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A Great Moment in Local Government

Sun, 07/07/2019 - 12:58pm

San Francisco used to be famous for cable cars.

Now it’s getting well known for its “poop patrol” and maps that warn people about the ubiquitous presence of human excrement.

Why are people defecating on city sidewalks? Because there’s a major problem with government-created homelessness thanks to rent control and zoning restrictions.

And homelessness gives us our topic for today because we have an astounding example of government waste.

More specifically, a story from the San Francisco Chronicle nicely summarizes the efficiency and competence of the public sector.

An experiment to put a homeless shelter in a San Francisco public school gym has so far been a costly failure, …costing taxpayers about $700 for each person who spends the night. …only five families have used the facility at 23rd and Valencia streets in the Mission, with an average occupancy of less than two people per night… The facility is completely empty several nights each month, Kositsky said, although shelter workers are on-site seven nights a week and through holidays, whether anyone shows up or not.

I’ve been to San Francisco many times. Hotels are not cheap.

But I’ve never had to pay anywhere close to $700 per night.

Though maybe this San Francisco program is a bargain since it costs the state $1.3 million per year to house a homeless person.

So why did the city create this boondoggle? For the same reason that many programs are created. Politicians and bureaucrats exaggerated about a problem.

Supervisor Hillary Ronen and the school’s administrators…advocated for the shelter, saying there were dozens of families facing homelessness at Buena Vista Horace Mann who needed someplace to sleep. The principal at the time, Richard Zapien, said he had identified 60 families in unstable housing.

But here’s a passage that captures the real story.

This program was created to funnel money to a non-profit group and I wouldn’t be surprised to learn that officers of this group are supporters (campaign cash, get-out-the-vote, etc) of the politicians who created the program.

The city has been paying the nonprofit Dolores Street Community Services $40,000 per month to manage the shelter, and if it were to be successful, would spend up to $900,000 per year to serve up to 20 families at a time with all-night staffing, food and support services to help them find permanent housing.

In other words, we have another example of how government is a racket.

No matter how flawed and foolish a program may be, never forget that it’s putting unearned money in the pockets of some group of people. And that group of people know how to play the game, since they then recycle some of the loot back to the politicians.

Politicians don’t care if the money is wasted. They don’t care if there’s rampant fraud.

They’re simply buying votes. With our money.

P.S. There is a sure-fire way of reducing this kind of corrupt behavior, but don’t hold your breath expecting it to happen.

P.P.S. Though you may want to hold your breath if you visit the city.

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Image credit: Noahnmf | CC BY-SA 4.0.

New Job Numbers and the Trump Economy Vs Obama Economy

Sat, 07/06/2019 - 12:18pm

When comparing the Obama economy and the Reagan economy, I often used a database from the Minneapolis Federal Reserve that compared jobs and growth data during business cycles.

That made sense since both presidents had an economic expansion that began relatively early in their tenures.

But what about comparing Obama and Trump? The Minneapolis Fed data isn’t overly useful since we’re in the same expansion that began during the Obama years.

To avoid that methodological problem, some people have been comparing the final years of the Obama Administration with the early years of the Trump Administration.

Let’s do the same thing using the just-released jobs data from the Bureau of Labor Statistics. The unemployment rate is only 3.7 percent, which is certainly good news. But the employment-population ratio is a better gauge of the real strength of the jobs market.

But those numbers don’t tell us much. They’ve been improving during the Trump years, but not in a way that seems different than the trend that was underway in Obama’s final years.

What about if we look at income data instead of employment data?

The Wall Street Journal has an editorial comparing the fate of workers under both administrations.

Time to wake up from the Barack Obama economy, folks, and admit how many more Americans are prospering from the faster economic growth and tighter labor market after the policy changes of 2017. …the economic expansion reached its 10th anniversary, the longest on record. But the accounts ignore that the last two years have been far different than the first eight in economic policies and results. We’re long enough into the Trump era to track the differences. ……Average hourly earnings for production-level manufacturing workers have grown at an annual rate of 2.8% during the Trump Presidency compared to 1.9% during Barack Obama’s second term.

The WSJ shares data on income growth in key states, and it certainly seems that Trump deserves bragging rights.

The WSJ also argues that Trump’s policies have been beneficial for minorities.

The jobless rate for blacks is 6.2%, which is only 2.9 percentage-points higher than for whites versus a 4.6 percentage-point difference before the start of the 2008 recession. Unemployment has fallen twice as much among blacks as whites since December 2016. Nearly one million more blacks and two million more Hispanics are employed than when Barack Obama left office, and minorities account for more than half of all new jobs created during the Trump Presidency. Unemployment among black women has hovered near 5% for the last six months, the lowest since 1972, and a mere 3.5% of high school graduates are unemployed. …The Trump Administration…policy mix of deregulation and tax reform has unleashed more private investment and job creation that has lifted productivity and wages for the non-affluent. The result has been faster growth and less inequality.

All this is positive news, but I’m not quite as hopeful about Trump’s policies as the WSJ.

The numbers are accurate, though I’m not sure whether we should give all the credit to Trump since it would be more accurate to say that policy has moved only marginally in the right direction.

Yes, tax policy and regulatory policy has moved in the right direction, but we’re moving in the wrong direction on spending policy and trade policy. And maybe monetary policy as well.

What’s the overall effect?

I gave Trump a report card last year. Here’s an updated version, along with grades for Obama.

Trump’s GPA is higher, but it’s not as if either one of them was a good student.

And before people berate about today’s supposedly strong economy, don’t forget that we may be in a bubble fueled by debt and easy money.

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Image credit: DoD photo by U.S. Air Force Staff Sgt. Marianique Santos | Public Domain.

The Continuing Battle against Cronyism at the Export-Import Bank

Fri, 07/05/2019 - 12:41pm

One of the worst examples of Washington cronyism is the Export-Import Bank, which has provided subsidies for big companies that sell to foreign buyers.

Corrupt firms such as Boeing and General Electric argue that they need help from the Ex-Im Bank in order make those sales.

Is that true?

Interestingly, we had a real-world test earlier this decade when the Ex-Im Bank was temporarily shut down and then, after re-opening, was largely unable to provide subsidies to big corporations.

So what happened? Veronique de Rugy of Mercatus explains that exporters did just fine when the Ex-Im Bank was curtailed.

Back in 2015, there was widespread agreement in Congress that the Export-Import Bank — the U.S. government’s export credit agency — was nothing but a crony bank, mostly serving the greedy interests of Boeing and other large companies. As a result, Congress let the bank’s charter expire. It was reauthorized a few months later but in a much-diminished form, operating at 15% capacity. …A thorny problem for those supporting Ex-Im’s revival is that we now have nearly a half-decade’s worth of data on what happened to U.S. exports, economic growth, jobs and beneficiaries while the institution was mostly dormant between 2015 and 2019. During that time, …its activities dropped from $21 billion in 2014 (the last year the bank functioned at full capacity) to $3.6 billion in 2018. …Back in 2014, 65% of the bank’s activities benefited 10 giant companies. Boeing alone got 40% of Ex-Im’s largesse. On the foreign side, the bank’s clients belong to a who’s who list of large, wealthy, successful and often state-owned companies. …Most of this profligacy ended between 2015 and 2018. During that time, the share of funding that benefited large firms dropped by 93%. …once Ex-Im stopped extending giant deals to giant companies, American taxpayers’ liability fell from $112 billion in 2014 to $72.5 billion in 2018. U.S. exports continued to grow without being impacted whatsoever by Ex-Im limitations, and many beneficiaries of the bank had their best year ever in 2018, demonstrating that none of these subsidies are necessary for their success.

Sadly, the Ex-Im Bank is now back in business (and President Trump deserves a big chunk of the blame).

But its charter has to be renewed this year.

There’s no chance of killing the program, but there may be an opportunity to at least curtail its power and authority.

Negotiations on Capitol Hill have produced a compromise package between the top Democrat and top Republican on the House Financial Services Committee.

But not everyone is a fan. The Washington Examiner opined that the deal should be rejected.

House Financial Services Chairwoman Maxine Waters, D-Calif., has drafted a bill that would expand the Ex-Im Bank, rename it, free it from oversight, and charge it with a handful of irrelevant liberal mandates. The committee’s top Republican, Rep. Patrick McHenry, R-N.C., has unfortunately agreed to Waters’ bill. …Republicans should outright reject Waters’ proposal. It’s pitched as a compromise, but the Senate GOP has no reason to compromise. Either fix Waters’ bill or let the Ex-Im Bank’s charter expire in the fall. The “reforms” in Waters’ bill are weak tea. They don’t do anything to steer the Ex-Im Bank away from being welfare for America’s largest corporations.

So did House Republicans kill the deal, which should have been an easy decision?

Not exactly. According to a Politico report, House Democrats stopped it.

But not because they’re opposed to corporate welfare. They rebelled because they want a deal that’s even worse.

House Financial Services Chairwoman Maxine Waters on Wednesday shelved a bipartisan Export-Import Bank bill that sparked a fierce backlash from her own caucus… The delay raises questions about the fate of the beleaguered bank, which, without action by Congress, will see its operating charter lapse in September. …the original compromise she drafted with McHenry ignited criticism from a wide swath of the Democrats on the committee… They objected to new restrictions that would be imposed on the bank and big manufacturers such as Boeing, that benefit from its loan guarantees… Rep. Denny Heck (D-Wash.)…had been raising concerns about sections of the bill that would impose new disclosure requirements on major manufacturers and restrict the agency from providing financial support for deals with Chinese state-owned enterprises. …The restrictions turned out to be one of the biggest sticking points for Democrats. …The bank is only now returning to full operation after years of being hobbled by conservative Republican lawmakers who criticized the agency as engaging in “crony capitalism” and posing a risk to taxpayers.

