As CA Goes, So Goes…VT

by Martin Harris

So long ago that northern New England was nationally reputed to be an anachronistic enclave of dour and laconic dairymen so unreasonably frugal and independent that they rejected offers of Federal aid for flood damage or scenic-highway construction, the print media, exulting over a 1936 second-term victory for the FDR New Deal enabled by the “real America” everywhere else just voting more competently, collectively, compassionately, and communally, dismissively described the vanquishing of traditional self-sufficiency everywhere but Yankee-land thus: “As Maine goes, so goes…Vermont.” With a 46-to-2 State vote split, it was quite accurate.

In subsequent decades, as California morphed from dusty outpost to film, fuel (oil), fun (Disney), flight, farming, and futurism national leader, the one-liner changed to a more admiring “as California goes, so goes the Nation”. Like the ME-VT six-word trope, that one isn’t heard much any more either, perhaps for a different reason: the stats, for the last decade in particular, have shown an increasing rate of middle-class/middle-income out-migration. As the largest-population State of the 50, with 38 million, CA won’t shrink to VT (.6 million) size any time soon, but both, along with such urban-future bellwethers (a little Humble Scribe sarcasm, there) as Michigan and New York, are now candidates for the “as goes State 1, so go States 2,3, or more” description of that particular flight pattern.

But maybe more attention should be paid to upper-income and -wealth quintile flight from high-tax jurisdictions, with a number of recent studies showing statistical correlations between rising tax levels and rising flight levels (think Maryland and New York City) and with a number of (politically-red) States now contemplating major income and wealth tax reductions. Even once-red (see lead graf) but now-blue Maine is now contemplating a major estate tax reduction, after last year’s minor income tax cut. Vermont isn’t, but maybe that’s because of “the Vermont Anomaly”. And, some just-published stats show, The Golden State may be experiencing its own “California Anomaly” as, against all the conventional wisdom, upper-income and -wealth quintiles seem to be moving in, not out. Apparently, Roaring Twenties author F. Scott Fitzgerald was right after all: “the rich …are different from you and me” in his “Rich Boy” short-story and “Great Gatsby” novel, in that they have more economic freedom-of-choice than we more ordinary folk. “During the past two decades, a net 3.4 million people have moved out of California”, Alysia Finley writes in the Wall Street Journal, but “since 1995, California has experienced a net in-migration of households earning more than $200,000”. The pull-quote in her 4 March study reads “Low- and middle-income residents are fleeing the State. Sacramento’s liberal policies may bear much of the blame”. Substitute Montpelier’s “golden dome with pagan goddess statue” for Sacramento’s “terne-metal dome with golden finial cap” and there’s a pretty good description of the Vermont situation.

The not-widely-publicized stats for upper-income and –wealth quintiles in-migration in both States may well explain the absence of serious governance concern over middle-quintile flight, and go back to a once-widely-used pair of labels for different parts of the population: “tax-plusses” and “tax-minusses”, the former describing those who consume less in dollar value for government services than they contribute to revenues, and the latter describing those who take out more than they pay in. Applied to residential real estate, for example, it’s fairly easy to use the school census for any small jurisdiction –a Vermont town, for example—and correlate the residence of each student with the assessed value of each residence, and the income tax status of each household. The pattern which emerges is that low-income housing paying less in both income and wealth (property) taxes typically has a higher school-age-children-per-household number than higher-income housing, and that somewhere in mid-range for price, a property goes from “tax-minus” to “tax-plus” status. Those economics explain, without even opening the impact-fee question, why it’s been common for some suburbanites to demand town planning outlawing trailers (now an illegal option) or requiring minimum lot and/or house sizes, in an effort to prevent tax-minus housing which they’d have to subsidize, or to get tax-plus housing which would subsidize them. That’s because, in consumer spending as much as in government services, the upper-income and -wealth quintiles contribute far more than their “fair share” to the jurisdiction in which they reside, (don’t) send so many kids to school, ((don’t) call the cops so frequently, and do the bulk of the local retail and distant mail-order purchasing (both taxable, directly and indirectly) each of which generates its own set of tax-plus revenues for government.

“People in the top half of the income distribution are just fine; they’re spending enough to keep the economy moving,” writes Mark Zandi, economist at Moody’s Analytics. The underlying stats show that the upper quintiles not only require less in government service spending, they generate twice as much in consumer demand as their percentage of the population would suggest. The top earnings quintile (20%) generates 38% of all spending, per Labor Department data. And we know that consumer spending makes up nearly 70% of State and national overall Gross Domestic Product. In that context, States which can keep (or even better, attract) the upper-income and -wealth quintiles are far better job-security locations for their incumbent politicians than States which can’t. Think CA and VT compared to MI and NY. That’s why the two “Anomaly” States are places where the reigning pol’s show little (beyond the required pro forma regrets) concern over middle-quintile flight: they can revise their economies (easier in small VT than in large CA) from a traditional base of middle-income new-wealth creation (think Detroit in its now-vanished heyday) to a new base of upper-income and-wealth old-wealth importation (via pensions and trust funds) as the revenue foundation for the dome-dwellers to collect, manage, and re-distribute to the vote-heavy lower-income and-wealth quintiles, which are tax-minusses but also (critically) an essential electoral sector. The stats show that they’re leaving CA, but not VT, and not in large numbers, for reasons which may derive from the relative abundance of free “stuff” in each State. Apparently the 1978 (et seq.) CA Prop. 13 property tax cap of 1% (plus other “stuff”) wasn’t as effective in reducing cost-of-stay for lower-income CA folks as the 1970 (et seq.) VT income-based property tax cap (plus other “stuff”) has been for lower-income VT folks.