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McQuiston: Home Economics 101

08/11/11 5:55PM By Timothy McQuiston
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(HOST) With turmoil on Wall Street and gridlock in Washington, commentator Tim McQuiston is wondering what to expect on the economic front here at home.

(MCQUISTON) While the rest of us stand here with our mouths gaping open at what has transpired in Washington, the reaction on Wall Street offers little doubt about how big business feels about the budget deal. It is a disaster on every level. Congress and the president should have completely undone the Bush tax cut from 2001. They should have done major work on entitlements, which need to be restructured going forward. But the only thing they really did is cut discretionary spending, which is the very thing that creates jobs.

Admittedly Congress and President Obama were desperate both politically and fiscally. But that is little consolation to the rest of us lying awake at night wondering where we're headed.

What does all of this mean for Vermont? Certainly more financial obligations will be pushed onto the state as the federal government steps back. All the states will face the same issues. We all believe that Vermont has a high level of services and we further believe that we have a clear conscience.

But Vermont's social services and conscience will be tested in the coming year. Some other states will say, the heck with it, and accept less from the federal government in order to keep their tax burden level. They will cut back services accordingly.

New Hampshire will find itself in an interesting situation because it's been able to maintain a high level of services while having low taxes. Our friends to the East are more similar to Vermont than you might think when it comes to taxes. We both count on wealthy people, either as visitors or part-time residents. Both states rely on property taxes and taxes on unearned income.

So the twin states will individually ponder how to keep the golden goose without killing it through a change in tax policy. As we have seen already, cutting services will be difficult to do as services already have been tightened. Politically it will become more risky to cut services, even if the alternative is higher taxes.

Both states would seem to be stuck. I would suggest they are not. One thing to remember in all this is that people with money don't live in poor places. Even those who escape to tax-free Florida go to Palm Beach. People will always gravitate toward quality. Vermont and New Hampshire have been the beneficiaries of that.

While New Hampshire might have to push up its property tax and highway tolls, again, Vermont should look at the high-end of the income tax, again. The beneficiaries of lowered federal income taxes have received a windfall. The Vermont income tax is very small by comparison.

Vermont by any measure is doing better now relative to the national economy than it has ever done. But these are ugly financial times, just look at Wall Street or your own 401-k. Until Washington gets its head clear and stops running scared from vocal special interests, Vermont will have to make difficult choices.

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