[N]o mystery about the word of the year in Vermont, at least inside the Statehouse.
It’s “affordability.”
Republicans led by Gov. Phil Scott, Democratic legislative leaders Mitzi Johnson (House Speaker) and Tim Ashe (Senate President Pro Tem), and Progressives like Sen. Anthony Pollina, P/D – Washington, all want to make Vermont more affordable.
Whatever that means.
And more affordable than what? Many people in Vermont are finding it hard to afford much more than life’s bare necessities. But so are many people in the other 49 states. All this talk about Vermont affordability occurs absent any convincing evidence that Vermonters face a worse affordability crunch than other Americans.
The word itself is defined in the dictionary as “the ability to be afforded,” or “believed to be within one’s financial means.” That’s not very helpful. Something can be within one’s financial means because one has immense financial means. Or because it (this thing that is within one’s financial means) is so inexpensive that it is within the financial means even of someone with scant financial means.
The imprecision of the term may explain why economists largely ignore it. In the New Palgrave Dictionary of Economics, the entry after “affirmative action” is “Aftalion, Albert” (a French economist of the early 20th Century). “Affordability” would be right between them if it were there. It is not.
So it’s no wonder that Vermont’s office-holders, while they agree that “affordability” is a problem, don’t even agree on what it is, much less on how it should be solved.
Scott and his fellow Republicans think the problem is that costs are too high.
“Our costs of living – from utilities to housing to taxes – remain among the highest in the nation,” Scott said in his State of the State speech last week.
He’s right, but affordability is not a synonym for “costs of living.” It’s more like a relationship between the cost of living and incomes, with lots of variations along the income-distribution scale. Costs are relatively high in Vermont, but so are incomes. The state’s median household income in 2016 was $60,837, the 19th highest and $1,800 higher than the national median.
The Democrats and Progressives put their emphasis on the difficulties lower-income Vermonters face in paying their bills.
“We need to remind people that cutting state programs does not make Vermont more affordable,” Pollina said. “Stagnant incomes and low wages are the greatest economic challenge we face.”
He’s right, too, but stagnant incomes and low wages are hardly unique to Vermont.
When it comes to most people’s single largest expense – housing – Vermont is near the middle of the pack, as affordable as most states. The real estate firm Trulia’s most recent survey showed home prices in Vermont the 22nd highest in the country.
Expensive as it might be to buy a home and pay the taxes, Vermonters apparently can afford it better than most others. The state’s home ownership rate is 71.3 percent, substantially higher than the nationwide rate of 63.4 percent, according to the Federal Reserve Bank of St. Louis. Vermont’s rate has declined since 2011, but so has the country’s, at a comparable clip. Home ownership in Vermont seems to have weathered the storms of the Great Recession better than its neighbors. The rate in Massachusetts went down more sharply, and is now under 60.
But what about those who can’t afford to buy? Aren’t Vermont renters finding it hard to afford housing?
Yes. A survey by the Joint Center for Housing Studies at Harvard University found that 44.4 percent of Vermont renters are “cost-burdened,” meaning they pay at least 30 percent of their incomes for housing, and 22.5 percent are “severely cost-burdened,” meaning the rent takes up at least half their income. These are people facing a true affordability problem. Together, they comprise about 15 percent of all Vermont households, which is a lot of hard-pressed people.
But those percentages are higher in most other states. In 27 states, including neighbors New York, Massachusetts and Connecticut, a greater proportion of renters is cost-burdened. Those states would seem to be less affordable than Vermont.
Some Vermonters also pay more in state and local taxes than people in most other states.
But not all of them. The “Who Pays?” report of the Institute on Taxation and Economic Policy found that Vermonters in the two lowest fifth of the income distribution spectrum pay a smaller percentage of their incomes in state and local taxes than do most Americans. But the affluent pay more. A typical $75,000-a-year family in Vermont pays 9.4 percent of its income in all state and local taxes, against a national average of 8.7 percent. A $200,000-a-year family pays 8.3 percent in Vermont. The nationwide average is 7 percent.
If Vermont could reduce its taxes to the national average, that $75,000-a-year family would pay $525 less and the upper-income household would pay $2,600 less.
That’s a substantial savings. But it’s probably unrealistic to expect Vermont to cut spending and taxes that far. That national average includes states with much lower incomes, meaning teachers, cops and the folks who clean the parks and playgrounds earn less, holding down tax bills. It also includes states in parts of the country where people pay little or nothing to heat their homes, schools, and hospitals, and where such fuel as they do need does not have to be trucked or piped from far away.
The more plausible comparison would be with nearby states. If Vermont got to the tax level of Massachusetts, those affluent families would still pay less (about the same for the $75,000ers, $1,800 for the $200,000-a-year family).
But the lowest-income taxpayers would pay more.
As to New York and Connecticut, taxes are as high as in Vermont, or in some cases higher.
(The ITEP study excludes elderly families because, it noted, “so many states offer special considerations for elderly taxpayers” that including them “would not give an accurate description of how the tax structure treats the majority of taxpayers.”).
Whether any of this renders Vermont less affordable than other states is open to debate. In much of Massachusetts, Connecticut, New York and New Hampshire, housing would be substantially more expensive. In the really low-tax, cheap-housing, states (Alabama, Oklahoma), incomes are low. So are costs, but that doesn’t make them affordable.
Affordability is in the eye of the beholder, its meaning moldable by whoever is using it, which is another way of saying it doesn’t mean anything at all.
