Low Income Level, High Asset Level, or Big Portfolio, Small Check 
By Martin Harris

Because I’m only an amateur economist, not a credentialed two-handed one (on the one hand, thus… and on the other hand, maybe not thus…), I’ve long puzzled over what I have thought to be the weak link in my "trust-funder economy" thesis, the assumption that in order for a State like Vermont to conduct itself as if all its citizens are above-average (a little Lake Woebegone lingo, there) in terms of income, its voters who have shown themselves to be remarkably accepting, even welcoming, of high taxes and low business friendliness, high spending and low capital investment, high growth in government and low to no growth the objective in everything else, must necessarily be just that: above-average in income. As all the stats show, they’re not.

A ranking of States in terms of median family income (this one comes from The Taxpayers’ Network’s 2005 report) shows Vermont at $57,170, ranking 19th among 51 and barely above the US average of $55,832. It also shows Personal Income at 26th with $32,731., below the US average of $34,495, and Disposable Income at 28th with $29,206., below the US average of $30,441. How can such (relatively) not-so-well-off folks be such enthusiastic voters/spenders for bigger and better (they think) government?

One clue came to me 40 years ago, when I encountered a wealthy senior citizen who proudly informed us that while he was drawing a modest pension from his earlier insurance-company-CEO life, most of his substantial income came from tax-exempt Vermont bonds and therefore wasn’t included in normal reportable/taxable income, either active earned or passive unearned. His name was Dean Davis and in 1968 he was in Sudbury campaigning for the governorship. Thirty-nine years later, I realized that just maybe a lot of Vermont’s present-day secret-upper-income quintile folks may be following the example of that long-ago –ugh—Republican, living quite comfortably indeed while posting a seeming income level quite a bit below that level.

Another clue came to me one year ago, when I was reading in The Wall Street Journal some stats on "the greatest intergenerational asset transfer in American history", as first Depression Babies and then Baby-Boomers have been gifting their nest-eggs to their (frequently) trust-funder offspring. It seemed to me then that a seemingly impoverished Brooklyn kid, come to Vermont’s Northeast Kingdom to live off the retail sale of personally-grown green beans, might actually be sustained in major purchases of house or car or health insurance or college-for-the-kids by Care Packages of money from the folks, rather than by his own barely-above-poverty level earnings. Or, lacking that familial backup, he could very profitably go into politics as one of Vermont’s present Senators did. We know that the passive-income category has grown in Vermont by hundreds of percent in the last decade or so (I‘ve reported the actual stats in earlier columns) in sharp contrast to the after-inflation stagnation in non-farm earned income or the before-inflation stagnation (and therefore a one-third decline in purchasing power) in farm income over recent years, but now I hunch that a lot of recent in-migrants, those who now present such a demographic presence that they control Green Mountain politics and governance, are also the recipients of a lot of that intergenerational wealth transfer which doesn’t show up in the official median-family-income statistics. By the book, these folks seem to be of modest income indeed, but by their spending habits, life-style, and support for expansive (and expensive) government they suggest quite a different real-wealth level indeed. If my hunch is correct, it would well explain how an electorate of seemingly relatively modest income could enjoy such "unaffordable" housing as they typically enjoy, and, also, could spend their days politicking –to shut down Vermont Yankee or Free Tibet, for example, while their Vermont-native neighbors, now in a probably permanent voting minority, are out there in W-2 or Schedule C land, working full-time for a truly modest living.

We already know that Vermont has the second highest percentage of second homes in the country, the National Association of Realtors says. Maybe now we should ask the rhetorical question "Were these alternate domains, McMansion-size or not, built or bought with ordinary active income earned and taxed and reported in Vermont?" The probable answer is, "probably not".
 

Martin Harris is a former Chairman of Citizens for Property Rights