The moral of the story is that big government and big business shouldn’t be in bed together.

The federal government shouldn’t redistribute money, and it’s especially offensive to have programs that give handouts to rich and powerful companies.

And it’s not just the Ex-Im Bank.

P.S. If you want to understand why export subsidies are economically harmful, I strongly recommend this video from Mercatus.

P.P.S. I have no objection to companies getting profits, but I want them to earn money by serving consumers and not steal money by fleecing taxpayers.

What We Should Be Celebrating on the 4th of July

Thu, 07/04/2019 - 12:20pm

For my annual Independence Day columns, I sometimes try to make serious points, such as last year when I shared the very wise words of Calvin Coolidge, who is probably America’s most-underappreciated president.

Or when I wrote about the proper meaning of patriotism, as I did in 2010 and 2014.

Other years, I celebrate July 4 with some humor, such as my sarcastic Declaration of Dependency in 2011.

Or some cartoons about Obamacare vs. American principles the following year.

For 2019, let’s mix seriousness and satire.

We’ll start with the former. John Stossel’s column for Reason explains what Americans should be celebrating.

We have reason to celebrate. The Fourth honors the founding of America. It’s the anniversary of the day in 1776 that the Declaration of Independence was approved. The Declaration was important. It didn’t say that America would be the best country because it would have the biggest military, toughest leaders, most government giveaways, or tightest borders. The great innovation that day in Philadelphia was the declaration that the United States would have a limitedgovernment, rooted in the idea that every individual has inalienable rights. …It was America’s emphasis on limited government—wanting to make sure no one in government would ever again wield power like that of the British king—that made our revolution the greatest and most lasting success of recent centuries. …France created revolutionary committees that murdered dissenters. Russia replaced its czar with a communist police state that confiscated farms, killing millions. …America happened—and continues to happen—spontaneously, when its leaders are smart enough to just stay out of our way. America will do best if we remember that the Declaration of Independence talks about limited government and reminds us that every individual has inalienable rights.

Amen.

Reminds me of what Reagan said.

One of the key takeaways is that American ideals are inspiring, but government policies often leave much to be desired.

Harry Stewart, one of the famed Tuskegee Airmen, has a great essay in the Wall Street Journal on patriotism even when your government is flawed.

On June 27, 1944, I graduated from Tuskegee Army Flying School, established in Alabama shortly before America’s entry into World War II to train young African-American men as Army combat pilots. …The train ride down South was eye-opening for a teenager who’d never traveled far from New York. When the train crossed the Mason-Dixon Line, the conductor came by and pointed at me: “Move to the colored car.” It was disconcerting, but I saw it as an unavoidable hurdle to earning my wings. I swallowed hard and kept going. …You weren’t just learning to fly; you were serving your country, and you were going to fight. …I flew 43 combat missions with the 332nd Fighter Group… Our commander was the legendary Benjamin O. Davis Jr., who had endured four years of the silent treatment from white cadets at West Point but nevertheless managed to graduate 35th out of a class of 276. …His convictions were encapsulated in his statement: “The privileges of being an American belong to those brave enough to fight for them.” …I am proud that I contributed to the cause. We called it winning the Double V, victory against totalitarianism abroad and institutional racism at home. July 4 is my birthday, but I celebrate my country’s birthday too. America was not perfect in the 1940s and is not perfect today, yet I fought for it then and would do so again.

There’s a lesson in those words for Colin Kaepernick.

Now let’s enjoy some satire, though combined with a serious message.

Bryan Riley of the National Taxpayers Union has a July 4th-themed column on Trump’s destructive trade taxes.

…the next round of tariffs symbolizes just how un-American this trade war has become. …on $300 billion in imports, would include tariffs on tea and fireworks. They might as well be considering a tax on bald eagles. …the 1773 Boston Tea Party was a response to England’s 3 pence per pound tariff on tea imported from China. As President John F. Kennedy observed, “When the people of Boston in 1773 threw cargoes of tea into the harbor, the American Revolution was in effect under way, symbolized by this revolution against a tariff–a tariff which meant taxation without representation.” …As we celebrate our country’s 243rd birthday, let’s also celebrate the American patriots who are following in the footsteps of our country’s founders by opposing costly new tariffs. …As we celebrate our country’s 243rd birthday, let’s also celebrate the American patriots who are following in the footsteps of our country’s founders by opposing costly new tariffs.

Reminds me of the clever AAF visual on how government makes it more expensive to celebrate today.

Last but not least, here’s an alien learning about the long-term consequences of America’s fight for independence, which began as a tax revolt.

Taxation without representation wasn’t very appealing, but the cartoon makes a very good point about the downside of taxation with representation.

Which is a good opportunity to remind everyone why America’s Founders were wise to create a republic rather than a majoritarian democracy.

Too bad the Supreme Court, most recently with Obamacare, has failed in its job to protect economic liberty.

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Image credit: Free-Photos | Pixabay License.

The Dangerous Seduction of “Free”

Wed, 07/03/2019 - 12:42pm

By offering all sorts of freebies to various constituencies, Bernie Sanders has positioned himself as the true-believing socialist in the Democratic race (even though he’s actually a member of the “top-1 percent”).

But he has plenty of competition. Kamala Harris and Elizabeth Warren are strong competitors in the free-lunch Olympics, and most of the rest of the candidates are saying “me, too” as well.

Assuming these candidates get a warm reception, this is a worrisome development.

Part of America’s superior societal capital is (or has been) our immunity to the free-lunch message.

If that’s changing, it will be very hard to be optimistic about the future.

Antony Davies of Duquesne University and James Harrigan of the University of Arizona wrote for FEE about the dangerous – and seductive – ideology of something-for-nothing.

…politicians are tripping over each other to offer voters more “free” things, including everything from health care and college to a guaranteed basic income. But voters should be fostering a healthy sense of skepticism. If there is one eternal and immutable fact in economics, it is that nothing is free. Nothing. …as voters, our healthy skepticism seems to go right out the window. When politicians promise all sorts of “free” things, it doesn’t occur to many of us that those things can’t possibly be free. It doesn’t occur to us that, like businesses seeking our dollars, politicians will tell us whatever it takes to get hold of our votes. …Don’t be so gullible…when you hear Alexandria Ocasio-Cortez and Bernie Sanders tell you how health care and higher education will be free for everyone, remember that…health care and higher education cannot and will never be free.

Davies and Harrigan are economically right. Indeed, they are 100 percent right.

There’s no such thing as a free lunch.

But there are lunches that financed by others. And that’s why I’m worried about support for Sanders and other hard-left Democrats.

I don’t want America to turn into Europe, with people thinking they have a “right” to a wide array of goodies, paid for by someone else.

So what’s the alternative to the something-for-nothing ideology of the modern left?

Bobby Jindal, the former Louisiana governor, recently opined on this topic in the Wall Street Journal.

Progressives are changing the Democratic Party’s focus…to subsidizing everything for everybody. …Democrats now promise free college, free health care and more—for everyone. Republicans can’t outspend Democrats, but they can make the case for freedom and against the idea that everything is “free”… The Republican ideal is…an aspirational society. …becoming dependent on government is the American nightmare. …Republicans have to do more than mock the Green New Deal…if they want to persuade young voters of the case for limited government and personal freedom. …“free” means more government control at the expense of consumer autonomy. When progressives promise government will pay for health care and college, they are really saying government will run medicine and higher education. …“Free” means less efficiency, more expense and lower quality. …“Free” means robbing from America’s children. …Despite proposed marginal rates as high as 70% or even 90%, none of the tax plans Democrats have put forward would raise nearly enough revenue to pay for the promised spending. …Republicans can’t outbid Santa Claus. Americans are willing to work hard and sacrifice for a better life but need to know how pro-growth policies benefit them. Voters may be tempted by progressives’ crazy plans… They will embrace effective market-based solutions that promote freedom if Republicans offer them.

Gov. Jindal has a great message about trumpeting growth as an alternative to redistribution.

Though I’m not brimming with confidence that Republicans are overly sincere when they use this type of rhetoric.

And some of them, like Trump, don’t even bother with pretending that they want to curtail dependency and shrink the social welfare state.

And that does not bode well for America’s future.

P.S. As is so often the case on issues of policy and ethics, Professor Walter Williams is a great source of wisdom.

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Image credit: Michael Vadon | CC BY 2.0.

A Very Depressing Chart about Japan

Tue, 07/02/2019 - 12:07pm

It’s not easy picking the most pessimistic chart about Japan.

The country suffered several decades of economic stagnation following the collapse of a bubble about three decades ago.

That means it’s a bit of a challenge to identify the worst economic numbers.

  • Is it the data on ever-rising levels of government debt?
  • Is it the data on an ever-rising burden of taxation?
  • Or is it the data on an aging population and falling birthrate?

For what it’s worth, I thought the tax data was the most depressing.

But now there’s a new challenger for the grimmest chart.

I’m currently in Japan, where it’s almost bedtime. I just heard a speech from the governor of the Tokyo Prefecture.

As part of her remarks, she shared a slide showing how Japan has plummeted in the IMD competitiveness rankings.

I don’t have her chart, but I found another version with the same data.

And Japan has dropped to #30 in the recently released 2018 version.

By the way, you won’t be surprised to learn that Economic Freedom of the World shows a similar decline.

Japan was ranked in the top-10 back in 1990, but now it’s dropped to #41.

This is not quite as pronounced as Argentina’s drop in the rankings for per-capita GDP, but it’s definitely a sign that something’s gone wrong in the Land of the Rising Sun.

P.S. Japan has a very strong entry in the contest for the world’s most inane regulation.

