Our Lieutenant Governor is basing his gubernatorial campaign on “the affordability crisis,” the very real phenomenon that has more and more Vermonters pinching every penny and losing ground in areas like saving for retirement and college tuition. Of course, being a Republican, he defines “the affordability crisis” as a matter of burdensome taxation and enterprise-crushing government.
Those may be contributing factors, but they’re not much more than cherries on our affordability sundae. The real, fundamental problem is wage stagnation for the middle and working classes. They’re getting the big squeeze from a financial system that’s benefiting the wealthy at everyone else’s expense. Tax pressures on working Americans are a relatively small factor in the affordability crisis.
And Phil Scott’s agenda will do little to address the fundamental challenges we face. Some of his ideas would actually make things worse.
Evidence galore for the real affordability crisis can be found in Public Assets Institute’s recent report, “State of Working Vermont 2015.” The topline:
… the gross state product as grown since 2010, with a slight dip in 2013. But the rewards of Vermont’s recovery concentrated at the top of the income scale, while everyone else lost ground. In the decade since 2004 median household income fell from $58,328 inflation-adjusted dollars to $54,166.
If the benefits of economic expansion had been shared equally, PAI reports, “median household income would have been nearly $62,000 in 2014 — $7,680 higher than it was.” Under that scenario, we wouldn’t have a middle-class “affordability crisis.”
And it would be impossible for Phil Scott or anyone else to cut taxes enough to make up for that.
Coming up: Charts!
The lag in middle- and working-class income has several effects. First, total state and local tax receipts are lower because our tax system comes down most heavily on the middle.
Second, the economy sputters because the great middle class are the true job creators. They spend much more of their disposable income than do the rich. If working Vermonters could afford to buy more stuff, sales tax revenue would be higher and our businesses would be doing better. (This is a huge flaw in free-market wage strategy: each individual business benefits from lower wages, but as an aggregate, businesses need well-paid workers to buy the stuff they make.)
Third, more and more working Vermonters need public assistance to make ends meet. Programs like Medicaid and food stamps were originally intended as social safety nets for those down on their luck or between jobs. Now, a lot of jobs don’t pay a living wage, and those workers end up taking some form of government assistance. Which is a major driver in the rising cost of government.
And even middle-class Vermonters have a distressingly slim margin of error. Here’s a truly scary chart:
In 2004, a middle class family had a comfortable cushion against bad times, and opportunity to save for future needs. Now, that cushion is almost gone.
There is more in this report, much more. It chronicles rising poverty rates, homelessness, and dependence on food stamps. It reports a horrible situation for single mothers of small children; more than half are living in poverty.
More than half!
And they are our future.
And so is this:
That’s more than enough from me; you can read the rest yourself. Highly recommended.
The point is, we’re not in a situation where marginal measures are going to have any real impact. More business incentives, tax breaks, questionable “job creation” or “enterprise” grants won’t cut it. And we can’t tax-cut our way into affordability; tax cuts on that scale would decimate Vermont’s budget. Resulting social-service cuts would shove more people off the cliff, and further reduce the purchasing power keeping our economy going. (Food stamps are by far the best economic-stimulus measure because they immediately go back into the economy.)
Our affordability crisis isn’t about state policies of the past five years. It’s about a transformation of our society that’s leaving most of the people behind. Vermont’s power to fight through those headwinds is limited. We have to look beyond the boilerplate solutions that have consistently failed. We have to take maximum advantage of our strengths. We have to invest in programs that strengthen our workforce (education from pre-K through high school, affordable college, job training) which, in turn, strengthens our appeal to employers far better than the odd tax break or grant could ever do. (Phil Scott has talked about improving education and job training; that’s great, but I have yet to see how he would free up the necessary funds without raising taxes or cutting Human Services, which eats up the lion’s share of the general fund budget.)
Vermont needs to resist the siren song of our great national race to the bottom. We need to find ways to create a fairer and more productive economy. Which, from the evidence provided here, are really the same thing.
It’s not a choice between fairness and productivity; they are two sides of the same coin.