Random Notes for a Monday

February 8th, 2010

The Greek slave Pedagogue

Grammar Note: On Vermont Public Radio Friday, Sen. Phil Scott, a Republican from Montpelier and an aspirant to the lieutenant governorship, described something as “a phenomena.”

Scott we thereby guilty of what be called the criterion phenomenon, the inexplicable compulsion to call a single phenomenon or criterion two of them.

But let us not confine our pedagogic purity to the politicians. To the contrary, we will also meticulously monitor members of the media (as we assiduously arrange the alliteration). A few hours earlier, VPR’s Mitch Wertlieb, helping the quarterly and loathsome fundraising drive had imagined “$5,000 laying on the ground.”

Possible, had the $5,000 undergone metamorphosis into human form and commenced placing objects upon the earth. Or alternatively, transformed itself into two human beings, and….oh, no. This is a family web site.

More likely the five grand was (at least in the Wertliebian imagination) lying on the ground.

If it’s any comfort to either man, on the radio the next day, Steven Chu, the secretary of Energy and, more pertinently in this case, a Nobel prize winner, talked of a competition “between (his younger brother) and I.”

This is the “between I” problem, the origin of which could be similar to that of the criterion phenomenon For decades, teachers scolded kids who said “Johnny and me are going to town,” or some variant thereof, convincing millions that it is always correct to say “(whoever) and I” even when “me” is right and “I” is wrong.

(Anyone who at this point actually said to him/her self, “no, ‘I am wrong,’” should be thoroughly ashamed, if not summarily executed.)

Political Note: Back in October, the News Guy, putting on his political prognosticator hat, suggested that State Sen. Doug Racine of Richmond had emerged, however tentatively, as the front-runner among the five Democrats running for their party’s nomination for governor.

Very tentatively indeed, as it turns out. Looking at the field today, it looks as though Senate President Peter Shumlin of Putney has become the first among equals.

Considering that the primary is at least 28 weeks away (the date may yet be changed), that no one seems to have taken an actual poll, and that most people who will vote in the primary are so far paying scant attention to the campaign, Shumlin’s hold on this position is just as tentative as Racine’s was.

Besides, in a way it was no fair. Shumlin had outside help. From the Vermont Yankee nuclear power plant.

It’s not likely that Vermont Yankee or its owner, the Entergy company of Louisiana, planned things that that way. Shumlin has been one of the plant’s persistent critics, meaning the best thing it could do for him was to do just about everything wrong, calling attention to the plant’s possible safety problems and its management’s competence and dependability, or lack thereof.

Precisely what it has done in the last several weeks, almost as if the Shumlin campaign had been secretly orchestrating Entergy’s actions, or (for those who believe in such) put a hex on the company.

But Shumlin didn’t just sit there as this gift was proffered to him. He knew what to do with it. No smug I-told-you-so wise cracks. No (apparent) gloating. He’s been calm, forceful, consistent in the way he’s handled himself behind the various podiums from which he’s addressed the issue.

Of course all the candidates have been standing behind podiums. But thanks to the Vermont Yankee tritium leaks and misstatements, there have been lots of television cameras and reporters in front of those podiums while Shumlin spoke. It’s been hard for the other Democrats to get much ink or air time of late.

Speaking of which, has anybody noticed that Lt.Gov. Brian Dubie, who faces no primary for the Republican nomination, has gotten a bit of air time because Gov. Jim Douglas keeps inviting him to every podium to face the cameras even though there is no point at all to Dubie’s presence?

Well, not counting to have him face the cameras.

Since Dubie has said nothing newsworthy, he hasn’t gotten much attention. Still, he’s been pictured up there next to the other officials who actually have power to make policy decisions.

Not Dubie’s fault. The lieutenant governor just doesn’t have much in the way of power to make policy decisions.

Tax Note: Well, on the very morning of the News Guy’s last post (scroll down), the one pointing out that there was no actual evidence that Vermont’s relatively progressive income tax structure has produced a measurable exodus of wealthy folks, the Burlington Free Press’s lead story in the local section bore the headline “Tax Migration Feared.”

What? Had somebody come up with actual evidence that your humble agent had somehow missed?

In a word, no. A tax accountant said some of his clients had asked him about the tax benefits of moving elsewhere. This is actual evidence of nothing. The closest thing to evidence that the Senate Economic Development Committee heard at a Burlington session was the claim of real estate developer Ernie Pomerleau that he has no plans to move out, but knows three dozen people who have.

