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The New Growth Paradigm

The New Growth Paradigm. 19 th Annual Vermont Economic Outlook Conference January 8, 2010 Art Woolf. What was the Old Growth Paradigm?. For Vermonters: Healthy growth in stock equity Rapid growth in home equity Low savings rate For Vermont Businesses: Growing labor force

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The New Growth Paradigm

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  1. The New Growth Paradigm 19th Annual Vermont Economic Outlook Conference January 8, 2010 Art Woolf

  2. What was the Old Growth Paradigm? For Vermonters: • Healthy growth in stock equity • Rapid growth in home equity • Low savings rate For Vermont Businesses: • Growing labor force For Vermont Government: • Steeply progressive income tax structure • Unanticipated revenue growth from booms • Reduced reliance on middle class for taxes The Vermont Economy Newsletter January 8, 2010

  3. Share of Income Taxes Paid by Tax Filers Earning… Over $100,000 Over $200,000 The Vermont Economy Newsletter January 8, 2010

  4. RateAt Income 1. OR 11% $250k 2. HA 11% $200k 3. CA 10.55% $1m 4. NJ 10.25% $500k 5. RI 9.9% $373k RateAt Income 6. VT 9.4% $373k 7. IA 8.98% $63k 8. NY 8.97% $500k 9. ME 8.5% $20k States Ranked by Top Marginal Income Tax Rate Note: NY City has a 3.2% rate on top of the state rate. No other state has a rate over 8.0% The Vermont Economy Newsletter January 8, 2010

  5. What is the New Growth Paradigm? • No boom (?), hopefully no bubble • No growth in home equity • Increased savings rate • An end to rising income inequality? • Increasing pressures on tax base, with no new tax capacity • No new fiscal initiatives • No labor force growth The Vermont Economy Newsletter January 8, 2010

  6. Declining Labor Force: VT Working Age Population 21-64 The Vermont Economy Newsletter January 8, 2010

  7. The Older and Younger Labor Force 21-44 The Vermont Economy Newsletter January 8, 2010

  8. VT and US Taxes as Share of Income VT U.S. The Vermont Economy Newsletter January 8, 2010

  9. Alaska 19.1% NY 15.8% WY 14.6% HI 13.9% VT 13.4% CO 9.9% AL 9.5% TN 9.5% SD 9.4% NH 9.1% Tax Rankings: Taxes as Percent of Personal Income 50 State Average = 11.6% The Vermont Economy Newsletter January 8, 2010

  10. A Repeat of the 1990s? VT Housing Prices in Two Booms and Busts The Vermont Economy Newsletter January 8, 2010

  11. Average Annual Growth Rates in Three Vermont Expansions The Vermont Economy Newsletter January 8, 2010

  12. Pressures on State Finance I:Vermont Deficits With and Without Federal Stimulus Money The Vermont Economy Newsletter January 8, 2010

  13. Pressures on State Finances II: Unemployment Insurance Trust Fund Balances on December 31 2006: $191 MM 2007: $173 MM 2008: $133 MM 2009: $ 21 MM 2013 projection: -$400 MM The Vermont Economy Newsletter January 8, 2010

  14. Pressures on State Finances III: Unfunded Liabilities of Teacher and State Employee Retirement and Health Funds • $88 M State Employee Pension Fund • $380 M Teachers Pension Fund • $751 M State Employee Retirement Health Care • $864 M Teachers Retirement Health Care • Total = $2,100 M The Vermont Economy Newsletter January 8, 2010

  15. Pressures on State Finances IV: Education Funding The Vermont Economy Newsletter January 8, 2010

  16. The Big Questions • How will state adapt to a rapidly aging population? • Will Vermonters accept higher taxes or reduced services? • Who will pay those taxes? Rich or middle class? • What services will be reduced? To middle class or poor? • How will current fiscal promises be kept? The Vermont Economy Newsletter January 8, 2010

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