Update May 2008

In this issue:
-- A Slow Economy Needs New Demand Now
-- Costs Are Up — Compared to What?
-- 'Service Impact Statements' Would Reveal the Stakes
-- Rich and Poor: Pulling Apart

A Slow Economy Needs New Demand Now
Economic stimulus requires a couple of key elements: it must happen quickly; and the money must be spent — not saved or used to pay down debt — to create new demand for goods and services. That's the goal of the income tax rebates the federal government has begun to send out.

The governor unveiled his own "economic stimulus" plan for Vermont recently. Some of it should provide some stimulus, like borrowing to repair roads. Some of it could help Vermonters in difficult times, like mortgage counseling. But there is little new money in the proposal, and many of the business breaks are unlikely to produce the increase in demand that is needed right now.

Read our issue brief: "Economic Stimulus Needs New Money, Fast"

Costs Are Up — Compared to What?
Vermonters' median income kept ahead of inflation during the decade from the mid-1990s to the mid-2000s. That should have produced more buying power for the average person. But the cost of big-ticket items — health insurance, gasoline, heating fuel, and housing — all rose faster than income.

Before the current run-up in prices, food costs rose more slowly than the income of a typical Vermont family. School taxes, too, rose more slowly than income.

Read our issue brief: "Some Necessities Cost More, Others Don't"

'Service Impact Statements'
Would Reveal the Stakes
Vermonters depend on government services. That's why they need to know how these services would be affected whenever the administration or the Legislature proposes funding changes. It's common for legislators to ask for a cost impact analysis whenever they consider adding or expanding a state program. But the public doesn't get a similar review — a "service impact statement" — when cuts are under consideration. They should.

For example, the governor wants to cut 600 state jobs. The administration hasn't argued that there are 600 workers who aren't doing anything. So what should Vermonters expect without them? Will permits take longer to clear? Will snow pile up on the roads waiting to be plowed?

Balancing the budget always requires trade-offs between spending priorities and revenue needs. Citizens need to know what would be gained by adding services or benefits and what would be lost or diminished if cuts are made. Service impact statements would help to answer those questions.

Rich and Poor: Pulling Apart
After the boom of the 1990s, the income gap grew wider between rich and poor, as earnings of the wealthiest Americans continued to rise while those of the poorest shrank. That was the finding of Pulling Apart, a study released earlier this month by the Center on Budget and Policy Priorities and the Economic Policy Institute.

Nationwide, the incomes of the top 20 percent of families increased by 9.1 percent from the late 1990s to the mid-2000s. Meanwhile, incomes of the bottom 20 percent of families declined by 2.5 percent. Families in the middle 20 percent did only slightly better than those at the bottom: middle incomes rose by just 1.3 percent.

Pulling Apart looked at national and state income trends. Unfortunately, the results for some small states, including Vermont, were based on small sample sizes, so they had large margins of error.

Other data, however, suggest that income disparity is increasing in Vermont, as it is nationally.

An article published by the Federal Reserve Bank of Boston last fall reported that income disparity in Vermont grew faster than in almost every other state from 1989 through 2004. Only in Connecticut did the gap grow more rapidly.

Figures from the Vermont Department of Taxes reveal that from 2001 to 2006 the number of millionaires in the state doubled, and their total income almost tripled.

Meanwhile, according to U.S. Census figures, Vermont median family income in 2005, when adjusted for inflation, was below its 2000 level.

Read Pulling Apart.

Upcoming
The Commission on the Future of Economic Development is hosting a series of 12 public meetings with the goal of discussing strategies for job creation and the state's role in supporting job growth.
Middlebury - May 5
White River Junction - May 8
Burlington - May 21

Public Assets Institute is funded by grants and donations. Please consider making a tax deductible contribution to support our work.

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