Waiting for that boost
Toolbox
Published: July 5, 2009
Grim economic news continued last week, including a report describing the precipitous fall of income tax revenues in Vermont.
Meanwhile, national unemployment figures showed that the national economy is shedding jobs at a high rate, an indication that the recession is far from over.
The tax figures showed that during the first four months of calendar year 2009, income tax revenues declined in Vermont by 33 percent. Only four states — Arizona, South Carolina, Michigan and California — showed steeper revenue losses.
It makes sense that income tax revenues in those states would plummet. Arizona and California are the epicenter of the housing crisis, and auto industry bankruptcies have battered Michigan.
In Vermont, the loss of income tax revenues is the result of the state's reliance on tax receipts from wealthy residents. Vermont's tax system is more progressive than most; about 60 percent of Vermont's income tax revenue is paid by people who make more than $100,000, according to economist Art Woolf. That means that when wealthy residents take a hit on incomes or capital gains, Vermont also takes a hit. Capital gains have suffered because of the stock market crash and the slow housing market.
Joblessness, too, affects income, and the bad news is continuing in Vermont. Major layoffs at Ethan Allen's furniture plant in Beecher Falls were a blow to the Northeast Kingdom. Nationally, employers slashed payrolls by 467,000 jobs in June, which was worse than expected by economists. Those job losses included 136,000 in manufacturing.
The continuing job losses have driven unemployment up from 9.4 to 9.5 percent. If the numbers include people who are underemployed, then 16.5 percent of workers are either looking for a job or looking to move from part-time to full-time work.
The pace of job losses has slowed, but the June numbers were a disturbing upward jolt. The peak of layoffs occurred in January, and the number has declined since then — until June, when the number shot up again.
One of the reasons for higher job losses in June was the layoff of 52,000 government employees. States seeking to balance budgets because of declining revenues have been forced to shed jobs, thus worsening the decline in revenues. It's a vicious circle in which Vermont, too, is caught up.
There is a place for government spending in propping up the economy, and without President Obama's stimulus program state budgets and the economy would have had to absorb even worse shocks.
Government spending will give a boost to the Bennington area soon. We learned last week that a $1.05 billion Pentagon contract with Oshkosh Corp. will result in the creation of 200 to 300 new jobs for Plasan North America in Bennington, which produces spare parts and components for armored vehicles built by Oshkosh. And the contract could grow if the Pentagon orders additional vehicles, which are designed for the rugged terrain of Afghanistan.
Defense spending is a form of economic stimulus; in fact, it was massive defense spending for World War II that eventually ended the Great Depression.
It is worth acknowledging though that, as useful as armored vehicles are for our war effort in Afghanistan, those vehicles contribute nothing to the domestic economy. They are manufactured to be used overseas and discarded.
The economic stimulus of the Obama administration was designed as a way to boost the economy by building things whose benefits would then ripple through the economy. An armored vehicle goes overseas; a high-speed rail car may be used on an upgraded Northeastern rail corridor, improving the nation's infrastructure and advancing the economy.
Other elements of the stimulus program — in transportation, energy efficiency, health care, and education — ought to have a double benefit: stimulating the economy while they are built and then again when they are put into action within the economy.
Policymakers in Montpelier are no doubt watching the economic news with both dread and hope — dread about future budget woes but hope that a rebound may be out there somewhere in the not too distant future.
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