A nice, round figure, three dozen. Nobody seems to have asked Pomerleau for their names. But let’s stipulate that Pomerleau is an honorable fellow and has actually talked to 36 wealthy Vermonters thinking about blowing the pop stand because of last year’s repeal of the state tax preference on capital gains.

But just where will they go? Only eighteen other states (according to the Legislature’s Joint Fiscal Office) offer tax breaks on capital gains, and most of them apply only to some gains. The only states that had the kind of broad preference Vermont just repealed are Arkansas, North Dakota, South Carolina, and Wisconsin.

Somehow, a mass exodus of wealthy Vermonters to North Dakota does not seem likely.

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Climate Change II

February 5th, 2010

And the other thing (picking up here from the previous post) that “everybody knows” about the Vermont economy is that Vermonters are heavily taxed.

As with the first thing that “everybody knows” about Vermont’s economy – that the state has a bad business climate (scroll down to the previous post) — “everybody knows” this other thing because it is incessantly repeated.

Unlike the gripe about the business climate, though, the statement about the taxes is almost accurate. Some Vermonters pay either a little or a lot more in state and local taxes than they would if they lived in most other states.

Most do not. Or if they do, the difference is so small that it is both imperceptible and not really measureable.

(In general, of course. No doubt there is somebody whose special circumstances would enable him or her to pay far less elsewhere. But then some whose special circumstances would involve them paying more).

Take a typical $60,000-a-year-household. Assuming it consisted of a couple with one or more children who own their home and itemize deductions, its taxable income would be about $50,000, costing them roughly $1,360 in state income taxes, or about 2.2 percent of their income. They’d pay as much or more in several other states.

Same with the sales tax. It’s six percent in Vermont, but nothing on food from the store, non-prescription drugs, or most clothing. Eighteen other states charge six percent or more, 11 levy a sales tax on groceries, and in Illinois, shoppers pay a one percent sales tax on non-prescription medicines.

Even the hated property tax is higher in many other states, and an income sensitivity cap holds down that levy for most Vermont property owners, including that $60,000-a-year couple.

But there are Vermonters who pay substantially more than their counterparts in most other states. These are the richest Vermonters, those who earn hundreds of thousands of dollars a year.

It isn’t that Vermont’s top rates are the highest. Four states have higher marginal income tax rates than Vermont’s 9.4 percent. Besides, that top rate doesn’t go into effect in Vermont until a household  has $372, 950 in taxable income (which probably means total household income of close to $500,000). In several states with lower top rates, that top rates kicks in at a lower income, meaning higher taxes for some upper-middle-income folks.

But that doesn’t hold down taxes for the truly wealthy, for households earning $500,000 a year or more. In Vermont, those taxpayers pay more than they would if they lived in almost (though not quite all) other states.

Just look at the numbers.  In 2008, the last year for which figures are available, the 1,195 Vermont households whose taxable income was more than $500,000 (400 of them more than a million) paid $95,417,651 in “net Vermont taxes.” That’s an average of almost $80,000 each, and was almost 20 percent of all the income taxes the state collected (they earned about ten percent of the income).

That’s a heap o’ taxes

It is these wealthy people that business advocates, conservative politicians, and others, have in mind when they assert that Vermont has a poor business climate. If taxes on these folks weren’t so high, the argument goes, more of them would move to (or remain in) Vermont. They wouldn’t just spend their money here. They’d invest. They’d start businesses. So there would be more jobs, meaning more income for middle-income and working people.

Maybe even (though not all the tax-cut advocates take their argument this far) so much more earnings for middle-income people that the state treasury would take in more tax revenues from those incomes  than it would lose by cutting taxes for the wealthy.

And the evidence, the  statistical data to support these contentions are…are…well, it seems that they aren’t.

At least the Lake Champlain Regional Chamber of Commerce and the Greater Regional  Burlington Industrial Corporation, the state’s two biggest lobbies often urging lower taxes, couldn’t come up with any. Neither could the American Legislative Exchange Council, the very conservative organization of state legislators from around the country. Neither could a few hours of trolling the Internet.

Oh, there are anecdotes and examples. This businessman or that is moving himself and/or his company to a lower-tax state. Sometimes a state or a country will see economic growth after cutting taxes. Sometimes low-tax states grow faster than their higher-tax neighbors.

