Early in this year’s Legislative session, some lawmakers, businesspeople, and state officials became alarmed by the remarks an economist made during a Senate committee hearing.

The economist, Tom Kavet, noted that while the Department of Tourism and Marketing’s budget  had gone down over the past few years, — to $3.6 million from $5.1 million in 2002 — more tourists were visiting the state.

Kavet never suggested doing away with the Tourism and Marketing, though he did doubt that its activities had “significant near-term impact,” setting off worries that the Department’s funding was in danger.

“It got some people a little excited,” said Rep. Heidi Scheuermann, a Republican from tourist-dependent Stowe,

So Scheuermann, the Vermont Chamber of Commerce, the ski industry and the Department itself went to work to make sure that its budget wasn’t cut.

They succeeded. For now at least (pending possible further cuts because of the “Challenges for Change” process) Tourism and Marketing gets the same $3.6 million for Fiscal Year 2011 as for 2010.

So the “Crisis” – well, the argument – is over, at least for now. But the question has not been answered.

Make that two questions: Does the advertising done by Tourism and Marketing really bring more tourists to Vermont? And even if it does, should the taxpayers be paying for it? After all, ski resorts, golf courses, restaurants, marinas and the like are private, for-profit businesses. Most private, for-profit businesses pay for their own advertising and promotion. Why shouldn’t tourist businesses?

Without a doubt the answer to that first question is not a definite no. Advertising works; otherwise businesses would not spend billions of dollars a year to convince people to buy their product or their brand.

And that’s what Tourism and Marketing does, said Bruce Hyde, who heads the Department.

“We’re really the brand managers,” he said. “We saturate the media as best as we can with the Vermont message. Nobody else is doing that.”

And there is at least some evidence that it works. Erica Housekeeper, the Department spokesperson said (by email) that Tourism and Marketing’s web site “received an average of 66,600 unique visitors per month…and we see a bump in web traffic when we launch an advertising campaign.”

Probably more visitors to the web site means more visitors to the state. But “probably” does not qualify as data. It’s not as though the “Vermont brand” is unknown around the country. Perhaps many people, bombarded by promotion from every state and many countries, have to be reminded from time to time of Vermont’s existence as well as its charms.

But “perhaps” does not qualify as data, either.

In fact, one seeking data confirming that Tourism and Marketing promotions bring more visitors to the state will seek endlessly, and still probably not find.

Even confirming the effectiveness of the tourist promotion would not conclusively prove that the $3.6 million was well spent. It would depend on which criteria were used to make the judgment: That the extra visitors (the ones who wouldn’t have come anyway, without the Department’s promotions) had spent so much on hotels, restaurants, and gasoline that the tax revenue added up to $3.6 million? Or that their visits created enough additional jobs that the take from those taxes was $3.6 million?

Not that Vermont is going to abolish its Tourism and Marketing Department, which would be an act of unilateral disarmament. All the other states have similar agencies, and almost all of them spend far more than does Vermont.

“We arguably have the smallest state budget for tourism,” Hyde said, even though Vermont is “one of the states most dependant on tourism.”

Even with a lower budget and a staff that has dropped to nine from 20, the Department seems to be doing a good job. Maybe tourism has gone up even as the Department spends less money because it’s grown more efficient and innovative. Tourism and Marketing doesn’t just promote Vermont, Hyde said. Its web site provides a full-service, one-stop vacation planner for would-be visitors.

“It’s a free service for the entire industry,” he said.

Bringing up that second question. Why doesn’t the industry provide that service for itself? A lot of other businesses would like the state to do their promoting for them, too. Just to take one example out of thin air: suppose the state financed the promotion for start-up news web sites, especially those run by a proprietor who is uncommonly inept at the task?

Who knows? The web site might prosper so much that the proprietor could hire a local unemployed person as a part-time researcher. Presto! Job creation. Economic development.

OK, that’s neither a complaint nor a suggestion. Just an example to demonstrate that the state selectively showers its subsidies on favored industries.

Scheuermann calls that kind of thinking “short-sighted,” because “government entities support anything else with regard to people having jobs, to make sure that people are able to pay their bills and able to go to college.”

Except for the “anything else” part, she’s right. To maintain a healthy economy, government does support many private enterprises with direct or indirect subsidies. The difference with the tourism industry is that the subsidy is direct – a state agency picking up the tab for one of its major expenditures – rather than the more common tax breaks (though the state also forks over cash to some other businesses).

We’re not talking about a lot of money here; were the Department shut down entirely, the money saved would chop less than half-a-cent off the statewide school property tax rate.