P.P.S. And if there was a contest for the most ineffective form of government waste, Japan would have a very strong entry for that prize as well.

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Image credit: victorpalmer | Pixabay License.

The Case for Capital Gains Indexing

Mon, 07/01/2019 - 12:27pm

One of the worst features of the internal revenue code is the pervasive biasagainst income that is saved and invested.

People who immediately consume their after-tax income are largely untaxed (thankfully, we don’t have a value-added tax), but there are several additional layers of tax on people who set aside income to finance future economic growth.

This is a self-destructive approach since all economic theories – even Marxism and socialism – agree that capital formation is a key to long-run growth and higher living standards.

The ideal answer is fundamental tax reform. For instance, all forms of double taxation are abolished with a flat tax.

But that’s not a realistic option, so what about interim steps?

Interestingly, some progress may be possible. According to a Bloomberg report, the Trump Administration may be on the verge of getting rid of the hidden inflation tax on capital gains.

The White House is developing a plan to cut taxes by indexing capital gains to inflation, according to people familiar with the matter, in a move that…may be done in a way that bypasses Congress. Consensus is growing among White House officials to advance the proposal soon, the people said, to ensure the benefit takes effect before President Donald Trump faces re-election in 2020. Revamping capital gains taxes through a rule or executive order likely would face legal challenges, a concern that reportedly prompted former President George H.W. Bush’s administration to drop a similar plan. …Indexing capital gains would slash tax bills for investors when selling assets such as stock or real estate by adjusting the original purchase price so no tax is paid on appreciation tied to inflation. …The inflation adjustment would amount to a several percentage point tax cut for investors, depending on the type of asset and how long it’s held, according to 2018 estimates from the non-partisan Congressional Research Service. Corporate stock with dividends held for 10 years would be currently be subject to an effective tax rate of 24.3%. That same holding indexed to inflation would be subject to a 21.4% tax rate, CRS said.

Kimberley Strassel of the Wall Street Journal opines that this would be a very desirable reform.

What if President Trump had the authority—on his own—to enact a second powerful tax reform? He does. The momentum is building for him to use it. …forces are aligning behind a plan: a White House order to index capital gains for inflation. It’s a long-overdue move—one that would further unleash the economy and boost GOP election prospects. …At President Reagan’s behest, Congress in the 1980s indexed much of the federal tax code for inflation. Oddly, capital gains weren’t similarly treated. The result is that businesses and individuals pay taxes on the full nominal amount they earn on investments, even though inflation eats up a good chunk of any gain. It’s not unheard of for taxes to exceed real gains after inflation. …the Internal Revenue Code does not require that the “cost” of an asset be measured only as its original price—meaning there is no reason Treasury could not construe it in today’s dollars. …The move would set off an explosion of buying and selling—of which the government would get its cut. The lower tax on capital would also help asset prices grow. All of this would be excellent news for the economy.

This 2010 CF&P video elaborates on the reasons for indexing.

I especially like the examples showing how, even with modest levels of inflation, the actual capital gains tax rate can be much higher than official rate.

Remember, it’s the effective marginal tax rate that determines incentives for additional productive activity.

This is why any form of capital gains taxation is wrong. And it’s especially wrong to impose a hidden – and higher – tax simply because of inflation.

Indeed, it’s fundamentally immoral to let the government profit from inflation.

So what would happen if the rumors are true and Trump unilaterally eliminates the tax on inflationary gains?

The Tax Foundation estimated how such a change would affect the economy and the budget. The report includes a helpful example of how this reform would protect investors.

…if an individual purchased an asset for $100 in January 1, 2000 and sold that asset for $200 on July 1, 2018, the nominal capital gain would be $100. However, inflation over that period increased the price level by 49 percent. Under an indexing proposal, the individual would be able to gross up the basis of $100 by the total inflation during that period to $149. As a result, the individual would only be taxed on $51 instead of the full $100.

Here’s a table comparing the status quo with indexing.

Here’s the estimate of the economic benefits.

…indexing capital gains to inflation would increase the long-run size of the economy by 0.11 percent, which is equivalent to about $22 billion in 2018. This provision would primarily boost output by reducing the service price of capital, which would increase the incentive to invest in the United States. We estimate that the service price of capital would be 0.15 percent lower under this proposal. The capital stock would be 0.26 percent larger and the larger capital stock would boost labor productivity leading to 0.08 percent higher wages.

And here’s the accompanying table.

The Tax Foundation also prepared an estimate of the impact on tax revenue.

On a dynamic basis, the revenue loss would be…$148.3 billion over the next ten years. The increase in output due to the lower cost of capital would boost incomes, which would boost payroll revenue and slightly offset individual income tax revenue losses.

The bottom line is that this is not a self-financing reform (that only happens in rare instances), but it is a reform that would help the economy by encouraging more jobs and growth.

And, remember, even small improvements in growth have a meaningful impact over time.

Let’s close with a video from an unlikely supporter of inflation indexing.

Notwithstanding these remarks, I don’t think Schumer will applaud if Trump indexes the capital gains tax. Instead, I suspect he’s now more likely to support measures that would exacerbate this form of double taxation. Though I think he’s still on the right side (at least behind the scenes) on the issue of “carried interest,” so maybe he’s not a totally lost cause.

The Economic Benefits of Reducing the Regulatory Burden

Sun, 06/30/2019 - 12:24pm

When I assess President Trump’s economic policy, I generally give the highest grade to his tax policy.

But as I pointed out in this interview from last year, there’s also been some progress on regulatory policy, even if only in that the avalanche of red tape we were getting under Bush and Obama has abated.

But perhaps I need to be even more positive about the Trump Administration.

For instance, I shared a graph last year that showed a dramatic improvement (i.e., a reduction) in the pace of regulations under Trump.

For all intents and purposes, this means the private sector has had more “breathing room” to prosper. Which means more opportunity for jobs, growth, investment, and entrepreneurship.

To what extent can we quantify the benefits?

Writing for the Washington Post, Trump’s former regulatory czar said the administration has lowered the cost of red tape, which is a big change from what happened during the Obama years.

Over the past two years, federal agencies have reduced regulatory costs by $23 billion and eliminated hundreds of burdensome regulations, creating opportunities for economic growth and development. This represents a fundamental change in the direction of the administrative state, which, with few exceptions, has remained unchecked for decades. The Obama administration imposed more than $245 billion in regulatory costs on American businesses and families during its first two years. The benefits of deregulation are felt far and wide, from lower consumer prices to more jobs and, in the long run, improvements to quality of life from access to innovative products and services. …When reviewing regulations, we start with a simple question: What is the problem this regulation is trying to fix? Unless otherwise required by law, we move forward only when we can identify a serious problem or market failure that would be best addressed by federal regulation. These bipartisan principles were articulated by President Ronald Reagan and reaffirmed by President Bill Clinton, who recognized that “the private sector and private markets are the best engine for economic growth.”

But how does this translate into benefits for the American people?

Let’s look at some new research from the Council of Economic Advisers, which estimates the added growth and the impact of that growth on household income.

Before 2017, the regulatory norm was the perennial addition of new regulations.Between 2001 and 2016, the Federal government added an average of 53 economically significant regulations each year. During the Trump Administration, the average has been only 4… Even if no old regulations were removed, freezing costly regulation would allow real incomes to grow more than they did in the past, when regulations were perennially added… The amount of extra income from a regulatory freeze depends on (1) the length of time that the freeze lasts and (2) the average annual cost of the new regulations that would have been added along the previous growth path. …In other words, by the fifth year of a regulatory freeze, real incomes would be 0.8 percent (about $1,200 per household in the fifth year) above the previous growth path. …As shown by the red line in figure 3, removing costly regulations allows for even more growth than freezing them. As explained above, the effect, relative to a regulatory freeze, of removing 20 costly Federal regulations has been to increase real incomes by 1.3 percent. In total, this is 2.1 percent more income—about $3,100 per household per year—relative to the previous growth path.

Here’s the chart showing the benefits of both less regulation and deregulation.

The chart makes the change in growth seem dramatic, but the underlying assumptions aren’t overly aggressive.

What you’re seeing echoes my oft-made point that even modest improvements in growth lead to meaningful income gains over time.

P.S. My role isn’t to be pro-Trump or anti-Trump. Instead, I praise what’s good and criticize what’s bad. While Trump gets a good grade on taxes and an upgraded positive grade on regulation, don’t forget that he gets a bad grade on trade, a poor grade on spending, and a falling grade on monetary policy.

Is the Massachusetts Flat Tax in Danger?

Sat, 06/29/2019 - 12:19pm

Regarding fundamental tax reform, there have been some interesting developments at the state level in recent years.

Utah, North Carolina, and Kentucky have all junked their so-called progressive systems and joined the flat tax club.

That’s the good news.

The bad news is that Illinois politicians are desperately trying to gut that state’s flat tax.

And the same thing is true in Massachusetts.

The Tax Foundation has a good explanation of what’s been happening in the Bay State and why it matters for the competitiveness, job creation, and entrepreneurship.

A joint constitutional convention of Massachusetts lawmakers has voted 147-48 to approve H.86, dubbed the Fair Share Amendment, to impose a 4 percent income tax surcharge on annual income beyond $1 million. The new tax would be levied in addition to the existing 5.05 percent flat rate, bringing Massachusetts’ total top rate to 9.05 percent. …Massachusetts requires legislatively-referred constitutional amendments be passed in consecutive sessions, meaning that the same measure would need to be approved in the 2021-2022 legislative session before it would be sent to voters in November of 2022. The millionaires’ tax, though targeted at a wealthy minority of tax filers in the Bay State, would cause broader harm to Massachusetts’ tax structure and economic climate. It would eliminate Massachusetts’ primary tax advantage over regional competitors… The Bay State’s low, flat income tax on individuals and pass-through businesses is the most competitive element of its tax code, giving the Commonwealth a clear strength compared to surrounding states and regional competitors. Income tax rate reductions in recent years have helped shed the moniker of “Taxachusetts” while setting up the Bay State to be a beneficiary of harmful tax rate increases in surrounding states. However, a 9.05 percent top rate would be uncompetitive even in a high-tax region. The amendment would hit Massachusetts pass-through businesses with the sixth-highest tax rate of any state.

