“Everything is resolvable at the end. Unless it isn’t.”

This time, it seems, it isn’t.

The words came from Shap Smith, heretofore known not as a Buddhist philosopher but merely as the Speaker of the Vermont House of Representatives

But it was that kind of day at the Statehouse Tuesday, a day of policy and politics; a day of hope and worry; a day, one might say, of now and Zen.

Occasional spurts of activity were followed by long periods of waiting around. The talk in the corridors was sometimes theoretical, sometimes practical. Optimism clashed with pessimism.

Oh, and Democrats clashed with Republicans.

Politely, to be sure. Everyone from Republican Gov. Jim Douglas to Democratic Senate President Peter Shumlin made sure to tell reporters that their discussions were courteous and friendly.

But by the time Smith uttered his mystical mantra, at about 4 PM, they had not resulted in agreement between Douglas and the Legislative leaders on the Fiscal Year 2011 state budget, nor on the taxes Douglas wants lowered. Without those tax cuts and more budget reductions, the Governor has implied, he might veto the budget bill as he did last year.

Nor was there any agreement by mid-evening, and Smith had made clear that with or without a deal with Douglas, the lawmakers would vote on a budget this week. Hence the possibility that Democrats would pass the budget they prefer, taking the chance that Douglas will veto it.

That’s what he did last year, only to have his veto over-ridden. This year, both sides said they wanted to work together, and at least they have behaved more civilly toward one another. In fact, negotiations continued into the night, both sides clinging to the hope that an agreement would be announced Wednesday morning.

Later in the night, though, negotiations broke down without agreement. It’s not quite the end. In theory, talks could resume Wednesday morning. In theory, everything remains “resolvable.” But the “isn’t” outcome seems more likely, as does a veto and a possible veto override session next month.

All day, in fact, there was conjecture, not all of it by Democrats, that Douglas actually wants to veto the budget bill to provide a political boost to Lt. Gov. Brian Dubie’s campaign for governor. According to this theory, a veto would dramatize the GOP argument that without a Republican in the governor’s office, Democrats would just keep spending more money and raising more taxes.

The fact that in its two-year life this Democratic-controlled legislature actually lowered income taxes – albeit minimally – on a large majority of Vermont taxpayers seems not to diminish the potential force of this argument. In modern America, myth and image outweigh mere fact.

The conjecture about Douglas’s political strategy was, of course,  surmise. But it gained some currency by the fact that all day long (actually, for the past several days), the Democrats kept giving ground to the Governor.

Who kept taking it. And asking for more.

By early afternoon, the Democrats had made so many concessions that one Republican lawmaker crowed, “the Democrats are caving on all the taxes,” and some liberal Democrats were grousing about their own leaders.

One of those Democrats said…well, his precise words are too indelicate for this web site. Suffice to say that he suggested that his party’s leaders were acting as though they were the Governor’s concubines.

But some of those Democratic concessions might have been more symbolic than substantive Take the capital gains tax dispute. Last year, over Douglas’s objections, the Democrats reversed a capital gains preference enacted in 2002. That change is expected to raise some $10 million in revenue in the coming fiscal year.

Smith said he thought a compromise could be reached by restoring the preference, but only on capital gains from investments in companies based in Vermont. Anyone who knew much revenue would be lost by such an amendment (Smith indicated he did) wasn’t revealing it. But probably not much. Wealthy Vermonters (and most capital gains taxes are paid by the wealthy) no doubt invest in diverse portfolios on the advice of financial consultants whose job is to make their clients richer, not to play in-state favorites. One of the great things about capitalism is that it is heartless, with devotion to neither person nor place, but only to money.

Nor would the Democrats be giving up much if they repealed the higher estate taxes they enacted last year. In a few years, the federal estate tax, the terms of which Douglas wants the state’s version to follow, might actually take in more money from wealthy estates (the only kind that are taxed) than Vermont’s. So if the Democrats can find a way to delay the revenue loss for a year or so, they might be willing to compromise.