But sometimes they don’t. Wealthy people seem to move into high-tax states as quickly as they move out of them. Vermont had almost 30 percent more over-$500,000 households in 2008 than it had in 2000, though it has had relatively high top rates for decades (fewer such households than in 2007; but the economic slowdown began in 2008).

As to taxes and economic growth just to take one example out of the blue, the United States of America raised income taxes in the early 1990s and embarked on perhaps its strongest period of sustained, non-inflationary, growth. Then it cut income taxes twice in the following decade and hit the economic skids.

In the 1980s, South Dakota Gov. William Janklow bragged about how his low-tax state was gaining population faster than neighboring, higher-taxed, Minnesota. It was. But in the ten years ending in 2007, Minnesota’s population grew faster, though its taxes were still higher. South Dakota’s economy grew faster, but it started from a lower base, from which faster percentage growth is often easier, and it remains a much less prosperous state than either Minnesota or Vermont.

And as illustrated in the report released last month by Burlington policy analyst Doug Hoffer (and discussed in Wednesday’s News Guy post), Vermont has been adding jobs at a faster rate than famously low-tax New Hampshire in recent years.

Proof that the state should raise taxes, especially on the wealthy, to spur economic growth?

Of course not. In fact, the data do not even conclusively disprove the “lower taxes means faster growth” argument. They just don’t come anywhere close to confirming it.

Do not expect this near-total lack of evidence to deter politicians from arguing that Vermont ought to cut taxes on the wealthy to invigorate its economy.  Gov. Jim Douglas has already used it urging the Legislature to roll back last year’s increases in the capital gains and estate taxes. Early indications are that it will be a theme in Lt.Gov. Brian Dubie’s campaign for governor.

It isn’t that there is no case to be made for cutting taxes on the wealthy. There is. There is a case to be made for almost anything. But when it comes to reducing taxes on the wealthy, only two outcomes should be expected: the wealthy will pay less in taxes, and the state government will have less money to do the things it does, and will therefore have to do less.

Either or both of these may be desirable ends. Tax cut advocates should make the case that they are desirable ends. Claiming that economic growth will also follow is intellectually irresponsible.

Climate Change

February 3rd, 2010

As everybody knows, Vermont has a bad business climate.

Everybody knows it because everybody’s been told it early and often. Politicians, led by none other than Gov. Jim Douglas, regularly bemoan the hostility visited upon businesspersons and entrepreneurs. The business leaders themselves rarely miss a chance to proclaim that were only Vermont’s regulations weaker and its taxes lower, especially on the wealthy (meaning, often, them) they would employ far more workers. Even more rarely do most newspapers and TV stations fail to report those contentions, or to cite “studies” asserting that Vermont’s economy is stifled – if not strangled – by state policies.

It’s almost unanimous.

Oh, except for the actual data.

They (the data) say Vermont is one of the more affluent states, with an economy that grows (and, these days, shrinks) roughly in concert with the rest of the country and/or the region. They say that the state’s economy has its problems, but so do all the others states, and raise the question of why, if Vermont’s business climate is so bad, business in Vermont (until the Recession) isn’t.

Now comes a new report indicating that the business climate couldn’t be that bad because (again until the Recession) Vermont’s economy was quite healthy, another way of saying that business was good.

Better, according to several measurements, than in most other states, including those where taxes are lower and regulations looser.

For instance, according to the report, The Vermont Job Gap Study, Phase 10, Part 1, from 1998 to 2007 Vermont’s rate of job growth was the highest in New England, the 17th highest in the country, and higher than five of the nine states which have no personal income tax, including neighboring New Hampshire.

During those same years, the study shows, the per capita Gross State Product, grew (in inflation adjusted terms) faster in Vermont than in 45 other states.

“If Vermont was ‘anti-business,’” the report said, “we would not see this result.”

Not that everything is economic peaches-and-cream here, the study acknowledges. Vermont lost manufacturing jobs during those years. But so did 43 other states, 35 of them at a faster rate.

For at least two reasons, this study should be viewed with some skepticism. The first reason is that all studies should be so viewed, in accordance with The General Law of Studies: Every study reaches the conclusion its studier wished to conclude before he/she obtained his/her first datum.