Here’s a map showing top tax rates in the region (New Hampshire has an important asterisk since the 5-percent rate only applies to interest and dividends), including where Massachusetts would rank if the new plan ever becomes law.

The Boston Globe reports that lawmakers are very supportive of this scheme to extract more money, while the business community is understandably opposed.

A measure to revive a statewide tax on high earners received a glowing reception on Beacon Hill Thursday, suggesting an easy path ahead despite staunch opposition from business groups. “We are in desperate need for revenue for our districts,” said Senator Michael D. Brady of Brockton, one of the proposal’s more than 100 sponsors and a member of the Joint Committee on Revenue…. “We have tremendous unmet needs in our Commonwealth that are hurting families, hurting our communities, and putting our state’s economic future at risk,” said Senator Jason M. Lewis of Winchester, the lead sponsor of the Senate version of the proposal. …business groups…came armed with arguments that hiking taxes on the state’s highest earners would drive entrepreneurs — and the jobs and tax revenue they create — out of the state, as well as unfairly harm small- and mid-sized business owners whose business income passes through their individual tax returns. “Look, we’re trying to prevent Massachusetts from becoming Connecticut,” said Christopher Anderson, president of the Massachusetts High Technology Council.

Meanwhile, the Boston Herald reports that the Republican governor is opposed to this class-warfare tax.

Gov. Charlie Baker cautioned the Legislature against asking for more money from taxpayers with the so-called millionaire tax… “I’ve said that we didn’t think we should be raising taxes on people and I certainly don’t think we should be pursuing a graduated income tax,” Baker told reporters yesterday. …Members of Raise Up Massachusetts, a coalition of community organizations, religious groups and labor unions, are staunchly supporting the tax that is estimated to raise approximately $2 billion a year. …The Massachusetts Republican Party is sounding the alarm on what they’re calling, “the Democrats’ newest scheme,” to “dump” the state’s flat tax system.

The governor’s viewpoint is largely irrelevant, however, since he can’t block the legislature from moving forward with their class-warfare scheme.

But that doesn’t mean the big spenders in Massachusetts have a guaranteed victory.

Yes, the next session’s legislature is almost certain to give approval, but there’s a final step needed before the flat tax is gutted.

The voters need to say yes.

And in the five previous occasions when they’ve been asked, the answer has been no.

Overwhelmingly no.

Even in 1968 and 1972, proposals for a so-called progressive tax were defeated by a two-to-one margin.

Needless to say, that doesn’t mean voters will make the right choice in 2022.

The bottom line is that if the people of Massachusetts want investors, entrepreneurs, and other job creators to remain in the state, they should again vote no.

But if they want to destroy jobs and undermine the Bay State’s competitiveness, they should vote yes.

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Image credit: Darcy | CC BY 2.0.

The Economic Damage of “Neutral Taxes”

Fri, 06/28/2019 - 12:14pm

There’s general agreement among public finance experts that personal income taxes and corporate income taxes, on a per-dollar-collected basis, do the most economic damage.

And I suspect there’s a lot of agreement that this is because these levies often have high marginal tax rates and often are accompanied by a significant bias against income that is saved and invested.

Payroll tax and consumption taxes, by contrast, are thought to be less damaging because they generally don’t have “progressive rates” and they are “neutral,” meaning they rarely involve any double taxation of saving and investment.

But “less damaging” is not the same as “no damage.”

Such taxes still drive a wedge between pre-tax income and post-tax consumption, so they do result in less economic activity (what economists refer to as “deadweight loss“).

And the deadweight loss can be significant if the overall tax burden is sufficiently onerous (as is the case in many European nations).

Interestingly, the (normally pro-tax) International Monetary Fund just released a study on this topic. It looked at the impact of taxes on work in the new member states (NMS) of the European Union. Here’s a summary of what the authors wanted to investigate.

Given demographic and pension pressures facing many EU28 countries amidst low labor market participation rates together with still high tax wedges, the call to review public policies has gained renewed prominence in the EU political debate. …tax wedges remain high and participation rates, while having increased importantly in a few countries over 2000-17 , are still around or below 70 percent in many of them. This hints at the need for addressing structural problems to improve economic fortunes. In this paper we focus our attention on hours worked (per working age population). …At country level, hours worked reflect labor supply decisions and could be thought of a measure of labor utilization. Long-run changes in labor supply are driven by incentives, of which taxes are perceived to be central. Assessing the importance of taxation on hours is key to provide new insights for potential policy actions.

And here’s what they found.

We study the role of taxes in accounting for differences in hours worked across NMS over the 1995-17 period… We find that consumption and labor taxes significantly discourage labor supply and can explain close to 21 percent of the observed variation of hours across NMS. …Higher tax rates reduce households’ net labor income and real purchasing power, inducing them to substitute consumption for leisure, which cannot be taxed. …Our findings show that, conditional on other factors, taxes are an important determinant of hours. Point estimates suggest a high elasticity of hours to taxes (close to 0.5), which is robust to the inclusion of other factors.

What’s interesting about the new member states of Eastern Europe is that many of them have flat taxes and low corporate rates.

So the personal and corporate income taxes are not a major burden.

But they so have relatively high payroll taxes (a.k.a., social insurance taxes) and relatively onerous value-added taxes.

So it’s hardly a surprise that these levies are the ones most associated with deadweight loss.

We find that social security contributions deter hours the most, followed by consumption taxes and, to a lesser extent, personal income taxes. …Consumption and personal income taxes are found to affect hours per worker, but not employment rates. On the other hand, social security contributions are negatively associated with employment rates, but do not seem to affect hours per worker. …In line with the literature, we document that women’s employment rate is more sensitive to changes in tax policies. We find the elasticity of employment rate to social security contributions to be 7 percent larger for women vis-à-vis men.

Here’s one of the charts from the study.

And here’s an explanation of what it means.

Figure 4 shows the evolution of hours and effective taxes. Hours worked increased substantially for Group 1, while it remained stable in Group 2 (Panel (a)). In both groups, the effect of the GFC is noticeable as hours sharply declined after 2008. Panel (b) shows the evolution of the average effective tax rate in each group. Interestingly, countries in Group 1, which observed an increase in hours, had lower effective tax rates (below 40 percent) throughout the period. In addition, we observe a negative correlation between hours and taxes for most of the sample. For Group 1, the large increase in hours – between year 2000 and the GFC – happened at the same time taxes declined

Here’s another chart from the IMF report.

And here’s some of the explanatory text.

Figure 5 depicts the relationship between hours worked and taxes across countries. In Panel (a), we observe a negative correlation between hours and taxes in levels for each group, with the negative correlation being stronger in Group 2 than in Group 1 (it has a steeper slope). Panel (b) shows total log changes in hours and taxes throughout the period. It also displays a negative correlation.

Looking at the conclusion, a key takeaway from the study is that there is a substantial loss of economic activity because of theoretically benign (but in reality onerous) taxes on consumption and labor.

Our modelling exercise shows that taxes influence the long-run trend in hours and our econometric exercise shows that the findings are robust to the inclusion of other labor market determinants. Furthermore, we document an elasticity of hours to overall taxes close to 0.5. We find that differences in tax burden can explain up to 21 percent in the variation of hours worked across NMS. The main takeaway of this study is that excessive tax burden, either in the form of consumption or labor taxes, can lead to substantial deadweight losses in terms of labor supply. .. overall tax burden – and not only labor taxes – should be considered when thinking about incentives from tax schemes.

Yes, incentives do matter.

And it’s good that an IMF report is providing good evidence for lower tax rates.

But I’m not optimistic we’ll get pro-growth changes. There’s been a lack of good reform this decade from the new member states from Eastern Europe. Combined with demographic decline (and the associated pressure for higher tax rates), this does not bode well.

P.S. While the professional economists at the IMF often produce good research and sensible advice, the bureaucracy’s political leaders almost always ignore those findings and instead push for bad tax policy. Including in the new member states from Eastern Europe.

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Image credit: Max Pixel | CC0 Public Domain.

The Three Most Important Takeaways from CBO’s New Long-Run Fiscal Forecast

Thu, 06/27/2019 - 12:07pm

The Congressional Budget Office just released its new long-run fiscal forecast.

Most observers immediately looked at the estimates for deficits and debt. Those numbers are important, especially since America has an aging population, but they should be viewed as secondary.

What really matters are the trends for both taxes and spending.

Here are the three things that you need to know.

First, America’s tax burden is increasing. Immediately below are two charts. The first one shows that revenues will consume an addition three percentage points of GDP over the next three decades. As I’ve repeatedly pointed out, our long-run problem is not caused by inadequate revenue.

The second of the two charts shows that most of the increase is due to “real bracket creep,” which is what happens when people earn more income and wind up having to pay higher tax rates.

So even if Congress extends the “Cadillac tax” on health premiums and extends all the temporary provisions of the 2017 Tax Act, the aggregate tax burden will increase.

Second, the spending burden is growing even faster than the tax burden.

And if you look closely at the top section of Figure 1-7, you’ll see that the big problems are the entitlements for health care (i.e., MedicareMedicaid, and Obamacare).