And there seemed little doubt that the Democrats eagerly – if not desperately – want to compromise, while Douglas and his advisors appeared  willing to accept another veto confrontation. This could be because Smith isn’t sure he has the 100 votes needed to over-ride a veto. (Shumlin has a bigger majority in the Senate, and should have no problem). Perhaps significantly, the Speaker never claimed to have commitments from 100 representatives.

On the other hand, as long as today’s topic is political conjecture (not to mention meditation), here’s another possibility. Remember, Shap Smith knows how to play this game, too, as he proved last year when his House overrode two Douglas vetoes. If he has a problem this year, it would seem to come from a handful of his less liberal members. Continuing to give way on these liberal positions (the two taxes), only to have the Governor continue to rebuff him, might be just what he needs to shore up those votes for the veto override.

Again, conjecture, but, again, perhaps given some currency by another development. Most of those less liberal Democrats are from rural areas, where many influential voters are big landowners who oppose the changes to the Current Use system called for in a bill which has passed both houses, but in different versions.

Smith has been in no hurry to bring an amended bill back to the House floor. He could be holding it as a possible bargaining chip, dropping one or more of its most controversial provisions to placate those rural Democrats.

Log-rolling to please the forest industry. Something Zen there.

Around this time last year, the Democratic leaders of the Legislature outfoxed Gov. Jim Douglas. Using their big majorities, they passed a budget that cut spending (but not as much as Douglas wanted) and raised taxes (by more than he wanted, which was not at all).

He vetoed the budget. The Legislature overrode his veto, by a big margin in the Senate, by just enough in the House. Big win for House Speaker Shap Smith of Morrisville and Senate President Peter Shumlin of Putney.

Fade out. Fade back in to now. Douglas is outfoxing the Ds.

Maybe not for long. This is a play with several acts, and before it’s over, Shumlin and Smith could be singing a happy finale while the Gov, a la Tosca, leaps to his (political) demise off the top of the Golden Dome.

For the moment, though, Douglas is playing the part of the leading man (if not exactly a matinee idol) while the Democrats make like a slapstick comedy troupe. Friday morning, Shumlin and Smith said they were confident about ending the session by Saturday as they and their committee chairs neared agreement on taxes, school consolidation, and the “Challenges for Change” process. They were striding toward both adjournment and success.

Then Douglas pulled the rug out from under them.

He didn’t like what they had agreed on, he said, even though they had stripped out one small tax increase he opposed. While he didn’t exactly threaten another budget veto, he…well, he sort of threatened another budget veto.

The timing was interesting. Douglas didn’t express a single policy position he had not expressed before. From the beginning of the year, for instance,  he had called on the lawmakers to repeal the increases in the capital gains and estate taxes they passed over his veto last year. But until Friday, he had not hinted that he might veto the budget over this issue.

Now he did, using a more confrontational tone, perhaps because he no longer  had to be as accommodating. Earlier in the week, he and the Democratic leaders had agreed on a plan to shore up the state’s Unemployment Insurance fund. It was a compromise, but a compromise notably closer to what the Governor and the business community wanted than to what the Democrats and organized labor wanted.

So now it was no more Mr. Nice Guy?

No, that would be going farther than the evidence supports. So far, both sides are playing Mr. Nice Guy because it is in their interest. If Douglas seems to be strutting and bullying, he risks uniting the Democrats against him. To keep the support of some of their wavering members, the Democratic leaders have to appear to be willing to negotiate and compromise. That makes it easier for them to paint Douglas and the Republicans as the obstinate side in this dispute.

Still, while nobody was making predictions, Douglas seemed to be operating on the assumption that this time the Demos don’t have the 100 House votes they’d need to override a budget veto. (The Senate, with its 23-to-7 Democratic majority, would almost certainly override).

