Public Assets Institute > Presentations > Summer Speaking Tour 2011

Summer Speaking Tour 2011

Each summer, Public Assets goes on the road with its Summer Speaking Tour. Executive Director Paul Cillo and Senior Analyst Jack Hoffman visit five communities. A typical day includes a presentation to the local Rotary Club, an education finance seminar for local school officials and legislators, a stop at the local newspaper, if there is one, and meetings with a few community and business leaders to get their perspectives on the state of the state.

Paul Cillo’s 2011 Rotary Club presentation, “Rebuilding Vermont’s Middle Class,” begins with a brief introduction to the Public Assets Institute and some examples of our recent work. What follows are notes on the focus of his presentation: the decline of Vermont’s middle class and policy changes that can help to rebuild it.

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Rebuilding Vermont’s Middle Class

One of the things we’ve been looking at is the condition of Vermont’s middle class. Who are the middle class in Vermont and why are we talking about them?

There’s no common definition of middle class. Literally, it is the class between the upper class and the poor. When people are polled, most consider themselves middle class. But here’s how I would define middle class Vermonters: They typically own a home, have a college education (or want their children to), health insurance, a decent car, and a reliable source of income that allows them to take a vacation and save money for retirement.

A large middle class is evidence that the wealth in society is being spread around to a broad base of citizens; it’s evidence that a majority of people are engaged in the society and have hope for the future – theirs and their children’s.

How has the middle class fared of late?

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Let’s look first at personal income.  Real personal income—the sum of all income statewide, adjusted for inflation, received by Vermonters—rose 60 percent between 1989 and 2009. If we look at the overall economy, it’s grown at about the same rate. Vermont’s gross state product—the sum of all of the goods and services produced in the state—increased 57 percent over the same period.

That’s how the state as a whole has fared. But what about the typical Vermonter?

Over that same 20-year period, real median household income—that is, after adjusting for inflation—rose just 2.1 percent. That’s not 2 percent a year. That’s 2 percent over 20 years.

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In Vermont, we’re seeing the same pattern we’ve seen at the national level: the gains of the economy and the growth in personal income have gone to those at the top. The percentage of all the state’s personal income that is going to the bottom 90 percent of Vermonters has dropped to a level not seen since the Great Depression, while those at the top are getting the highest percentage since 1929.

According to a study published a few years ago by the Federal Reserve Bank of Boston, Vermont had the nation’s second-highest increase in income disparity between those at the top and those at the bottom.

We see that incomes for middle class Vermonters have been stagnant. How does that play out in their lives?

Education. It’s harder to pay for a college education, and many young people today are deciding to forgo college to avoid being saddled with a huge debt.

Health care. We’ve already seen how health care costs are increasing. In response, people are trying to lower their premiums by taking out high-deductible policies or dropping health insurance altogether.

Budget. State budget items that help the middle class—like General Fund support for education—have been cut in recent years, and more costs have shifted onto those who can least afford them.

Goveror Shumlin accurately described the anxiety of the middle class in his acceptance speech last November. He said:

“The middle class who has been kicked in the teeth, watched their incomes drop, their bills mount; they can’t keep up. They’re fearful that they cannot send their kids to college; that they cannot pay their mortage; that they cannot retire as they had hoped; that their dreams in Vermont to succeed may not happen in the way that they had hoped.”

What do we do? We’re losing our middle class.  Is there anything we can do?

In fact, there is. Unlike the weather, we can actually do something about state fiscal policy.  For 30 years, our policies have increasingly helped those at the top. So state policymakers can shift the focus, and decide to take steps to improve life for Vermont’s middle class.

Education. Acts 60 and 68 have made education taxes more affordable for many low- and middle-income Vermonters, but our property taxes are still regressive: The middle class still pays a higher percentage of its incomes for schools than the wealthy do.

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Acts 60 and 68 allow many middle class Vermonters to pay the school taxes on their homes based on their income, which has helped keep their costs to support schools more in line with the amount of money they make. About two-thirds of Vermonters pay this way. This chart shows the problem with property taxes for the middle class.  As incomes go up, the percentage of that income that goes for school taxes goes down. Low and middle income Vermonters would be paying 4 to 5 percent of their incomes without this provision.  By paying based on income, they pay 2.6 percent on average.  This is still higher than those who make a million dollars, but much better than the unfair burden they would face paying based on their property value.

Some have suggested that we should reduce the number of people who can pay based on income. In fact, it would make more sense—and do more to help the middle class—if we increase the number of Vermont residents who pay based on income. All residents should pay school taxes on their homes based on their income. Property value has no inherent connection to school costs.

Health care reform. Health care reform—if it succeeds in changing the way we pay for health care and actually slows the growth in the amount we spend to stay healthy—can be a big help to the middle class, directly and indirectly. Families and businesses stand to benefit from bending the cost curve. But if health care reform succeeds, it also will reduce the amount the state spends on health care, which is now more than 30 cents of every state dollar in the budget.

Shift from tax credits to investment in infrastructure and education. Vermont spends about $400 million a year on tax credits and other tax breaks for businesses. That money would be better spent investing in education and public infrastructure, which benefit everyone, not just a few fortunate businesses.

Re-evaluate what state government is doing. Governor Douglas talked a lot about reducing the size of government. But what really happened was that the mission of government stayed the same. There were just fewer resources and fewer people to do the job. Providing inadequate resources to do a job doesn’t save money; it wastes money.

We should be looking at how effectively government is doing its job. Unfortunately, in the last several years we stopped doing what little performance assessment we used to do, and we cut a lot of analysts from the state payroll, so we no longer have the capacity to measure performance of state-funded services.

We need a comprehensive, honest assessment of what we need to be doing, what we are doing, and how well we’re doing it.

Closing. My purpose in talking with you today is not to propose specific solutions to the problem of the declining middle class. We have some ideas, which I’ve mentioned. But first we need to understand that we got into this predicament because of policy choices we’ve made, and we can get out of it by making different policy choices.

We believe those policy choices should be clearly targeted at rebuilding the middle class. That’s the majority of the people in this state. And frankly, everyone in the state benefits from a strong middle class.