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

2. The Vermont Economy Newsletter January 8, 2010 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

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

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

5. The Vermont Economy Newsletter January 8, 2010 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

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

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

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

9. The Vermont Economy Newsletter January 8, 2010 Tax Rankings: Taxes as Percent of Personal Income 1. Alaska19.1% 2. NY15.8% 3. WY14.6% 4. HI13.9% 5. VT13.4% 46. CO9.9% 47. AL9.5% 48. TN9.5% 49. SD9.4% 50. NH9.1% 50 State Average = 11.6%

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

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

12. The Vermont Economy Newsletter January 8, 2010 Pressures on State Finance I: Vermont Deficits With and Without Federal Stimulus Money FY09 (last year) FY10(current)FY11 (leg session) FY12FY13FY14 Actual or Projected Deficit $0$0$150$250$228$220 Federal Stimulus $ $75$175$100------ Deficit Without Federal Stimulus $ $75$175$250$250$228$220

13. The Vermont Economy Newsletter January 8, 2010 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

14. The Vermont Economy Newsletter January 8, 2010 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

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

16. The Vermont Economy Newsletter January 8, 2010 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?