But hidden in this discussion is an interesting – and indisputable – conclusion. There’s a lot of talk in this state (and country) about whether the government does too much and spends too much. This discussion about subsidizing Vermont’s tourist industry proves who really believes the government is doing and spending too much:

Nobody. Not if it’s doing and spending on them and theirs.

A Vermont worker who earns more than he or she would doing the same job in another state probably doesn’t earn much money.

But a Vermonter who earns less – perhaps quite a bit less – than he or she would plying the same trade elsewhere could be an affluent professional person.

That’s because low-wage jobs in Vermont pay better than they do nationwide, while high-income jobs pay less.

According to a report done for the Legislative Commission on the Future of Economic Development by economists Tom Kavet and Jeff Carr, “lower paying occupations in Vermont, such as those in the food preparation and serving business, have wages about 15% above the U.S. average… Many professional and more skilled labor occupations, such as doctors, lawyers, computer and technology professionals and educators, however, receive wages well below…the average U.S. wage.”

Not that doctors, lawyers, and professors are earning less than waiters and janitors. They’re earning a lot more, even in Vermont. It’s just that they could earn more elsewhere.

So why don’t they go elsewhere? And for that matter, why do those waiters and cooks earn more here than they would someplace else?

Kavet said the answer to that second question is easy: Vermont has a higher minimum wage than either most states or the Federal Government. The minimum wage in Vermont is $8.06 an hour, 81 cents above the $7.25 federal minimum and six cents higher than the minimum in Massachusetts. Unlike the federal or most other state minimum wages, Vermont’s is indexed according to the U.S. Consumer Price Index, meaning it goes up with prices. (This year, prices went down, so the minimum wage will stay the same through 2010. Under Vermont law, the minimum does not go down).

The higher minimum does not raise pay only for those earning it. Workers who rate a slightly higher wage (such as someone who is doing the same job as the minimum-earner, but has been with the company longer), will receive $8.25 an hour or so in Vermont, not the $7.50 or so they would get in most states, and so up the next few notches in the wages structure.

OK, that’s pretty simple. But why do the upper-income professionals earn less than they would elsewhere?

Maybe they’re not much good, minor league professional doctors and lawyers who couldn’t cut in the Big Leagues of Boston or Philadelphia?

Considering the national rep of Fletcher Allen Health Care, Dartmouth Hitchcock (some operations in Vermont), and other medical centers, that doesn’t seem like a good answer.

Far more likely is the one Kavet offers: Some people just want to live in Vermont, and they are willing to earn less money in order to have more…well, more of several possibilities: quiet, safety, places to ski or hike or bike or such, being surrounded by beauty (or at least not being surrounded by the ugliness of shopping malls, office parks, and highway interchanges); an old-fashioned sense of community.

In this pigeon-hole-happy society, it’s probably important to declare who is not being described here. These (somewhat) less-greedy professionals are not part of the “Live simply so that others may simply live” crowd (and have you noticed how many of them are pulling in so much dough from their ‘live simply’ books that they can afford McMansions and Hummers and a few have probably got them?). Or like that guy in New York (not worth looking up the name) so intent on reducing his footprint on the natural world that he went a year without using toilet paper and then wrote a book about it.

No, these are people who live rather comfortably. According the Kavet and Carr’s research, a general practitioner physician in Vermont earns only about 80 per cent of what he or she could earn elsewhere. But that’s 80 percent of almost $180,000 (in 2008), or $144,000.

Not a bad living, even if the physician doesn’t have (as many do) a professional spouse whose income brings the household total well above $200,000.

Nor are these “marpies,” (middle aged rural professionals) University of Vermont political science professor Garrison Nelson’s term for the “back-to-the-landers” who flocked to Vermont a few decades ago and stayed in the state, if not necessarily on the land. Today’s “underpaid” professional in Vermont are younger and more practical.

What, then, to call them? Let’s see: they’re professionals who prefer quality of life to big bucks. But PEPQUILBs doesn’t sound right. What about, Vermonters eschewing extreme wealth?

But VEEW is no good, either. So for now, let’s just call them “Quallies,” though if you can think of a better handle, submit it. This could be your ticket to fame and fortune.

Now, at first glance, the very existence of “quallies” would seem to violate a basic law of economics. By and large, economists say, people respond to incentives, which usually means money.

But not always. St. Michael’s College economics professor Herb Kessel noted that when people voluntarily accept lower salaries in return for what they consider better lives, they are acting in a manner “very consistent with economic theory.” In this case, it is the theory of “compensating wage differentials.” Some workers, for instance, are willing to do jobs even if they have dangerous or unpleasant “attributes” (coal mining) if the pay is high enough.

