Vermont’s economic challenges are interconnected, and this week’s hearings confirmed that tax policy sits at the center of those dynamics. The Vermont Chamber will continue to engage policymakers with data-informed analysis to ensure tax policy supports affordability, predictability, and a competitive environment for businesses across the state.