And for the moment at least, the Governor seemed to be right. Otherwise, the Democrats might not have agreed to drop the full implementation of the state’s share of a federal deduction for manufacturers, and then also give up on ending the sales-tax free status of dietary supplements. Democratic leaders of the House were walking around with sheets of paper listing the names of the Democratic members who might not support overriding the veto. These members, it can be assumed, were being pleased, prodded, placated, and pled with by those leaders.

But also by Douglas and his associates.

To override, the Democrats would have to get the votes of all 93 members of their caucus, all six Progressives, and at least one of the three independents. They can probably count on one of the independents, Rep. Paul Poirier of Barre, but at this point they are not sure about all the Progressives.

On straight policy grounds, the Progressives would be considered certain to vote with the Democrats. But Democratic leaders are wondering these days whether some of the Progs have political or personal agendas that might impel them to vote with Douglas, as much as they disagree with almost everything he does.

The Dems could give up on the depreciation and dietary supplement taxes because they wouldn’t produce that much revenue. But the bigger tax cuts the Governor wants in the estate and capital gains levies would be harder for the Democratic leaders to accept. Those taxes bring in some $21 million a year, and cutting that revenue would require more budget cuts than the ones already made under both the regular budget process and the “Challenges for Change” enterprise, which is supposed to make government more efficient, but which also requires some straight-out spending reductions.

So if you hear hints that Legislative leaders are thinking about even scaling back those taxes, you can assume they’re having trouble getting enough commitments to override.

But then it would also be a mistake to underestimate the extent to which all the statement pro and con are theatrical. This end-of-session positioning – not just in Montpelier, but also in Albany, Austin, Sacramento, Cheyenne, or the big one down in D.C. – is also posturing. It is, to use the term of Notre Dame political scientist Robert Schmuhl, stagecraft as well as statecraft, an artificial production in which the script calls for all performers to talk tough until they arrive at a harmonious compromise.

Or don’t.

Because no one should be surprised that Douglas and his associates are pushing their agenda as hard as they can. This is Douglas’s last budget, and therefore his last chance to advance his basic policy outlook: less government spending in general, less education spending in particular, lower taxes on business and upper-income earners.

Nor should anyone be surprised if, as many Democrats suppose, some of the Governor’s associates are pushing that agenda even harder than he is. They can’t be confident that Lt. Gov. Brian Dubie will hold the governor’s office for the Republicans.

For instance, in a detailed, 13-page letter to the Legislature on May 3, Finance and Management Commissioner James Reardon (pirated here from the valuable VT Digger web site; it seems not to be on the state government’s site)) claimed that the Legislature’s budget was based on “an unstable foundation of higher taxes and deferred spending decisions which threaten the long- term viability of the State’s economic engine.”

Referring to the tax increases adopted last year, Reardon wrote that “businesses have been clear that these taxes are hindering growth and the necessary reinvestment in our economy essential for its growth. Rolling back these taxes is a critical first step to getting Vermont on the path back to fiscal health.”

The reality that there is at this point no evidence that Vermont’s growth has been hindered by anything at all except for the nationwide Recession is irrelevant here. Reardon’s letter was a political document, part of the end-of-session theatrics, not a dispassionate fiscal report.

What seems not to have been part of the discussion is the possible broader political impact of this squabble, and here the Republicans might face worse consequences than the Democrats. In addition to insisting on repeal of those taxes, Douglas also wants the Legislature to require school districts to consolidate, as opposed to merely suggesting and providing financial incentives for consolidation, as the Democrats propose. There may be broad agreement that Vermont’s 280 school districts are too many. But imposing consolidation by state law violates the “local control” so central to the state’s self-image (even if it may not really exist any more, a subject for another day). And spending less on schools or on the mentally handicapped in order to cut taxes on wealthy individuals is always risky politics.

Media Note: This web site occasionally critiques Vermont’s major news organizations such as the Free Press or Channel 3 because they’re important and because they’re big boys; they can take it. It has not bothered with St. Johnsbury’s Caledonian-Record because it is neither and because critiquing it could be a full-time job.