But “the attribute can be a positive or negative one,” Kessel said, making it sensible for people to accept lower salaries in return for other, non-economic, benefits.

It isn’t that people don’t know they could earn money elsewhere, or that most of them regret their decision to move to Vermont despite the lower pay scale. St. Michael’s sociology professor Vince Bolduc, Kessel’s partner in preparing the “Pulse of Vermont” studies for the Vermont Business Roundtable, said one question they asked respondents was whether people who had taken a pay cut to move to the state would do it again.

“A majority said yes,” Bolduc said.

That could help explain why Vermont has more professionals per person than the country in general, even though they make less money here. With 1,800 physicians, for instance, Vermont has a doctor for every 350 people. That’s not enough, but it’s better than the nationwide rate of a physician for every 375 people.

No one seems to know for certain whether there are more “quallies” per person in Vermont than in most other states. Kessel said he thought so, but had “no hard figures” to prove it.

But it would be consistent with some other “hard figures,” such as the disproportionately high percentage of Vermonters who work in the arts (not necessarily as their main source of income), write for a living, have a college degrees, or are self-employed (though that last category could mean that lots of folks can’t find a paying job).

Finally (for today; this subject is worth revisiting) might awareness of a disproportionate number of “Quallies” be reason enough to change state policy? After all, they would seem to be an economic resource. They may have less money than they would if they worked in Pennsylvania or Colorado, but they have more than most folks. They use it to hire workers, buy goods cars and clothing, eat in restaurants. It would seem to be in the state’s interest to try to hang on to the ones who are here and attract a few more.

This requires, said Professor Kessel, maintaining “a rich, dynamic, cultural environment,” in addition to maintaining environmental standards. Vermont has relatively strict environmental regulations, one reason some business leaders complain about the state’s “business climate.” But considering who lives in Vermont, Kessel said, “environmental protection becomes part of business development.”

Then there’s the possibility that what is often considered “economic development” might be counter-productive here.. A new shopping mall anchored by a bog box stores, for instance, is often considered beneficial to a local economy. But “Quallies” may not like the mall because it: (1) is ugly; and (2) could destroy the economic viability of the nearby town or village center, quite likely one of the reasons they came to and stay in Vermont.

Then again, not everyone is a “Quallie.”

And there really has to be a better word for them. Submit your suggestion. Entries will be posted here, and readers may vote for their favorites.

Oh, as to the donations requested last week (click here for details): They are coming in steadily (that’s the good news) but slowly (that’s not).

To repeat: If you think this web site is worth keeping around, look up near the top right corner under “pages, click “donate,” and do your best.

Vermont’s business establishment thinks taxes should be lower.

No surprise. Business establishments almost always think taxes should be lower, and it is likely that the counterparts of the Lake Champlain Regional Chamber of Commerce and the Greater Burlington Industrial Corporation in the other states would make the same argument.

But in making their case to the Blue Ribbon Tax Structure Commission, the business leaders did not simply express a preference about tax rates. They called for a major overhaul of the state’s taxing and spending systems.

Perhaps more important, they based their proposals on an assumption: that lower taxes – especially lower taxes on the highest earners – would benefit all Vermonters by leading to faster economic growth.

A few points before proceeding:

–Some of the proposals in the LCRCC/GBIC presentation make sense. Consolidation of schools and school districts, for instance, (though it is outside the scope of the Blue Ribbon Commission) is an idea being discussed across Vermont’s political spectrum;

–The business leaders are not reverting to the role of old-fashioned robber barons. Their report begins by agreeing that “state government exists to ensure our public safety and provide services to those who are disadvantaged to maintain or improve their quality of life.” That’s apparently what led Bill Schubart, the Blue Ribbon panel’s chair, to say he was “impressed by how little whining there was…The business community isn’t just coming in and purely saying, ‘we’re overtaxed.’”

–They’re not going to get most of what they want. “We’re not going to revolutionize the Vermont tax system,” said Schubart, indicating that he and his two fellow commissioners are more likely to propose some limited – if consequential – “nibbling around the edges.”

Still, that basic premise of the business leaders – that lower taxes and a less progressive income tax system would make the state’s economy grow faster – deserves examination. Their argument that lower tax rates would actually “collect more tax revenue ” by “encouraging more people to become income tax paying residents of our State and by encouraging more businesses to stay and new ones to relocate” has become part of the established wisdom in much of the state, regularly repeated in news stories (which rarely question it) and on editorial pages.

So is the assertion that “we cannot continue to have a tax structure that reduces the state’s economic activity and penalizes wealthy Vermonters.”