By the way, the lower section of Figure 1-7 shows that corporate tax revenues are projected to average about 1.3 percent of GDP, which is not that much lower than what CBO projected (about 1.7 percent of GDP) before the rate was reduced by 40 percent.

Interesting.

Third, we have our most important chart.

It shows that the United States is on a very bad trajectory because the burden of government spending is growing faster than the private economy.

In other words, Washington is violating my Golden Rule.

And this leads to all sorts of negative consequences.

  • Government consumes a greater share of the economy over time.
  • Politicians will want to respond by raising taxes.
  • Politicians will allow red ink to increase.

The key thing to understand is that more taxes and more debt are the natural and inevitable symptoms of the underlying disease of too much spending.

We know the solution, and we have real world evidence that it works (especially when part of a nation’s constitution), but don’t hold your breath waiting for Washington to do the right thing.

The Destructive Economics of Wealth Taxation

Wed, 06/26/2019 - 12:03pm

wrote five years ago about the growing threat of a wealth tax.

Some friends at the time told me I was being paranoid. The crowd in Washington, they assured me, would never be foolish enough to impose such a levy, especially when other nations such as Sweden have repealed wealth taxes because of their harmful impact.

But, to paraphrase H.L. Mencken, nobody ever went broke underestimating the foolishness of politicians.

I already wrote this year about how folks on the left are demonizing wealth in hopes of creating a receptive environment for this extra layer of tax.

And some masochistic rich people are peddling the same message. Here’s some of what the Washington Post reported.

A group of ultrarich Americans wants to pay more in taxes, saying the nation has a “moral, ethical and economic responsibility” to ensure that they do. In an open letter addressed to the 2020 presidential candidates and published Monday on Medium, the 18 signatories urged political leaders to support a wealth tax on the richest one-tenth of the richest 1 percent of Americans. “On us,” they wrote. …The letter, which emphasized that it was nonpartisan and not to be interpreted as an endorsement of anyone in 2020, noted that several presidential candidates, including Sen. Elizabeth Warren (D-Mass.), Pete Buttigieg and Beto O’Rourke, have already signaled interest in addressing the nation’s staggering wealth inequality through taxation.

I’m not sure a please-tax-us letter from a small handful of rich leftists merits so much news coverage.

Though, to be fair, they’re not the only masochistic rich people.

Another guilt-ridden rich guy wrote for the New York Times that he wants the government to have more of his money.

My parents watched me build two Fortune 500 companies and become one of the wealthiest people in the country. …It’s time to start talking seriously about a wealth tax. …Don’t get me wrong: I am not advocating an end to the capitalist system that’s yielded some of the greatest gains in prosperity and innovation in human history. I simply believe it’s time for those of us with great wealth to commit to reducing income inequality, starting with the demand to be taxed at a higher rate than everyone else. …let’s end this tired argument that we must delay fixing structural inequities until our government is running as efficiently as the most profitable companies. …we can’t waste any more time tinkering around the edges. …A wealth tax can start to address the economic inequality eroding the soul of our country’s strength. I can afford to pay more, and I know others can too.

When reading this kind of nonsense, my initial instinct is to tell this kind of person to go ahead and write a big check to the IRS (or, better yet, send the money to me as a personal form of redistribution to the less fortunate). After all, if he really thinks he shouldn’t have so much wealth, he should put his money where his mouth is.

But rich leftists like Elizabeth Warren don’t do this, and I’m guessing the author of the NYT column won’t, either. At least if the actions of other rich leftists are any guide.

But I don’t want to focus on hypocrisy.

Today’s column is about the destructive economics of wealth taxation.

report from the Mercatus Center makes a very important point about how a wealth tax is really a tax on the creation of new wealth.

Wealth taxes have been historically plagued by “ultra-millionaire” mobility. …The Ultra-Millionaire Tax, therefore, contains “strong anti-evasion measures” like a 40 percent exit tax on any targeted household that attempts to emigrate, minimum audit rates, and increased funding for IRS enforcement. …Sen. Warren’s wealth tax would target the…households that met the threshold—around 75,000—would be required to value all of their assets, which would then be subject to a two or three percent tax every year. Sen. Warren’s team estimates that all of this would bring $2.75 trillion to the federal treasury over ten years… a wealth tax would almost certainly be anti-growth. …A wealth tax might not cause economic indicators to tumble immediately, but the American economy would eventually become less dynamic and competitive… If a household’s wealth grows at a normal rate—say, five percent—then the three percent annual tax on wealth would amount to a 60 percent tax on net wealth added.

Alan Viard of the American Enterprise Institute makes the same point in a column for the Hill.

Wealth taxes operate differently from income taxes because the same stock of money is taxed repeatedly year after year. …Under a 2 percent wealth tax, an investor pays taxes each year equal to 2 percent of his or her net worth, but in the end pays taxes each decade equal to a full 20 percent of his or her net worth. …Consider a taxpayer who holds a long term bond with a fixed interest rate of 3 percent each year. Because a 2 percent wealth tax captures 67 percent of the interest income of the bondholder makes each year, it is essentially identical to a 67 percent income tax. The proposed tax raises the same revenue and has the same economic effects, whether it is called a 2 percent wealth tax or a 67 percent income tax. …The 3 percent wealth tax that Warren has proposed for billionaires is still higher, equivalent to a 100 percent income tax rate in this example. The total tax burden is even greater because the wealth tax would be imposed on top of the 37 percent income tax rate. …Although the wealth tax would be less burdensome in years with high returns, it would be more burdensome in years with low or negative returns. …high rates make the tax a drain on the pool of American savings. That effect is troubling because savings finance the business investment that in turn drives future growth of the economy and living standards of workers.

Alan is absolutely correct (I made the same point back in 2012).

Taxing wealth is the same as taxing saving and investment (actually, it’s the same as triple- or quadruple-taxing saving and investment). And that’s bad for competitiveness, growth, and wages.

And the implicit marginal tax rate on saving and investment can be extremely punitive. Between 67 percent and 100 percent in Alan’s examples. And that’s in addition to regular income tax rates.

You don’t have to be a wild-eyed supply-side economist to recognize that this is crazy.

Which is one of the reasons why other nations have been repealing this class-warfare levy.

Here’s a chart from the Tax Foundation showing the number of developed nations with wealth taxes from1965-present.

And here’s a tweet with a chart making the same point.

A reminder that most of the OECD has moved away from wealth taxes. 12 countries had them in 1990, while only 4 levy them today. Most countries found that the tax has high administrative and compliance costs, and didn’t meet the goal of redistribution. pic.twitter.com/pHs7Q5ehjL

— Garrett Watson (@GS_Watson) January 24, 2019

P.S. I’ve tried to figure out why so many rich leftists support higher taxes. For non-rich leftists, I cite IRS data in hopes of convincing them they should be happy there are rich people.

P.P.S. I’ve had two TV debates with rich, pro-tax leftists (see here and here). Very strange experiences.

P.P.P.S. There are also pro-tax rich leftists in Germany.

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Image credit: Senate Democrats Follow | CC BY 2.0.

Air Travel and Taxation: A Case Study of Statism in the European Union

Tue, 06/25/2019 - 12:28pm

I’ve argued for many years that a Clean Brexit is the right step for the United Kingdom for the simple reason that the European Union is a slowly sinking ship.

Part of the problem is demographics. Europe’s welfare states are already very expensive and the relative costs will increase dramatically in coming years because of rising longevity and falling birthrates. So I expect more Greek-style fiscal crises.

The other part of the problem is attitudinal. I’m not talking about European-wide attitudes (though that also is something to worry about, given the erosion of societal capital), but rather the views of the European elites.

The notion of “ever closer union” is not just empty rhetoric in European treaties. It’s the ideological preference of senior European leaders, including in many nations and definitely in Brussels (home of the European Commission and the European Parliament).

In practical terms, this means a relentless effort for more centralization.

All policies that will accelerate Europe’s decline.

What’s happening with the taxation of air travel is a good example. Here are some excerpts from a story in U.S. News & World Report.

The Netherlands and France are trying to convince fellow European nations at a conference in The Hague to end tax exemptions on jet fuel and plane tickets… In the first major initiative on air travel tax in years, the conference on Thursday and Friday – which will be attended by about 29 countries – will discuss ticket taxes, kerosene levies and value-added tax (VAT) on air travel. …The conference will be attended by European Union economics commissioner Pierre Moscovici and finance and environment ministers. …The conference organizers hope that higher taxes will lead to changes in consumer behavior, with fewer people flying

The politicians, bureaucrats, and environmental activists are unhappy that European consumers are enjoying lightly taxed travel inside Europe.

Oh, the horror!

A combination of low aviation taxes, a proliferation of budget airlines and the rise of Airbnb have led to a boom in intra-European city-trips. …Research has shown that if the price of air travel goes up by one percent, demand will likely fall by about one percent, according to IMF tax policy division head Ruud De Mooij. He said that in a typical tank of gas for a car, over half the cost is tax…”Airline travel is nearly entirely exempt from all tax… Ending its undertaxation would level the playing field versus other modes of transport,” he said. …Environmental NGOs such as Transport and Environment (T&E) have long criticized the EU for being a “kerosene tax haven”.”Europe is a sorry story. Even the U.S., Australia and Brazil, where climate change deniers are in charge, all tax aviation more than Europe does,” T&E’s Bill Hemmings said. …The EU report shows that just six out of 28 EU member states levy ticket taxes on international flights, with Britain’s rates by far the highest at about 14 euros for short-haul economy flights and up to 499 euros for long-haul business class. …Friends of the Earth says there are no easy answers and that the only way to reduce airline CO2 emissions is by constraining aviation trough taxation, frequent flyer levies and limiting the number of flights at airports.

