There are many great and vibrant places in the world. Having lived in some (Boston, London, SanFranciso, Sevilla), and visited many more (Shanghai, Tel Aviv, Buenos Aires, to name a few), I've always been fascinated by the conventional wisdom in Vermont that we have a great quality of life that should attract businesses, but for our horrendously negative business environment. Taxes, Welfare, Permitting, fix those and businesses will move here in droves, I hear. I'm told Vermont has more than its share of lazy workers who would prefer to be on the dole. What's the Truth?
It turns out that Vermont is middle of the pack on most giveaway programs. A little research on state and federal sites like http://www.usgovernmentspending.com/ and http://www.bls.gov/ and projects.propublica.org, to name a few, shows that, for example, Vermont spends $928 per capita on welfare, versus $1,114 in Massachusetts and $1200 in New York. The national average is $800, and New Hampshire is $640. There is no evidence that people are streaming into Vermont for the great benefits.
Vermont provides middle of the pack unemployment benefits that range from $60 to $425 per week at yearly cost of $329 per worker. Workers comp is similarly unexceptional. Our unemployment rate is one of the lowest in the country.
Now, we can all tell stories of the "welfare queen" (a term coined by Ronald Reagan about a woman, who turned out not to exist, who exploited the welfare system in Chicago), or the person we know who was a crappy employee, but one doesn't develop policy on anecdotes. Facts work much better. Of course, one can cut the numbers in any number of ways to try to make the case that Vermont is anti-business, but as someone who built businesses in "Taxachusetts" and has worked with many excellent Vermont businesses as a strategy consultant, I just don't see it. So why does Vermont struggle economically?
Well, I'll grant that Vermont does have an issue related to labor. No one will want to hear this, but at the macro-level, Vermont does not attract enough of the best and the brightest - entrepreneurs, venture capitalists - who drive an economy. Richard Florida of Creative Economy fame makes the case vividly that the best and the brightest choose to be around others of their ilk, and flock to Boston, New York, SanFrancisco and other centers of innovation and excitement, creating a virtuous cycle of opportunity and attractiveness.
Florida goes on to demonstrate that rural economies will increasingly face a competitive disadvantage in the global economy because the regions that have been winners in the information age, will continue to win (check out housing costs in Boston, NY and Silicon Valley, to test the theory). Anecdotally, most of my Wharton buddies simply would not have considered Vermont as a place to build a career when Manhattan, Cambridge and Silicon Valley beckoned. Further, as an angel-investor helping to finance young companies, I can tell you that there are very few exciting deals in Vermont compared to the more thriving entrepreneurial centers. During the dot-com boom, not a single IPO came out of Vermont, at a time when any sharp MBA with a good idea was going public (for better or worse). Yes we have great individual success stories here, but again, that is not what sound analysis is based on.
So what do we do? Well first we need to stop using our tax, welfare and permitting policy as a scapegoat. Then we have to acknowledge that there are structural issues associated with being a rural state (especially a very cold and cloudy rural state) that make it impossible for us to compete in the global economy on MOST dimensions. We need to stop hoping that Vermont can be a leader in the Green Economy (we might be able to win in certain very narrow subsegments).
We need to recognize that not everyone was cut out to be an entrepreneur and run their own business. Having a profitable business is not a right. It is not our job to provide subsidies, tax credits or marketing dollars so that every small business owner can make a profit. I would love it if the government would pay people to hear me sing Bruce Springsteen songs, but as a singer I suck. Being a business owner is no more a right than being a Rock Star. Great business people with great products don't need government handouts (though they'll always take them if offered). If we are going to help businesses, lets be smart about it, and help businesses that can really win, and create jobs and wealth.
We need to hire McKinsey, Monitor or Bain to do a detailed analytical study on the Vermont economy to find those very narrow niches where we might be able to compete globally (yeah, I know they come from the coastal elite class, but they've helped other states and regions beyond measure). It will mean picking winners and losers. It will mean tough conversations with parts of the state that may never excel, but may benefit from the growth in others. Once we have clarity on where we can generate a competitive advantage, we need to invest. It will require tremendous focus from our academic institutions, business leaders and government. And it will still be tough because of the dynamics associated with The Creative Economy, but at least we'll be focused on the right problem.
Wednesday, October 13, 2010
Thursday, October 7, 2010
Taxes, Jobs and The Deficit
What's a policy-maker to do? Forget whether it even makes sense to try to stimulate jobs and/or reduce the deficit, the public demands both. So do you let the Bush Tax Cuts expire, extend them for all, exclude the wealthy?
Let's ask Bruce Bartlett, former Reagan Economic Advisor (from his blog):
Anyone who thinks that raising the top rate to 39.6 percent, as President Obama has proposed, will produce less revenue than the current top rate of 35 percent produces is nuts. Rich people are not going to quit working or make a significant effort to hide income or engage in tax-sheltering activity at that rate. We know this with certainty because the top rate was 39.6 percent during most of the 1990s and we did not see that happening. It's worth remembering also that the top rate was 50 percent during the Reagan administration.
What does Robert Reich, Clinton's Labor Secretary have to say:
From a strictly economic standpoint – as if economics had anything to do with this – it makes sense to preserve the Bush tax cuts at least through 2011 for the middle class. There’s no way consumers – who comprise 70 percent of the economy – will start buying again if their federal income taxes rise while they’re still struggling to repay their debts, they can’t borrow more, can no longer use their homes as ATMs, and they’re worried about keeping their jobs.
But the same logic doesn’t apply to people at the top, earning over $250K, who represent roughly 2 percent of tax filers. Restoring their marginal tax rates to what they were during the Clinton administration (36 and 39 percent) won’t inhibit their spending. That’s because they already save a large portion of what they earn, and already spend what they want to spend. (During the Clinton years the economy created 22 million net new jobs and unemployment dropped to 4 percent.)