It seems like a tough sell. The connection between low taxes and faster economic growth is…well, it isn’t, at least on the national level. The U.S. economy grew more than three times faster in the higher-taxed period between 1950 and 1980 (average annual 2.3 percent growth) than it did in the lower-taxed period that followed (average 0.7, and that’s ending in 2007, before the recession).

Furthermore, at least until the recession began, Vermont’s economy was growing tolerably well, about as well as other states in the region. In fact, it’s doing better than most other states now – lower unemployment rate, lower poverty rate, lower foreclosure rate.

But let’s begin by asking just how “progressive” (meaning the richer a taxpayer, the greater a percentage of his/her income is taxed) Vermont’s tax system really is.

Not very. A report by the Institute for Taxation and Economic Policy (a liberal group, but its numbers, if not its proposals, are widely accepted) found that “low- and middle-income families in Vermont pay more of their income in state and local taxes than do the richest families in Vermont.”

That report is now 16 years old, and this year the Legislature made the tax system slightly more progressive by eliminating some tax deductions that mostly benefitted the wealthy. On the other hand, Act 68 and the accompanying sales tax increase made the system slightly less progressive in 2003. All in all, there is scant reason to doubt that the ITEP’s conclusion still holds.

But it may not make much difference. Because ITEP found that no state had a progressive tax structure. If Vermont taxes are relatively more progressive than those of other states, taxes still might create an incentive for businesspeople to leave, taking their businesses with them.

Except that there isn’t much tax incentive to move the business because Vermont’s corporate and business taxes are not particularly high.

“To see whether (people are) taking jobs and businesses (away), you have to go to business taxes,” said economist Tom Kavet. “In terms of business taxes, we’re more competitive, especially if you look at effective business and corporate taxes.”

Still, there is no doubt that Vermont’s personal income taxes for the wealthy are on the high side, raising the possibility that some of them will go where they will pay less.

As some have, notably Glen Wright, who moved from South Hero to Florida, which has no personal income tax, saying “the tax burden in Vermont has become more than we are willing to bear.” (Discussed by the News Guy in June, here and here).

He’s not alone. Other Vermonters have moved to Florida and other low-tax states partly or largely for the tax savings. For many of them, it makes perfect sense.

But this evidence is purely anecdotal. It would be persuasive if backed by statistics showing that, for instance, Vermont had fewer wealthy residents, or at least a smaller percentage of wealthy residents, many of them having fled the high taxes.

But Vermont has more wealthy residents than it had five years ago, ten years, or – probably – ever in its history.

Not just more in raw numbers, but a higher percentage. Clearly, the number of rich folks who like it here just fine is far greater than the number leaving.

Let’s repeat and elaborate on that a bit because it would seem to provide a conclusive end to the discussion. There were 3,734 Vermont households reporting $300,000 a year or more income in 2007. There were 1,630 in 2000.

The same holds true elsewhere. In 2004, New Jersey increased its personal income tax on individuals earning more than $500,00 a year. Four years later, a study by scholars at Princeton found that there were substantially more such folks in the state, tax hike or no.

Had some rich New Jerseyans moved away? Yup, but mostly to higher tax states. State and local taxes, it seems, simply aren’t a big factor in determining where people live.

How can that be? Don’t incentives matter?

Sure, but so do other factors, such as the ability to make money. You can make a lot of it in New Jersey. Or, more accurately, in nearby Manhattan. The way to end up with more money is to earn more money, even if state and local taxes are somewhat higher.

That’s because state and local taxes are simply not that high, especially for wealthy people. It is true that the wealthy pay an increasing share of all the income taxes paid. But that’s because – both nationally and in Vermont — they have an increasing share of all the money earned. But as shown by economists Emmanuel Saez and Thomas Piketty, wealthy taxpayers actually pay a smaller share of their incomes in all taxes. (See graph above).

You know what else seems to be a good place to get rich and stay rich?

Vermont. Otherwise, the number of wealthy folks wouldn’t have doubled in seven years, and risen even more over a longer time period. Otherwise, more people wouldn’t be moving into the state than out of it. And otherwise more of the in-migrants wouldn’t be relatively affluent. Affluent people don’t move into places with no economic opportunity

In short, the argument that lowering the taxes on upper-income Vermonters would speed economic growth in the state appears to be grounded on nothing. It isn’t just that there is no real evidence to support the assertion; almost all the evidence refutes it.

No doubt Vermont’s tax system could be improved. The Blue Ribbon Commission might improve it. Some of those improvements might involve identifying a particular tax that creates a disincentive to invest. Such taxes exist.

And there may be an argument to be made for making the tax system less progressive and reducing the taxes paid by the rich. That argument might be moral, political, philosophical, or economic. But can the economic growth claim, fellas. It’s a fraud.