The only semi-compelling argument in the story is that air travel is taxed at preferential rates compared to other modes of transportation.

Assuming that’s true, it would be morally and economically appropriate to remove that distortion.

But not as part of a money-grab by European politicians who want more money and more centralization.

As you can see from this chart, the tax burden in eurozone nations is almost 50 percent higher than it is in the United States (46.2 percent of GDP compared to 32.7 percent of GDP according to OECD data for 2018).

And it’s lower-income and middle-class taxpayers who are paying the difference.

So here’s a fair trade. European nations (not Brussels) can impose additional taxes on air travel if they are willing to lower other taxes by a greater amount. Maybe €3 of tax cuts for every €1 of additional taxes on air travel?

Needless to say, nobody in Brussels – or in national capitals – is contemplating such a swap. The discussion is entirely focused on extracting more tax revenue.

P.S. There’s some compelling academic evidence that the European Union has undermined the continent’s economic performance. Which is sad since the EU started as a noble idea of a free trade area and instead has become a vehicle for statism.

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Image credit: Adrian Pingstone | Public Domain.

An Oakland Cop Joins the Bureaucrat Hall of Fame

Mon, 06/24/2019 - 12:13pm

The Bureaucrat Hall of Fame recognizes government employees who go above and beyond the call of duty in terms of getting over-paid or being under-worked.

Or both.

Adding insult to injury, many recipients of this award are employed by bureaucracies that shouldn’t even exist.

Today we’re going to look at the Oakland police department, which is a part of the government that presumably should exist (though Camden, NJ, shows that maybe we shouldn’t make that assumption).

The Oakland PD is notorious for being over-compensated, but one cop stands out.

Eric Boehm of Reason has the sordid details.

When Oakland, California, police officers are needed at Golden State Warriors basketball games and other special events, Malcolm Miller is the officer in charge of making those assignments. Often, he assigns himself. As a result, Miller has become one of the highest paid officers in the department. He’s earned nearly $2.5 million over the past five years—most of it overtime pay—according to data collected by Transparent California, a watchdog group.

What a scam.

It’s highly likely that Mr. Miller is a basketball fan, so he’s figured out a great racket.

He basically gets a big pile of money for going to the games.

He and his colleagues are making out like bandits.

…he’s hardly the only officer to take advantage of poor oversight and a general lack of accountability. According to the audit, 217 officers worked roughly 520 hours of overtime last year, helping to cost the department more than $30 million in overtime pay—about twice as much as had been budgeted. Over the past four years, overtime expenditures have ranged from $28 million to $31 million. Proper documentation of overtime work was lacking in 83 percent of cases, the auditors found.

Though Officer Miller might not be the worst of the group.

One officer was paid for more than 2,600 hours of overtime—equal to 108 days of round-the-clock work—in just a single year.

So how do cops get away with this scam?

Simple, they make sure to negotiate contracts that have sweetheart provisions that they can exploit.

And why does Oakland agree to such contracts?

Well, as Michael Ramirez illustrated, bureaucrat unions give lots of money to state and local politicians, and those politicians then conspire with the unions to give them contracts with the sweetheart provisions.

Let’s close by looking at an example of this kind of scam.

Perhaps the most stunning part of the audit is the explanation of a department-wide policy that allows Oakland cops to accrue 1.5 hours of “comp time” for every hour of overtime worked. When an officer cashes in that comp time and isn’t working, other officers have to work overtime to fill the gap. That creates a cascade of additional overtime pay—10 hours of overtime creates 15 hours of comp time, which some other cop has to work, earning 22.5 hours of comp time (if they’re also working overtime), and so on.

Here’s the accompanying illustration.

How ridiculous. Extra money for overtime, combined with being able to work fewer hours in the future. Which then gives other cops an opening to rack up more overtime pay.

Everyone wins…except for taxpayers.

P.S. Some bureaucrats earn admission to the Bureaucrats Hall of Fame by misbehaving. Often in very strange ways.

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Image credit: nereocystis | CC BY 2.0.

Coalition Warns That Price Controls Won’t Solve Surprise Medical Bills

Mon, 06/24/2019 - 12:11pm

For Immediate Release
Monday, June 24, 2019
202-285-0244
www.freedomandprosperity.org

Coalition Warns That Price Controls Won’t Solve Surprise Medical Bills

(Washington, D.C., Monday, June 24, 2019) A coalition of 16 organizations, led by the Center for Freedom and Prosperity, today warned members of Congress against pursuing price controls as a solution to surprise medical bills. Instead of adopting proposals for rate setting, a reimbursement cap based on median in-network rates, or bundling and in-network guarantees, the letter suggests a look toward proven solutions like New York’s Independent Dispute Resolution system.

The coalition letter reads, in part:

“Some proposals under discussion advance rate setting as an answer to surprise medical billing. Rate setting will have negative effects for patients while failing to address the reasons why patients receive surprise medical bills, including narrow insurance networks, denied coverage, and high deductible health insurance plans…

Rate setting will drive doctors out of business. This undermines the entire purpose of the drive to end surprise billing, which is removing obstacles from patients who need to see a doctor.”

The full letter is available here.

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, [email protected]

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Image credit: http://401kcalculator.org | CC BY-SA 2.0.

Coalition to Congress: Price Controls Are Not the Answer for Surprise Medical Bills

Mon, 06/24/2019 - 11:35am

[PDF Version]

Dear Members of Congress:

We applaud Congress and President Donald Trump for shining a light on surprise medical billing, an unfair practice that takes advantage of patients who have experienced a medical emergency. However, while Congress should act swiftly to end surprise billing, members should be aware that some of the proposals currently on the table come with unintended consequences. The work of Congress to end surprise billing should be about protecting patients, allowing healthcare providers to treat people in need of care, and ensuring that insurers treat patients fairly, particularly in the wake of a medical emergency. Unfortunately, some attempts to end surprise billing are counterproductive to these goals while also moving our healthcare system a step closer to the concept of socialized medicine. Other proposals are unproven and carry unnecessary risk while failing to address the root causes of surprise medical billing. Conservatives in Congress should make clear that these options are unacceptable and instead champion a solution with proven results that does not further expand the influence of the federal government over Americans’ healthcare choices.

Some proposals under discussion advance rate setting as an answer to surprise medical billing. Rate setting will have negative effects for patients while failing to address the reasons why patients receive surprise medical bills, including narrow insurance networks, denied coverage, and high deductible health insurance plans. Patients pay costly premiums every month, only to discover their plans fail to protect them from the cost of care, particularly in emergencies. When someone goes to the emergency room with a heart attack, stroke, serious injury, or other medical emergency, getting the patient in the hands of medical professionals can be the difference between life and death.

Patients in emergency situations have little control over where they receive treatment. Emergency room doctors and nurses are professionally obligated to treat every patient, regardless of their insurance plan. Insurers that refuse to cover emergency costs, which they pass on to the patient, are the only party refusing to act in good faith. Rate setting punishes patients and doctors for surprise medical bills rather than holding insurance companies accountable for their failure to pay. It also fails to account for the role insurance companies play in shrinking networks and denying payments and represents a misunderstanding of the economics of our healthcare system. The practice of price fixing has proven to be a failure time after time.

Rate setting will drive doctors out of business. This undermines the entire purpose of the drive to end surprise billing, which is removing obstacles from patients who need to see a doctor. Thanks to shrinking networks, patients in many parts of the country struggle to find in-network care. Rural communities, which are already experiencing doctor shortages, would be hit particularly hard. Rural Americans who have limited access to care options cannot afford to see their local doctors and hospitals put out of business thanks to further government interference in our country’s healthcare system.

Republicans, in particular, should be wary of proposals that cap reimbursements based on a median in-network rate. Some proponents couch the median in-network reimbursement rate as a market-based solution but, like other rate setting proposals, median in-network reimbursements also artificially set prices for healthcare without addressing the role insurance companies play in surprise billing. Median in-network reimbursements will still shrink networks and make it harder for patients to receive the care they need. This approach is rate setting in disguise and will lead to the same problems.

Other proposals attempt to use shortsighted, unproven mechanisms known as bundling or in-network guarantees to artificially drive down the cost of care. Like rate setting, these concepts fail to account for the reality of how our healthcare system works. They are administratively complex and distort the relationship between doctors and hospitals while doing nothing on their own to protect patients from surprise medical bills. Both bundling and in-network guarantees are nearly impossible to implement in an emergency care situation, which is when patients most often receive surprise bills. Emergency medicine is unpredictable and can involve several moving parts, such as diagnostic care, testing, follow-up treatments, and other procedures. Bundled payments and in-network guarantees would require a confusing and overly complicated array of doctors, statisticians, lawyers, and administrators to distribute appropriate payments. Instead of holding insurers accountable for failing to pay medical bills, bundling allows insurers to transfer to hospitals their responsibility for establishing adequate networks.

Fortunately, there is a solution that has already been proven to work at the state level. Independent dispute resolution (IDR) systems stop surprise billing, maintain physician networks, and help slow the rise of insurance premiums. Unlike price fixing and rate setting, IDR would prevent further government interference in the economics of healthcare. IDR is overseen by a neutral healthcare expert and resolves billing disputes before they ever reach the patient. This approach, combined with requirements for insurance companies to maintain adequate networks that actually allow patients to find a doctor who is covered by their plan, is far more favorable than a government-driven concept that fails to account for basic economics.

Surprise medical billing needs to end. But we must be skeptical of any proposal that caps rates and opens the door further for socialized medicine. At the same time, our healthcare system cannot afford an overly simplistic and unproven approach that would likely have negative effects on patients, doctors, and hospitals while granting more power and less accountability to insurers. Conservatives must insist that we fix surprise billing with proven solutions that protect patients and preserve their ability to see a doctor.

