Tag Archives: Public Assets Institute

Phil Scott Might Not Enjoy a Fourth Term So Much

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Gov. Phil Scott has, in many ways, lived a charmed life in the corner office. There haven’t been any scandals — or at least none that have been uncovered by our anemic press corps. He has, by general acclamation, kept his image as Gov. Nice Guy in spite of his outbreaks of verbal dyspepsia in press conferences and All Those Vetoes. And his greatest challenge has come with an incredible upside.

That would be the Covid-19 pandemic, which caused huge disruptions but was actually a strong net positive for the Vermont economy. A flood tide of federal relief aid meant there was no need for tough budget battles in the Statehouse and there was plenty of capacity for new investments. The money had the usual multiplier effect on disposable income, economic activity, and tax receipts. The latter eliminated any budget pressure that might have been left over from the direct federal infusions.

He had to make some tough calls on controlling the pandemic, for which he got plenty of praise and almost none of the criticism he, at times, deserved. Overall, the pandemic made his job a hell of a lot easier.

This isn’t the first time a crisis has elevated a governor. The high point of Peter Shumlin’s tenure was the aftermath of Tropical Storm Irene, when he got to look strong and resolute and was able to throw money around and be a hero without anyone asking any inconvenient questions. Given the rest of his record, I wonder what we’d find if somebody did a deep dive on the Irene response, but that’s water under the bridge, pun intended. And Dick Snelling is fondly remembered for accepting tax hikes in order to pull Vermont’s economy out of the gutter, and not so much for being an asshole.

But that tide of federal aid is starting to recede, and budgets are about to get very tight around these parts.

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Tell Me Again Why a Wealth Tax Is a Terrible Idea

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From the Public Assets Institute’s “State of Working Vermoint 2020”

An income tax surcharge — permanent or temporary — is a political nonstarter in Vermont. It was one of Lt. Gov. David Zuckerman’s major proposals in his bid for governor, and look what it got him. I am fully confident that a wealth tax would fail to draw anywhere near a majority in either the House or Senate Dem/Prog caucuses, let alone escape Gov. Phil Scott’s ever-ready veto pen.

But it’s a really good idea, and it’s a real shame we’re not taking it seriously.

First of all, Vermont needs new revenue. We’re threatened with huge budget cuts unless the federal government comes to our rescue. And even if it does, we need major public-sector investment on climate issues, broadband, housing, and higher education. Among many others. Even Scott acknowledges the need for these investments, but then he shrugs his shoulders and says we just can’t do it.

Second, the wealthiest Vermonters, just like the wealthiest Americans, have benefited tremendously from federal and state tax policies that cater to their interests. Zuckerman based his call for a temporary wealth tax on the fact that top earners really cashed in on Trump’s 2017 tax cuts. The lite-guv simply asked them to pay a share of that bounty for the greater good of the state.

But even before Trump, the system was rigged on behalf of the wealthiest. Ronald Reagan started this ball rolling, and it’s just gotten worse and worse since then. The above chart, taken from the Public Assets Institute’s “State of Working Vermont 2020” report, shows the result of these decades of an unbalanced economy and tax system. From the report:

Over the last four decades, there has been a dramatic upward redistribution of income in Vermont and across the country. In 2019, the top 20 percent of Vermont households received almost half (48.4 percenty) of the income earned in the state. The top 5 percent of households got 20.7 percent. Average income for the top 20 percent of households had increased more than 8 percent since 2007, after adjusting for inflation. For the bottom 20 percent, average income was down more than 7 percent.

And that’s just the income part of this equation. It doesn’t address taxation, which is generally very regressive at the federal level and in the vast majority of states.

After the jump: More mythbusting.

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The mass exodus myth

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Vermont faces a demographic challenge. Our population is stagnant and getting older. We have fewer school-age kids, which drives up the per-pupil cost. We have fewer young adults to invigorate the workforce and pay forward the costs of retirement and health care for older Vermonters.

That is true. But there’s a popular myth about why that’s true. Take it away, Ethan Allen Institute’s Rob Roper:

The fact of the matter is that Vermont’s progressive tax, regulatory, healthcare, land use, and energy policies are driving up the cost of living, and driving our young, educated workforce out of the state. Who wants to work or start a business or put down roots in a state that punishes success and whose guiding governing principle is to redistribute what you earn to someone else?

The assumption beneath the thickets of dogma: young people are fleeing Vermont. And that’s not true.

Here’s the truth. Young adults are highly mobile. Many of them do leave Vermont. However, an almost equal number move in. (More on this in a moment.)

So why do we have so many fewer people aged, say, zero to 35?

Because, for a long time now, Vermont has had very low birthrates. The average female Vermonter has about 1.5 children during her lifetime. Replacement level is 2.1. This has been true long enough that we are losing ground in the younger demographics.

That’s it. Not regulation or taxes or education costs or business climate or cost of living or Peter Shumlin’s nose. Simple and straightforward: not enough babies.

And now let’s see some actual figures, as opposed to conservative wishful thinking, on whether people are actually fleeing Vermont.

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Phil Scott is right about an “affordability crisis.” He is dead wrong about the causes.

