Let’s start with capitalism, the very complex system that guides the flow of money through our economy and our lives. The trick for all of us is to have enough of that money stick to us so that we can sustain our lives in this complex system. Money moves when we spend it or invest it, which is actually specialized spending. It also moves when we save it in a place where it can be used as an investment, like a bank. Putting it under the mattress or in a jar under the dresser removes it from the system. So does parking it in the Cayman Islands.
Broadly speaking there are three legs of capitalism where spending happens, producers, consumers, and the government. It is widely acknowledged that 70% of our economy is generated by consumer spending. The politics of the Right has, for several decades, successfully pushed the “rules” of capitalism to favor “supply side,” or the producers, in the belief that the resulting profits of investment will “trickle down” to the rest of us. Yet the result today is that 40% of America’s wealth is owned by 1% of us, and the bottom 80% own only 7%. This is a vastly different spread of wealth than occurred in the 1950s and ‘60s, one of the most productive and stable times in our history. It is as though the middle class and the poor have merged to become a vast cauldron of Americans, each of us having trouble keeping a roof over our heads, keeping warm, and feeding ourselves and our families. Just who does the Right think make up the 70% of the economy which consumes?
To make matters worse, enter “No Tax Pledge” Grover Norquist whose stated goal is to shrink government until he can drown it in a bathtub. He has been successful in convincing not just the Right but a whole lot of the mainstream that government spending is the problem, when in fact government is the only remaining place where spending and investment can happen when the producers won’t and consumers can’t.
I’ll skip past the Great Recession and the gridlock in Congress and look at where we are in Vermont this year. Our Vermont economy has been recovering slowly, and we are in many respects in better shape than much of the country. Projected revenues to the state’s General Fund have been increasing, but slowly. We returned to 2008 revenues just last year.
The budget that was passed in the House last week meets the growth in government expenditures driven by growing costs (the same growing costs that burden all of us), increasing caseloads, pay increases, pension contributions, Irene impacts, and decreasing federal funds. The budget enacted accomplishes that, plus makes investments in our future, a commitment that was a guiding principle of our Appropriations Committee as we combed through the details of every request for expenditure. A number of viable proposals were left behind, but here is what we did include:
• Increased the appropriation to higher ed, the first increase in four years, by making available $2.5 million additional scholarships for Vermont students;
• Increased payments to Medicaid providers by 3% to reduce the shift of costs to private and insurance pay patients;
• Budgeted $6 million for home heating fuel assistance for the first time, replacing federal money;
• Placed a five-year cap on Reach Up clients and also increased the fee scale for child care beneficiaries, expanding the number of people who are financially viable to work;
• Increased the investment in working lands;
• Supported the regional development corporations with an additional $200,000 to expend their work in developing economic opportunities throughout the state;
• Appropriated $325,000 to provide all eligible school children lunch as well as breakfast, to improve learning opportunities;
• Set aside $6 million in a reserve for the impact of federal sequestration. Revenues raised in the tax bill also enacted last week added an additional $3.1 million to this reserve for a total of $9.1million.
The second part of the investment strategy is the revenue bill, which raises money to support general fund spending and $4 million for the education fund, in addition to the above noted allocation for the reserve fund. The package of changes increases the amount paid by the wealthiest among us without raising tax rates; brings Vermont into increasing compliance with the national streamlined sales and use tax agreement; raises the meals tax by a half percent for one year only; increases the tax on tobacco products; and repeals the employer health care fund contribution. It does not tax satellite TV.
No one likes to pay taxes (or higher prices wherever generated), yet increasing taxes has the same effect for government as capital infusion has in the private sector – that of making resources available for investment in the future, a future that needs to create jobs which is how, in our economy money, sticks to us as individuals, and it is also how we grow our way out of the effects of the Great Recession.
Personally I do not wish to remain on the ever downward economic spiral driven by the no-spend mantra. I support the role of Vermont’s government to invest in our future until such time as the producers are again strong enough and the consumers have enough money in their pockets.