Sincerely,

Andrew F. Quinlan ~ President, Center for Freedom and Prosperity
Adam Brandon ~ President, FreedomWorks
Rick Manning ~ President, Americans for Limited Government
David Williams ~ President, Taxpayers Protection Alliance
Phil Kerpen ~ President, American Commitment
George Landrith ~ President, Frontiers of Freedom
Peter Ferrara ~ Senior Policy Adviser, National Tax Limitation Foundation
Andrew Langer ~ President, Institute for Liberty
Krisztina Pusok ~ Director of Policy and Research, American Consumer Institute Center for Citizen Research
James L. Martin ~ Founder/Chairman, 60 Plus Association
Judson Phillips ~ Founder, Tea Party Nation
Sean Noble ~ President, American Encore
Chuck Muth ~ President, Citizen Outreach
Jeffrey Mazzella ~ President, Center for Individual Freedom
Matthew Kandrach ~ President, Consumer Action for a Strong Economy
Harry C. Alford ~ President/CEO, National Black Chamber of Commerce

Evidence from the States: Higher Taxes = Fewer Jobs

Sun, 06/23/2019 - 12:52pm

When I wrote a few days ago that the Trump tax reform was generating good results, I probably should have specified that some parts of the country are not enjoying as much growth because of bad state tax policy.

As illustrated by my columns about Texas vs California and Florida vs New York, high-tax states are economic laggards compared to low-tax states.

This presumably helps to explain why Americans are voting with their feet by moving to states where the politicians are (at least in practice) less greedy.

Let’s look at some new evidence on the interaction of federal and state tax policy.

Writing for Forbes, Chuck DeVore of the Texas Public Policy Foundation shares data on how and why lower-tax state are out-performing higher-tax states.

Job growth has been running 80% stronger in low-tax states than in high-tax states since the passage of the Tax Cuts and Jobs Act of 2017 in December 2017. Understanding why holds important lessons for policy, economics, and politics. The new tax law scaled back the federal subsidy for high state and local taxes. …As a result of limiting the SALT deduction to $10,000, income tax filers in high-tax states saw a relatively smaller tax cut, losing out on about $84 billion since the tax code was changed. With $84 billion less to invest, the pace of job creation in the 23 high-tax states has slowed relative to the low-tax states, with the data suggesting a shift of almost 400,000 private sector jobs may have occurred.

Here are some of his numbers.

Prior to the tax reform’s enactment, annualized private sector job growth was 1.9% in the low-tax states from January 2016 to December 2017 compared to 1.4% in the high-tax states, giving the low-tax jurisdictions a comparatively modest advantage of 35% more rapid job growth over the 23-month period. Now, 17 months of federal jobs data suggest that the Tax Cuts and Jobs Act has increased the competitive advantage of 27 low-tax states where the average SALT deduction was under $10,000 in 2016 as compared to 23 high-tax taxes with average SALT deductions greater than $10,000. Private sector job growth is now running 80% faster in the low-tax states, 2% annualized compared to 1.1%, up from just a 35% advantage in the prior 23 months. …For California, the lost employment opportunity adds up to 153,000 positions since December 2017… New York’s employment growth was about 128,000 less than might have been the case had the SALT deduction not been capped.

And here’s his data-rich chart.

Based on previous evidence we’ve examined, these numbers are hardly a surprise.

Chuck suggests the right way for high-tax states to respond.

…if political leaders in states accustomed to taxing and spending far more than their more frugal peers wish to participate in higher rates of job creation, they should reform their own fiscal houses, rather than expect their neighbors to subsidize their high-spending ways.

Sadly, this doesn’t appear to be happening.

Politicians is high-tax states such as Illinois and New Jersey are trying to make their already-punitive systems even worse.

Based on what we’ve seen from Greece, that won’t end well.

A Lesson for Bernie Sanders and Alexandria Ocasio-Cortez from the International Monetary Fund

Sat, 06/22/2019 - 12:34pm

I don’t think either Senator Bernie Sanders or Representative Alexandria Ocasio-Cortez actually understand that socialism is an economic system based on government ownership of the means of production, augmented by central planning, and price controls.

For what it’s worth, I think Crazy Bernie and AOC are just knee-jerk statists. They reflexively support more taxes, more spending, more regulation, and more intervention.

But since they both describe themselves as socialists, maybe it would be a good idea if they examined how the system works in the real world.

And I won’t even use a hellhole like Venezuela as an example.

Instead, let’s look at some recent research from the International Monetary Fund.

The bureaucrats looked at the legacy of socialism in Eastern Europe, specifically the extent to which governments still own and run businesses. Here are some of their findings.

…the former socialist countries of Central, Eastern, and Southeastern Europe (CESEE) have made tremendous progress in becoming full-fledged market economies and raising income levels. …Although the state’s role in the economy has diminished dramatically in the region, state ownership still remains significant in many countries and sectors. …there is now growing interest in whether an enhanced role for state-owned enterprises and banks (SOEs and SOBs) could be an important source of growth, or whether they would just impose a further drag on the economy. …in a new study, prepared in collaboration with the European Bank for Reconstruction and Development, the IMF examines the current footprint of state-owned enterprises and state-owned banks in the region, how they are performing… State companies now account for between 2 percent and 15 percent of total employment in the CESEE countries… They are especially prevalent in sectors such as mining, energy, and transport.

Here’s a look at the extent of government ownership in various nations of Eastern Europe.

Darker blue means more legacy socialism.

Kudos to the Baltic nations and Romania for largely getting the government out of the business of running businesses.

But other countries are laggards. And what can we say about the economic impact of their government-run companies?

The results are not good.

Our analysis finds that state-owned enterprises systematically underperform relative to private sector counterparts in nearly all countries. They tend to hoard labor, pay more generously, and generate less revenue per employee than private sector peers. Unsurprisingly, they turn out to be less productive and less profitable. Potentially large output gains would be achieved if productivity of state-owned enterprises could be raised to private sector levels. A similar picture emerges for state-owned banks, which in most countries make less-sound lending decisions than private counterparts and have lower profitability, often associated with higher shares of problem loans. …the analysis finds little evidence that the inefficiencies arising from state ownership can be justified by noneconomic objectives. The study does, however, point to significant shortcomings in governance and oversight of state companies.

Here’s a chart showing that government-run firms earn lower profits.

Because politicians are a de facto part of management, it’s no surprise that there’s also above-market pay at government-run firms.

And here are some specific numbers for the banking sector.

Once again, thanks to a combination of political interference and lack of a profit motive, we see inferior results.

So what does the IMF suggest?

Unlike fiscal policy, where the IMF has a very poor track record, the bureaucracy has the right instincts on private ownership vs government ownership.

…countries should take a fresh look at the rationale for existing state ownership, taking into account the costs, benefits, and risks of state ownership… Privatization (or bankruptcy) will sometimes be appropriate choices… At a time when growth-enhancing policies can be hard to identify, improving the performance of existing state-owned entities, or exiting in favor of the private sector where appropriate, could provide much-needed support for the economy.

I’ll close by elaborating on why government-run companies undermine prosperity.

Simply stated, it means that politicians are misallocating labor and capital in ways that reduce overall economic output.

Yes, a few insiders benefit (such as the workers who get above-market wages and the managers appointed by the government to run the firms), but the vast majority of citizens are net losers.

So why do governments in Eastern Europe maintain such self-destructive policies?

For the same “public choice” reason that we maintain policies – such as agriculture subsidies the Export-Import Bank, and occupational licensing – that reward narrow interest groups in the United States.

A Tribute to Art Laffer

Fri, 06/21/2019 - 12:14pm

I’m a big fan of the Laffer Curve, which is simply a graphical representation of the common-sense notion that punitively high tax rates can result in less revenue because of reductions in the economy-wide level of work, saving, investment, and entrepreneurship.

This insight of supply-side economics is so obviously true that even Paul Krugman has acknowledged its veracity.

What’s far more important, though, is that Ronald Reagan grasped the importance of Art’s message. And he dramatically reduced tax rates on productive behavior during his presidency.

And those lower tax rates, combined with similar reforms by Margaret Thatcher in the United Kingdom, triggered a global reduction in tax rates that has helped boost growth and reduce poverty all around the world.

In other words, Art Laffer was a consequential man.

So it was great news that President Trump awarded Art with the Presidential Medal of Freedom.

Let’s look at some commentary on this development, starting with a column in the Washington Examiner by Fred Barnes.

When President Trump announced he was awarding the Presidential Medal of Freedom to economist Arthur Laffer, there were groans of dismay in Washington… Their reaction was hardly a surprise. Laffer is everything they don’t like in an economist. He’s an evangelist for tax cuts. He believes slashing tax rates is the key to economic growth and prosperity. And more often than not, he’s been right about this. Laffer emerged as an influential figure in the 1970s as the champion of reducing income tax rates. He was a key player in the Reagan cuts of 1981 that touched off an economic boom lasting two decades. …Laffer, 78, is not a favorite of conventional, predominantly liberal economists. Tax cuts leave the job of economic growth to the private sector. Liberal economists prefer to give government that job. Tax cuts are not on their agenda. Tax hikes are. …His critics would never admit to Laffer envy. But they show it by paying attention to what he says and to whom he’s affiliated. They rush to criticize him at any opportunity. …Laffer was right…about tax cuts and prosperity.

And here are some excerpts from a Bloomberg column by Professor Karl Smith of the University of North Carolina.

Most important, he highlights how supply-side economics provided a misery-minimizing way of escaping the inflation of the 1970s.

