In 1996, The Republican Governor’s Association released a publication that included a comparison of New Hampshire and Vermont as a natural experiment in economic policy. The data was striking then, but what’s remarkable is how little has changed.
Two states. One border. Very different choices.
Vermont and New Hampshire are nearly identical in ways that matter for economic comparison: neighboring New England states with similar climates, topography, population sizes, and historical roots. They even share a long border. What they don’t share is a philosophy of governance.
In 1996, A Tale of Two States laid out the case that New Hampshire’s lower-tax, smaller-government approach was producing measurably better economic outcomes. The data showed faster job growth, higher per capita incomes, and a dramatically lighter tax burden in New Hampshire.
Three decades have passed. Vermont’s policymakers had every opportunity to read the data and adjust course. Let’s see what happened.
Job growth: then and now.
The 1996 pamphlet highlighted annual employment growth in the early 1990s, where New Hampshire was consistently outpacing Vermont. From 2020-2021, Vermont’s Covid losses were nearly twice as deep as New Hampshire’s (-6.64% vs. -3.65%). Both states rebounded in 2022, but only New Hampshire sustained the momentum. By 2025, Vermont had slipped back below zero, losing jobs on net while New Hampshire continues to grow.
Source: Bureau of Labor Statistics
The tax gap didn’t close. It grew.
In 1995, Vermont residents paid 12.8% of their personal income in state and local taxes. New Hampshire residents paid 9.7%. That 3.1% gap was already significant, but now it’s up to 4%.
Source: Tax Foundation State Tax Burden Study (2022)
Over the last 30 years, the tax burden has had a real impact on each state’s population growth – one of the clearest signals of a state’s economic health. People move toward opportunity and away from cost. Since 1992, trends show that people value the opportunity afforded in New Hampshire.
Since the early 1990s, New Hampshire’s population has grown by roughly 35%, from about 1.1 million to over 1.4 million today. Vermont’s population has grown by about 14% over the same period, from roughly 571,000 to just over 650,000.
Last year, Vermont experienced the fastest rate of out-migration in the country, while New Hampshire continues to draw people from neighboring states in search of lower costs, more opportunity, and a government that takes a smaller share of what they earn.
Competitiveness: the ranking gap persists.
The original 1996 comparison cited a Small Business Survival Foundation survey ranking New Hampshire 6th nationally for small-business competitiveness, with Vermont a distant 45th.
After three decades and countless opportunities for reform, Vermont has failed to close that gap, largely because it has not adopted policies that have reduced tax or regulatory burdens on small businesses. What was identified as a warning sign in 1996 has instead proven to be a structural reality:
Source: Tax Foundation State Tax Competitiveness Index (2026)
$1.3 billion a year leaking across the border.
Perhaps the most dramatic illustration of Vermont’s tax disadvantage appears in border retail activity. In the late 1970s, before Vermont’s sales tax climbed, per capita retail sales in New Hampshire border counties were about 17% higher than adjacent Vermont counties. By 1992, that gap had widened to 60%. By 2007, it reached roughly 200%.
Despite Interstate 91 running along Vermont’s side of the Connecticut River, consumer activity has increasingly shifted east.
A study published in the Vermont Economy Newsletter and later updated by economist Doug Rosien found that by 2017, Vermont was losing $9,524 per capita in annual retail sales in border counties. With 163,607 residents in those counties, that amounts to roughly $1.3 billion in annual retail leakage – about 4% of Vermont’s GDP.
As Vermont raised its sales tax from 3% to 4% to 5% and eventually to 6%, its retail sales as a percentage of New Hampshire’s border county sales fell from near-parity (~95%) to roughly 40%. Each tax increase accelerated the divergence:
Source: Doug Rosien / Vermont Economy Newsletter; VTDigger (2022)
It’s not politics. It’s pattern recognition.
This comparison was initially framed as Republican Governor versus Democrat Governor, but both Vermont and New Hampshire have elected governors from both parties over the last 30 years. What has remained more consistent in each state is not party leadership, but governing philosophy: limited government versus more centralized government, lower taxation versus higher taxation, and regulatory environments designed either to reduce barriers to business or to impose more protective oversight.
Vermont’s policy choices, while reflecting sincerely held values around public investment, social services, and the role of government, have produced clear and measurable economic outcomes that clearly show what Vermonters are missing out on. Over the last 30 years, policymakers in Vermont have not consistently taken a full and honest accounting of those tradeoffs, and good intentions alone cannot justify poor long-term economic consequences – particularly where those outcomes have run counter to their intended goals.
The debates Vermonters are having today about affordability, economic competitiveness, and growth are largely the same debates they were having in 1995, yet policy has not shifted toward the model that evidence suggests is more closely associated with sustained growth.
The evidence from border counties is especially difficult to dismiss because it controls for nearly everything except tax policy. The same region, same climate, and same consumer base exist on both sides of the border, the key difference is that one state taxes retail sales and the other does not. The result is approximately $1.3 billion per year flowing east across the Connecticut River.
Acknowledging this should not be a partisan concession, but an invitation to engage with three decades of accumulated evidence and to ask whether the current approach is truly serving the people of Vermont. The answer to that question should matter to every Vermonter, regardless of party affiliation.
A Tale of Two States, and the way it has held up over the past 30 years, reinforces a broader principle: fiscally responsible policies grounded in principles of subsidiarity, when paired with lower tax and regulatory burdens, tend to expand opportunity for families, businesses, and communities. It is time for Vermonters on both sides of the aisle to engage honestly with that reality.