But some entries are too ridiculous to ignore. Such was the Cal-Rec’s lead story on Saturday: “Angels Say Clyde River Hotel Houses Spirits.”

No, reporter Robin Smith did not claim to be quoting literal angels, just the owners of East Coast Angels Paranormal Investigations, a Connecticut-based outfit to whom the owners of Island Pond’s Clyde River Hotel seem to have paid American money (though only expenses) after hearing strange noises in the 144-year-old building.

There’s a good story in there somewhere, and the reporter did note that perhaps the owners are talking openly about their haunted hotel because they could use the publicity. But the minimum requirement here is at least a smidgen of skepticism that  anything ever really haunts houses (or hotels), or that the kind of “spirits” the East Coast Angels folks said they discovered actually exist. There was no such smidgen in the story.

Note to the Cal-Rec: Next time you quote a fellow bragging about his degree in “demonology,” you might point out that demonology is not a recognized academic discipline.

Some time today, the Douglas Administration and the leaders of the Legislature either will or will not reach agreement on how to restore Vermont’s depleted Unemployment Insurance Trust Fund.

If they do agree, the Legislature will pass a bill that Gov. Jim Douglas will presumably sign.

If they don’t, the Legislature will pass a bill anyway, effectively daring Douglas to veto it.

According to sources privy to the negotiations that went on most of Thursday, Douglas is holding out for a compromise that cuts unemployment benefits more than the Democrats are willing to cut them.

But even without an agreement, it might be politically difficult for Douglas to veto whatever the Legislature passes. It’s the Governor, after all, who has been insisting for months that the UI Fund has to be made solvent immediately, if not sooner, to avoid fiscal catastrophe.

Actually, the state and its unemployment compensation system would survive if the Legislature went home without doing anything about the UI Fund. No matter what the lawmakers and the Governor do, the Fund will still be broke next year, and the year after that, and the year after that.

But Douglas is right when he argues that it would be better to put the Fund back on the road to solvency sooner rather than later. To pay unemployment benefits, the State is borrowing from the Federal Government. Without paying interest this year. Next year, the interest payments start. The longer the Fund is in arrears, the longer the borrowing will go on, and the more the interest payments will add up.

State officials have known this problem was pending for at least a year. As is common in the political world, they got serious about solving the problem about a month ago.

Well, what was the hurry? After all, the actual numbers involved aren’t that huge, so this seemed the kind of dilemma that could easily by worked out. It would require tiny tax increases on businesses. Or maybe, according to one proposal, even tinier – and temporary – tax increases on all workers. And perhaps some modest reductions in the benefits paid to the unemployed.

That would indeed sound like an impasse almost begging to be solved by reasonable compromise. But only for those who do not know the history of this issue, and the explanation for how Vermont got into this pickle in the first place.

Happily, the explanation can be brief: Vermonters were dumb, dumb, dumb, dumb. They were boneheaded. Or perhaps fatheaded. They erred.

And this was all of them.  Not just the Republicans or the Democrats, or business or labor, or the Administration or the Legislature. Everyone.

The financing of the Unemployment Insurance Trust Fund is very complicated, but the dumbness was very simple. The fund is financed by a small tax on employers, a percentage of only the first several thousand dollars of each workers’ pay. It’s called the Taxable Wage Base.

Last year the Legislature and Douglas agreed to raise that base from $8,000 to $10,000. That was actually not dumb. What was dumb is that until last year the Taxable Wage Base had not gone up for 25 years.

Twenty-five years of economic growth, including higher wages and higher prices. Considering that unemployment benefits are supposed to comprise a respectable percentage (roughly 40 percent) of the unemployed person’s pre-layoff wages, any fool would know that the Fund that pays those benefits would have to keep growing, too, or else it would run dry the next time unemployment rose.

Any fool but these Vermont fools.

