Vermont has second smallest GDP in nation. Here's what that means for your taxes

ART WOOLF

Special to the Free Press

Harold Townsend, an assembly worker at DR Power Equipment, works on a machine at their Winooski manufacturing plant in March 2013.

The United States is the largest economy on the planet, which means we produce more goods and services than any other country. Last year, gross domestic product totaled $19.3 trillion, or $19,300 billion, a number that is incomprehensibly large.

Vermont’s 2017 GDP was $32.2 billion, also a big number, but one that is somewhat easier to comprehend. To put that amount in perspective, it’s five times larger than the budget the legislature passed last weekend.

Some of the interesting, but trivial facts about Vermont’s GDP include that Vermont, the second smallest state in the nation by population, has the dubious distinction of having the smallest GDP of any state. While Wyoming has fewer people, its GDP is significantly higher than Vermont’s. If Vermont was an independent country, its GDP would rank it about 130th in the world, somewhere around the level of Macedonia or Cyprus, and just a little below the CIA’s estimate of North Korea’s GDP.

On a more serious note, GDP tells us something about living standards and how they change over time. Vermont’s inflation-adjusted GDP grew by only 1.1 percent last year, which puts Vermont’s growth rate in the bottom third of the 50 states. Over the past five years, our average growth rate was even lower, and only seven states grew more slowly than Vermont.

Vermont’s inflation-adjusted GDP grew by only 1.1 percent last year, which puts Vermont’s growth rate in the bottom third of the 50 states. Over the past five years, our average growth rate was even lower, and only seven states grew more slowly than Vermont.

One of the reasons our economic growth is so meager is because our population growth is non-existent, and the number of workers is growing so much slower than in most states. Over the last 12 months, for example, only three states reported lower employment growth rates than Vermont.

Adjusting for our population, Vermont’s GDP per person is $51,600, well below the U.S. level of $59,100, giving us a rank of 34th in the nation. Back to trivia — if Vermont were a country, its GDP per capita would put it on a level comparable to Sweden, Iceland, or Germany, but still 15 percent below the U.S. average.

Any way you cut the numbers, Vermont’s economy is growing slowly. And that presents problems. One we are seeing being played out is occurring in Montpelier. A slow growing economy means one that is generating less additional economic output. And it is economic output that generates the revenues the state uses to fund its commitments. With slower growth comes less additional tax revenue.

Between 1987 and 1997 Vermont’s total GDP growth was 3 percent per year. From 1997 to 2007 it grew by 2.8 percent annually. We are now growing only one-quarter as fast. On a per capita basis, our current growth rate is only one-third what it was in the past. There is no indication that the trend of slower GDP growth — either total or per capita — will reverse in the future.

GDP is just one number. It doesn’t measure or describe everything we are concerned about. But the recent trend of slow GDP growth is a clear indication that unless something changes, one thing we know will happen is that our elected representatives will have a difficult time funding past commitments, not to mention future ones.

Vermont's inflation adjusted gross domestic product

Art Woolf is associate professor of economics at the University of Vermont.