But restoring those top marginal tax rates will help bring down the long-term debt, pulling in almost a trillion dollars of revenues over next ten years. That’s not nearly enough to make a major dent in the nation’s projected deficits, but it’s not chicken feed either. It would at least signal to financial markets we’re serious about cutting that long-term deficit – and the rest of us will chip in when the economy strengthens.
What About A Flat Tax?
Any discussion of tax reform should include an open-minded discusion of the flat-tax. We can all agree that the current tax system is messy, and the flat tax seems so simple and "fair." But fairness is always in the eyes of the beholder. If we switched to a flat tax today, it would create a massive transfer of wealth from the poor and middle-class to the wealthy. We have 40 million Americans living in poverty, and many middle-class Americans living on the edge. Adding to the tax burden of most Americans just to simplfy the the tax system and create the patina of "fairness" for the wealthy would not be smart.
Clemson University economics professor Holley Ulbrich, a longtime foe of the flat-tax, who asks: how would you feel about losing your mortgage-interest deduction on your taxes? She warns of:
My friend Jeff is concerned that "unfairly" taxing the wealthy who only comprise 2% of the population, and thus have a small electoral voice, is taxation without representation.
Again Robert Reich speaks:
Let's ask Bruce Bartlett, former Reagan Economic Advisor (from his blog):
Anyone who thinks that raising the top rate to 39.6 percent, as President Obama has proposed, will produce less revenue than the current top rate of 35 percent produces is nuts. Rich people are not going to quit working or make a significant effort to hide income or engage in tax-sheltering activity at that rate. We know this with certainty because the top rate was 39.6 percent during most of the 1990s and we did not see that happening. It's worth remembering also that the top rate was 50 percent during the Reagan administration.
What does Robert Reich, Clinton's Labor Secretary have to say:
From a strictly economic standpoint – as if economics had anything to do with this – it makes sense to preserve the Bush tax cuts at least through 2011 for the middle class. There’s no way consumers – who comprise 70 percent of the economy – will start buying again if their federal income taxes rise while they’re still struggling to repay their debts, they can’t borrow more, can no longer use their homes as ATMs, and they’re worried about keeping their jobs.
But the same logic doesn’t apply to people at the top, earning over $250K, who represent roughly 2 percent of tax filers. Restoring their marginal tax rates to what they were during the Clinton administration (36 and 39 percent) won’t inhibit their spending. That’s because they already save a large portion of what they earn, and already spend what they want to spend. (During the Clinton years the economy created 22 million net new jobs and unemployment dropped to 4 percent.)
But restoring those top marginal tax rates will help bring down the long-term debt, pulling in almost a trillion dollars of revenues over next ten years. That’s not nearly enough to make a major dent in the nation’s projected deficits, but it’s not chicken feed either. It would at least signal to financial markets we’re serious about cutting that long-term deficit – and the rest of us will chip in when the economy strengthens.
What About A Flat Tax?
Any discussion of tax reform should include an open-minded discusion of the flat-tax. We can all agree that the current tax system is messy, and the flat tax seems so simple and "fair." But fairness is always in the eyes of the beholder. If we switched to a flat tax today, it would create a massive transfer of wealth from the poor and middle-class to the wealthy. We have 40 million Americans living in poverty, and many middle-class Americans living on the edge. Adding to the tax burden of most Americans just to simplfy the the tax system and create the patina of "fairness" for the wealthy would not be smart.
Clemson University economics professor Holley Ulbrich, a longtime foe of the flat-tax, who asks: how would you feel about losing your mortgage-interest deduction on your taxes? She warns of:
"...the disruptive effect of eliminating deductions, credits and exclusions that benefit the middle class as well as the rich and that play important roles in our lives—pension contributions, employer-provided healthcare, and deductions for mortgage interest, property taxes, and charitable contributions that support everything from soup kitchens to education to the arts. A flat tax would shift tax obligations from the rich to the poor, and especially the middle class, and eliminate desirable tax incentives for retirement savings, home ownership, and charitable contributions. Simple? Yes. Efficient and equitable? Not so much."What about fairness to the wealthy?
My friend Jeff is concerned that "unfairly" taxing the wealthy who only comprise 2% of the population, and thus have a small electoral voice, is taxation without representation.
Again Robert Reich speaks:
"Not only is income and wealth in America more concentrated in fewer hands than it’s been in 80 years, but those hands are buying our democracy as never before – and they’re doing it behind closed doors.
Hundreds of millions of secret dollars are pouring into congressional and state races in this election cycle. The Koch brothers (whose personal fortunes grew by $5 billion last year) appear to be behind some of it, Karl Rove has rounded up other multi-millionaires to fund right-wing candidates, the U.S. Chamber of Commerce is funneling corporate dollars from around the world into congressional races, and Rupert Murdoch is evidently spending heavily."
The wealthy have always had political access and influence far beyond their numbers. They have done very well in the past few decades, accumulating wealth as never before. It was not the poor and middle-class who have over time moved the top-rate from 91% under Eisenhower to 35% under Bush. It was not the masses who lobbied Congress successfully to ensure the income of hedge fund managers are taxed at cap gains rates. No, the wealthy are doing just fine ensuring their interests are represented, buying votes with their campaign contributions.
Strongjoe
Strongjoe was born in a cafe in Stowe Vermont. His mother drank too many triple- shots while nursing, and now the guy is an over-caffeinated defender of truth. He will use this blog to unmask the Misleaders who distort and manipulate the truth. Be aware Strongjoe is arrogant, sarcastic, and biting, but he tells the truth. If you like your politics the way you like your coffee - strong and a little bitter- stick around.
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