Recently, the State of Vermont published a revised revenue forecast for 2016 that puts the state
budget, finally, back in the black. Is this financial wonder due to strong economic growth, a “snapback” from the Great Recession?
No. As the report itself states, on Page 1 (h/t to Vermont Digger):
The slowest economic recovery in post-WW2 history will likely continue in FY16 and FY17, with some acceleration bringing slightly above-average revenue gains, though very close to previous expectations. Virtually all of the current changes in General Fund revenues relative to the prior January forecast, per the below chart, are the product of statutory changes made in the last legislative session, and represent about $30 million in new tax revenues.
So the budgetary forecast wasn’t “fixed” based on significant reductions in YOY spending, nor by accelerated economic growth. The General Fund revenue growth is all based on new taxes.
These tax changes primarily impact the General Fund, with the largest tax changes affecting personal income and sales taxes. Without these new tax revenues, the General Fund would have increased by about $9 million in FY16 and declined by about $1 million in FY17, relative to January projections.
But even this outlook has its caveats, as indicated near the end of the report, specifically regarding the General Fund (the largest revenue source in the budget), on Page 15 (1st paragraph):
As illustrated in these tables, and consistent with past projections, longer term revenue growth from the mix and structure of the taxes in the three funds analyzed herein is unlikely to keep pace with recent levels of expenditure growth (emphasis added).
In other words, tax revenue growth rates do not match expenditure rates, which means the state is still consistently budgeting to spend more than it takes in.
But the real impact of Vermont policies is being felt where it’s always felt – in the lives and pockets of working Vermonters. The forecast cites the low unemployment rate Vermont is “enjoying”, as if that constitutes evidence of some kind of recovery:
Vermont employment growth has also strengthened in recent months, with year over year growth in the past 12 months accelerating to 1.4%, vs. 0.7% in the preceding 12 month period. This has pushed the State unemployment rate to 3.6%, the lowest in New England and the fourth lowest in the U.S.
Vermont employment has increased in recent months, but compared to historical employment levels the state is still an employment trainwreck. The number of employed Vermonters, what the state’s forecast calls “employment growth” has increased from prior months, to 336,550 in June 2015. In January 2015, that number was 334,550, so clearly some hiring is occurring.
But to put this in a larger perspective, the last time Vermont had 336,550 employed, it was October 2012. In other words, it’s taken Vermont 2.5 years just to climb back to 2012 levels of employment.
To give it more of a historical perspective: What was Vermont’s highest employment level in the last 10 years? 344,150, in April 2006. Which means Vermont now has roughly 8,000 or so fewer people employed now than 10 years ago.
Vermont’s labor force – the number of people available and willing to work – has shrunk in almost direct correlation to the decrease in employment numbers. The labor force in April 2006 was 356,700. In June 2015, the labor force is 348,950, a difference of -7,750. This is why Vermont’s unemployment rate in April, 2006, of 3.5%, looks so much like June 2015’s unemployment rate of 3.6%, even though we have about 8,000 fewer people employed.
To put this a bit more painfully, Vermont has lost an average of 800 jobs every year for the last 10 years.
So while the state’s latest forecast loudly touts the low unemployment rate, it neglects to mention that a) the total number of Vermonters employed is at historical lows, and b) the labor force itself has shrunk.
A shrinking labor force is not an indication of economic health. It’s an indication that there are fewer opportunities for employment in the state.
Oddly, the report also discusses income inequality (page 7 of the report), as if a more equal distribution of wealth is a desired goal, and discusses the “owners of capital” as if it’s straight out of the Marx/Engels reader. But as more and more people drop out of the labor force, it’s entirely unsurprising that incomes are reduced. In fact, since the state’s own long-term labor forecast calls for the largest job growth sectors to be in the service industry, whatever policies the state has been putting into place to improve the economy, and thereby the incomes of Vermonters, is not working.
By the state’s own admission, its economic policies are having the opposite of the desired effect:
The report goes on to state:
Income growth has become increasingly concentrated among the highest income groups over the past 30 years and this has continued during the current economic recovery. past 30 years and this has continued during the current economic recovery. Between 2009 and 2012, recent studies estimate that virtually all real U.S. income growth accrued to the highest 1% of all income tax filers. These same analyses, however, suggest that in Vermont, income inequality has not been quite as pronounced, with income growth among the top 1% during this same period of 21.8% vs. growth among the bottom 99% of about 4.6%. They also suggest that longer term income inequality, though growing from lows in the late 1970’s to levels in 2012 not seen since the late 1920’s, are similarly less pronounced in Vermont than in the nation as a whole.
So income growth is only good if it’s at the lowest income groups? Considering that the highest income groups pay the vast majority of income taxes collected, is the state arguing for reduced incomes at the highest levels so things are less “unequal”? How will budget gaps be filled when the rich are no longer quite so rich? Since half the country pays no net income taxes, how, exactly, would increased state expenditures be paid for if the 1% didn’t have increased incomes?
As the report says on Page 11:
The increasing volatility in revenues due to a growing reliance on Personal Income,
Corporate and Estate taxes, was on full display in both FY14 and FY15. In FY04, these three tax categories comprised 50.6% of Available General Fund tax revenues. In FY15, they represented 60.9% of revenues, and are expected to exceed 62% within the next five years.
So while bemoaning inequality, the report also states Vermont has become and is increasingly becoming reliant on personal incomes to constitute the bulk of General Fund revenues. Shouldn’t the state, then, be celebrating wage inequality? Who else is going to fund the General Fund?
The state’s forecast now shows that the anticipated budget will be in the black, but so did the prior years’ budgets, which sometimes required a budget recission one month after the budget was passed. When the legislature scrambles to find yet another tax, this time in the form of one on sugary drinks, one which places both an additional cost of compliance on the backs of business owners and increases the aggregate tax burden on Vermonters, and then counts itself as a fiscal hero for doing so, the environment is created that assumes that this is the way budgeting and the state’s economy should work. In other words, Vermont will see these same steps taken again and again.
What’s really happening is that the state is patching holes in a sinking ship, and is running out of things to patch it with. What doesn’t help is the state’s continuing demonization of those who pay the majority of the bills in the state, and who will share an ever-increasing burden of doing so.