In 1983, according to figures compiled by the National Employment Law Project (a liberal group, but its numbers are reliable) almost half of all wages were subject t UI taxes. By 2008, “the ratio of total wages to taxable wages had fallen to roughly 25 percent,” the Project found.

For this foolishness there are two explanations, one at least as old as the Tulip Panic (circa 1637), the other more recent.

The first is humankind’s incurable delusion that good times will last forever, so why plan for bad times? Businesses didn’t want to pay any more, politicians didn’t want to raise anybody’s taxes, and Organized Labor was happy enough because the jobless benefits kept rising. We could all afford it; hardly anybody was unemployed, anyway, so they could get generous benefits.

The second – more contemporary – delusion is that all tax increases, no matter how tiny, are always a mistake that will suppress economic growth. In this case, the tax amounts of 0.89 percent of total wages in 2009, according to George Wentworth, the project’s Unemployment Insurance Modernization Coordinator.

To their credit, Vermont business leaders (and the Governor who is usually allied with them) now realize that they should have agreed to small UI tax increases several years ago, and are willing to pay them now. Ironically, there is a better argument that even these tiny tax hikes will suppress economic growth during a recession, though they would have been an unnoticeable blip earlier.

Well, if the business community and Douglas are willing to accept higher UI taxes, what’s the problem?

The problem is that they also want lower unemployment insurance benefits. And they want these lower benefits to be permanent, so that unemployed workers in Vermont will continue to get less money per week forever.

Not necessarily less than they get now, but less than they would get under current law.

To labor advocates, such as Christopher Curtis of the Vermont Legal Aid Society, these proposals mean the Douglas Administration is “using the present (Trust Fund) crisis to reduce benefits far beyond the level needed to restore (the Fund).”

That’s true, not because Douglas, Labor Commissioner Patricia Moulton Powden and other officials are heartless beasts intent on starving the working class. It’s because they are convinced that some workers are gaming the Unemployment Insurance system, preferring to stay home and live off their benefits rather than trying to get another job.

“The Governor says some people work six months a year and then go to Florida,” said someone familiar with the negotiations going on between the Administration and the Legislative leaders.

Obviously, there are such people. There do not, however, appear to be very many of them, and the belief that large numbers of people would rather lie around and collect unemployment benefits than work for a living, while widespread, seems rare in, if not absent from the peer-reviewed economic literature.

In fact, a recent study by economists at the Federal Reserve Bank of San Francisco concluded that recent extension of unemployment benefits had only a “modest effect” on total unemployment. Extending benefits, to be sure, is not identical to the generosity of benefits. But Vermont’s aren’t all that generous. The average weekly benefit of $304 is 25^th in the nation, and the $425 maximum ranks seventeenth.

Besides, concluding that many people would rather earn less money than more money is something of a refutation of a basic tenet of capitalism, which rests on the premise that individuals rationally pursue their economic self-interest. Deliberately deciding to cut one’s income by more than 50 percent does not seem a rational economic pursuit.

If anything, Vermonters stay on unemployment less workers in other states. The average length of stay in the system has been 14 weeks, though Powden said it had recently ticked up to at least 15 weeks. Very few unemployed Vermonters stay on the unemployment rolls for the 26 week maximum. Most unemployed Vermonters, it seems, want to go back to work.

From one perspective, then, the Administration might be trying to solve a problem that does not exist. But Powden said that because Vermont has a high proportion of seasonal workers (ski resorts, and all that) some people are “utilizing the system to their advantage,” and “may choose unemployment” for part of the year thanks to Vermont’s “fairly generous benefits.”

She acknowledged that she was describing less than 10 percent of those who receive benefits, but said perhaps some of the seasonally unemployed “who know their job is coming back maybe should be getting a lower amount” to create “an incentive to get back to work.”

The problem seems to be that most of the formulas that will lower those benefits would also lower the benefits of many workers who don’t know their job is coming back, and are already trying as hard as they can to find work. The negotiators were seeking what one of them called “creative ways” to threat that needle.