The second reason has to do with its pedigree. The study was written by Doug Hoffer, the Burlington-based policy analyst whose politics are decidedly left of center, on behalf of the Peace and Justice Center, whose politics might be to the left of Hoffer.

In addition, Hoffer used economic statistics from something known as the National Establishment Time Series, not from the standard U.S. Government sources, the Census Bureau or the Bureau of Labor Statistics.

But it isn’t as though the NETS is some kind of Marxist cabal. It’s associated with the Dun & Bradstreet financial services empire, putting it smack dab in the Wall Street mainstream. Firms that subscribe to it base some of their business decisions on its information.

Hoffer said the NETS statistics are better for assessing a state’s economy. Their samples are much larger, he said. In addition, BLS employment figurers are based on payroll surveys, which omit many single practitioners, who are quite common in Vermont.


(For instance, the News Guy probably would not be considered an employed person by the BLS, but might be by NETS. Which appraisal is more accurate will be left to others).

There is no indication that Hoffer cherry-picked either his numbers or the dates he used to make Vermont look better. Not much happened in Vermont between 1998 and 2007 that did not happen in the rest of the country. And his findings are consistent with those of other studies, including (see below) some undertaken by those on the other side of the political spectrum.

So the data – the actual, empirically testable evidence – leads to the conclusion that a business can thrive and prosper in Vermont about as well as in most other states. This is not to say that there are no problems facing businesses in the state, some of them worse here than elsewhere. For many firms, Vermont is far from raw materials and big markets. Some companies have trouble finding enough qualified workers. The state is small, rural, and atypical, all in an economic climate that confers advantages on metropolitan areas, dense population centers, and standardization.

But what about the argument from politicians and some business leaders that Vermont does have a poor business climate? It has to be based on something.

It is. But it is not based on data. Take a look at the presentations made last year to the Blue Ribbon Tax Structure Commission by the Lake Champlain Regional Chamber of Commerce and the Greater Burlington Industrial Corporation.

They are not insubstantial. They are full of facts, suggestions, anecdotes, proposals, and assessments, some of which are undeniably correct and some of which are debatable. But they make no statistical case that Vermont’s economy is weaker than any other state’s.

Then there are several business-sponsored studies reporting that many business executives in the state (and a few outside it) find Vermont “unfriendly” to business. But with one exception, these are not based on data either, but on the impressions of the business executives surveyed.

Some of their specific complaints are no doubt legitimate. But any survey of business people, or lawyers, or teachers, or (let’s not omit) journalists is going to elicit complaints, because (a) ours is a culture of victimization whose real motto is “woe is me and mine;” (b) under the “squeaky wheel gets the grease” rule, they’d be fools not to complain.

Besides, some of these surveys are weird. Take the one by the very conservative American Legislative Exchange Council which put Vermont next-to-last for pro-business policies between 1997 and 2007 (similar to Hoffer’s time period). But in those years, the study had to concede, personal income per capita grew by 61.2 percent in Vermont, the seventh highest in the country.

Most residents of most states would love to have such a poor business climate.

In fairness, many Vermont business leaders do not complain about state policy. Among the business organizations here is the liberal Vermont Businesses for Social Responsibility. Not every business leader always agrees with the lobbyists from the Chamber, the Business Roundtable, and the GBIC. Nor do those organizations contend that the state’s business climate is all that terrible.

“This can become a sort of self-fulfilling prophecy,” said Tom Torti, head of the Lake Champlain Regional Chamber. “You play with fire when you say things are always bad.”

And Seth Bowden, the Director of Business Development for the GBIC, said his organization is “not trying to make a case that we have a bad business environment. Every state has got its pluses and minuses.” Bowden even said Vermont may have been wise in “trying to control growth in particular ways,” though he added that “sometimes that doesn’t work out for some of the businesses.”

It isn’t that neither man had complaints about the state’s economic policy. Not surprisingly, those complaints had to do with taxes, and here the business community is not entirely without statistical evidence. Though even the Tax Foundation has given up arguing that Vermonters shoulder the highest state and local tax burden in the country, there is no doubt that taxes here are higher and more progressive than in most other states.

There is substantial doubt, though, that the current tax structure is bad for business, especially when there is so much evidence that business isn’t bad, or wasn’t before the Recession, and is still not as bad as in many other states.

The tax angle, however, deserves a separate discussion. Tune in Friday.