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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!

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If the Governor is worried about the wealth gap, he could maybe do something about it

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Gov. Shumlin’s budget address began with a bit of boilerplate that’s been a recurring feature in his recent public remarks: bemoaning the wealth gap in America.

At a time when the wealth gap between the people at the top and everyone else is more extreme than since before the Great Depression, Vermonters hear about the recovery both in Vermont and nationally; they hear about our state’s low unemployment numbers; and they wonder: Why aren’t I seeing it? Why is my family being held back?

The bemoaning is appreciated, but when he does so little about the wealth gap, it comes across as an empty rhetorical gesture — the last ghostly trace of a progressive agenda.

Okay, I don’t expect Peter Shumlin to single-handedly fix our profoundly unbalanced economy. But there’s one big thing staring him in the face that would help the middle class and help close the state’s budget gap.

Raise the effective tax rate on top earners. Not the actual rate, but the effective rate.

Yes, I’ve said this before; and yes, Shumlin blocked a House proposal to do just that a couple years ago. But our tax system has gotten worse since then, and our budget shortfall has grown.

Just look at this chart.

ITEP 2014 tax chart

Sorry, I should have warned you: seeing that chart may result in nausea and vomiting.

According to figures released this week by the Institute on Taxation and Economic Policy (ITEP), Vermont’s tax system hits the working and middle classes the hardest, while top earners pay the least of all (as a percentage of their incomes).

In the past, the Governor has praised the fairness of our tax system. He should never, ever do that again until he fixes it.

Not only has he failed to do so… not only has he blocked efforts to do so… but during the last two years, Vermont’s tax system has actually gotten worse. Here’s the ITEP chart from two years ago.

ITEP 2012 tax chart

Compare the two charts: Higher shares of family income for the bottom 60%, and lower shares for the very top. No relief for the middle class, despite the Governor’s rhetoric.

In many ways, our state tax system is relatively progressive, but there are problems. The sales tax is extremely regressive; the property tax hits the working and middle classes the hardest. And as Paul Cillo of the Public Assets Institute points out: 

“The regressive property tax is Vermont’s largest single revenue source supporting state and local public services, and the Legislature has been shifting more and more public costs onto the property tax.”

And while income tax rates are very progressive, the actual taxes paid are much less so. Vermont’s tax rate for top earners is 8.95% — but because of generous rules on taxable income and deductions, those top earners pay an effective rate of only 5.1%. 

In addition to the fairness issue, the disparity puts pressure on Vermont’s budget, as PAI points out:

If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.

What have we seen throughout the past several months? Income tax receipts coming in lower than expected, forcing cuts in the budget. Hmmm.

There was one modestly progressive tax proposal in the Governor’s speech: he wants to end a tax deduction for state and local taxes paid in the preceding year, a tax break that mostly benefits upper tiers.

Otherwise, he left our unfair, broken, and inadequate tax system untouched.

Just about every time he opens his mouth, he talks about how Vermonters are taxed to the limit of their ability to pay. This is clearly true for most Vermonters, but clearly untrue for the most fortunate among us.

There is a glimmer of hope. Shumlin yesterday took a tiny step away from his past opposition to raising income, sales, or rooms and meals taxes:

You have heard many times over the past four years my opposition to raising income, sales, and rooms & meals tax rates to fund state government.

When he delivered this line, he gave the word “rates” some extra oomph. And making the income tax fairer wouldn’t require a change in rates; it’d just mean closing loopholes and limiting deductions.

Reasonably. I’m not calling for confiscatory taxes on the rich; I’m just calling for them to pay their fair share in an economy that has bestowed most of its benefits on them.

How about it, Shap?

Two ships that pass in the night

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Today, via Neal Goswami of the Mitchell Family Organ:

A report released Wednesday based on an internal review of the Department for Children and Families does not recommend restructuring the agency, but does seek immediate boosts to staffing, additional staff training and better collaboration between the department and its partners.

Yesterday, via them damn commies at the Public Assets Institute:

A month after announcing a 2 percent cut to the current year’s budget, the Shumlin Administration is signaling its intention to make additional cuts of as much as 5 percent and possibly more next year (fiscal 2016).

Well, that looks like a conundrum in the making.

Human Services Secretary Harry Chen, the presumably more loyal and/or pliable replacement for the cashiered Doug Racine, now has a report that says his agency needs more resources. Which probably induces a rueful chuckle from Mr. Racine.

And now this report will duke it out with the Administration’s budget instructions reportedly given to its top managers:

The administration laid out two scenarios for fiscal 2016:

— Level funding—the same amount appropriated for this fiscal year after the cuts adopted in August.

— Five percent cut from fiscal 2015 levels—again after the August cuts.

As PAI notes, the best-case scenario — level funding — would mean cutbacks, since there are built-in cost increases: “cost of living increases for state employees, caseload increases, contractual increases, loss of federal funding, inflation, and other new demands…”

The AHS/DCF review was initiated by then-Secretary Racine. Will Dr. Chen back up the report’s conclusions? Or will he bend to the apparent belt-tightening mandate from above? According to the PAI report, he’s got about two weeks to turn in his budget recommendations.