President Donald Trump’s decision to award Arthur Laffer the Presidential Medal of Freedom has met with no shortage of criticism… Laffer was a policy entrepreneur, and his..boldness was crucial in the development of what came to be known as the “Supply Side Revolution,” which even today is grossly underappreciated. In the 1980s, the U.S. economy avoided the malaise that afflicted Japan and much of Western Europe.The primary reason was supply-side economics. …Reducing inflation with minimal damage to the economy was the central goal of supply-side economics. …most economists agreed that inflation could be brought down with a severe enough recession. …Conservative economists argued that the long-term gain was worth that level of pain. Liberal economists argued that inflation was better contained with price and income controls. Robert Mundell, a future Nobel Laureate, argued that there was third way. Restricting the money supply, he said, would cause demand in the economy to contract, but making large tax cuts would cause demand to expand. If done together, these two strategies would cancel each other out, leaving room for supply-side factors to do their work. …Laffer suggested that permanent reductions in taxes and regulations would increase long-term economic growth. A faster-growing economy would increase foreign demand for U.S. financial assets, further raising the value of the dollar and reducing the price of foreign imports. These effects would speed the fall in inflation by increasing the supply of goods for sale. In the early 1980s, the so-called Mundell-Laffer hypothesis was put to the test — and it was, by and large, successful.

I’ve already written about how taming inflation was one of Reagan’s great accomplishments, and this column adds some meat to the bones of my argument.

And it’s worth noting that left-leaning economists thought it couldn’t be done. Professor Bryan Caplan shared this quote from Paul Samuelson.

Today’s inflation is chronic.  Its roots are deep in the very nature of the welfare state.  [Establishment of price stability through monetary policy would require] abolishing the humane society [and would] reimpose inequality and suffering not tolerated under democracy.  A fascist political state would be required to impose such a regime and preserve it.  Short of a military junta that imprisons trade union activists and terrorizes intellectuals, this solution to inflation is unrealistic–and, to most of us, undesirable.

It’s laughable to read that today, but during the Keynesian era of the 1970s, this kind of nonsense was very common (in addition to the Samuelson’s equally foolish observations on the supposed strength of the Soviet economy).

The bottom line is that Art Laffer and supply-side economics deserve credit for insights on monetary policy in addition to tax policy.

But since Art is most famous for the Laffer Curve, let’s close with a few additional observations on that part of supply-side economics.

Many folks on the left today criticize Art for being too aggressive about the location of the revenue-maximizing point of the Laffer Curve. In other words, they disagree with him on whether certain tax cuts will raise revenue or lose revenue.

While I think there’s very strong evidence that lower tax rates can increase revenue, I also think it doesn’t happen very often.

But I also think that debate doesn’t matter. Simply stated, I don’t want politicians to have more revenue, which means that I don’t want to be at the revenue-maximizing point of the Laffer Curve.

Moreover, there’s a lot of economic damage that occurs as tax rates approach that point, which is why I often cite academic research confirming that one additional dollar of tax revenue is associated with several dollars (or more!) of lost economic output.

Call me crazy, but I’m not willing to destroy $5 or $10 of private-sector income in order to increase Washington’s income by $1.

The bottom line is that the key insight of the Laffer Curve is that there’s a cost to raising tax rates, regardless of whether a nation is on the left side of the curve or the right side of the curve.

P.S. While I’m a huge fan of Art Laffer, that doesn’t mean universal agreement. I think he’s wrong in his analysis of destination-based state sales taxes. And I think he has a blind spot about the danger of a value-added tax.

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Image credit: Gage Skidmore | CC BY-SA 2.0.

Connecticut’s Fiscal Decay

Thu, 06/20/2019 - 12:07pm

Two years ago, I wrote about how Connecticut morphed from a low-tax state to a high-tax state.

The Nutmeg State used to be an economic success story, presumably in large part because there was no state income tax.

But then an income tax was imposed almost 30 years ago and it’s been downhill ever since.

The last two governors have been especially bad news for the state.

As explained in the Wall Street Journal, Governor Malloy did as much damage as possible before leaving office.

The 50 American states have long competed for people and business, and the 2017 tax reform raises the stakes by limiting the state and local tax deduction on federal returns. The results of bad policy will be harder to disguise. A case in point is Connecticut’s continuing economic decline, and now we have even more statistical evidence as a warning to other states. The federal Bureau of Economic Analysis recently rolled out its annual report on personal income growth in the 50 states, and for 2017 the Nutmeg State came in a miserable 44th. …the state’s personal income grew at the slowest pace among all New England states, and not by a little. …The consistently poor performance, especially relative to its regional neighbors, suggests that the causes are bad economic policies… In Mr. Malloy’s case this has included tax increases starting in 2011 and continuing year after year on individuals and corporations… It is a particular tragedy for the state’s poorest citizens who may not be able to flee to other states that aren’t run by and for government employees.

Here’s some of the data accompanying the editorial.

Eric Boehm nicely summarized the main lesson from the Malloy years in a columnfor Reason.

If it were true that a state could tax its way to prosperity, Connecticut should be on a non-stop winning streak. Instead, state lawmakers are battling a $3.5 billion deficit. Companies including General Electric, Aetna, and Alexion, a major pharmaceutical firm, have left the state in search of a lower tax burden. Connecticut is looking increasingly like the Illinois of New England: A place where tax increases are no longer fiscally or politically realistic, even though budgetary obligations continue to grow and spending is completely out of control.

Unfortunately, the new governor isn’t any better than the old governor. The Wall Street Journal opined on Ned Lamont’s destructive fiscal policy.

Connecticut desperately needs a new economic direction. Unfortunately, the biennial budget soon to be signed by new Gov. Ned Lamont doubles down on policies that have produced abysmal results.The state’s economic indicators are grim. Connecticut routinely ranks near the bottom in surveys of economic competitiveness. Residents and businesses have been voting with their feet. According to the National Movers Study, only Illinois and New Jersey suffered more out-migration in 2018. General Electric left for Boston in 2016. This week, Farmington-based United Technologies Corp. announced it too will move its headquarters… Mr. Lamont’s budget seems designed to accelerate the decline. It increases spending by $2 billion while extending the state’s 6.35% sales tax to everything from digital movies to laundry drop-off services to “safety apparel.” It adds $50 million in taxes on small businesses, raises the minimum wage by 50%, and provides the country’s most generous mandated paid family medical leave. Florida and North Carolina must be licking their lips. …The state employee pension plan is underfunded by $100 billion—$75,000 per Connecticut household. A responsible budget would try to start filling the gap; the Lamont budget underfunds the teachers’ plan by another $9.1 billion, increasing the long-term liability by $27 billion. …Mr. Lamont proposes to slap a 2.25% penalty on people who sell a high-end home and move out of state. Having given up on attracting affluent families, he’s trying to prevent the ones who are here from leaving.

As one might expect, all this bad news is generating bad outcomes. Here are some details from an editorial in today’s Wall Street Journal.

…as a new study documents, more businesses are leaving Connecticut as they get walloped with higher taxes that are bleeding the state. Democrats in 2015 imposed a 20% surtax on top of the state’s 7.5% corporate rate, effectively raising the tax rate to 9%. They also increased the top income tax rate to 6.99% from 6.7% on individuals earning more than $500,000. The state estimated the corporate tax hike would raise $481 million over two years, but revenue increased by merely $323 million… Meantime, the state’s Department of Economic and Community Development, whose job is to strengthen “Connecticut’s competitive position,” in 2016 alone spent $358 million…to induce businesses to stay or move to the state. This means that Connecticut doled out twice as much in corporate welfare as it raked in from the corporate tax increase. …Thus we have Connecticut’s business model: Raise costs for everyone and then leverage taxpayers to provide discounts for a politically favored few. …The state has lost population for the last five years. …The exodus has depressed tax revenue.

And there’s no question that people are voting with their feet, as Bloomberg reports.

Roughly 5 million Americans move from one state to another annually and some states are clearly making out better than others. Florida and South Carolina enjoyed the top economic gains, while Connecticut, New York and New Jersey faced some of the biggest financial drains, according to…data from the Internal Revenue Service and the U.S. Census Bureau. Connecticut lost the equivalent of 1.6% of its annual adjusted gross income, as the people who moved out of the Constitution State had an average income of $122,000, which was 26% higher than those migrating in. Moreover, “leavers” outnumbered “stayers” by a five-to-four margin.

Here’s a chart from the article showing how Connecticut is driving away some of its most lucrative taxpayers.

Here’s a specific example of someone voting with their feet. But not just anybody. It’s David Walker, the former Comptroller General of the United States, and he knows how to assess a jurisdiction’s financial outlook.

…my wife, Mary, and I are leaving the Constitution State. We are saddened to do so because we love our home, our neighborhood, our neighbors, and the state. However, like an increasing number of people, the time has come to cut our losses… current state and local leaders have the willingness and ability to make the tough choices needed to create a better future in Connecticut, especially in connection with unfunded retirement obligations. …Connecticut has gone from a top five to bottom five state in competitive posture and financial condition since the late 1980s. In more recent years, this has resulted in an exodus from the state and a significant decline in home values.

All of this horrible news suggests that perhaps Connecticut should get more votes in my poll on which state will be the first to suffer fiscal collapse.

Incidentally, that raises a very troubling issue.

The former Governor of Indiana, Mitch Daniels, wrote last year for the Washington Post that we should be worried about pressure for a bailout of profligate states such as Connecticut.

…several of today’s 50 states have descended into unmanageable public indebtedness. …in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen. …More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them. …So where is a destitute governor to turn? Sooner or later, we can anticipate pleas for nationalization of these impossible obligations. …Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece.

And don’t forget other states that are heading in the wrong direction. Politicians from CaliforniaNew YorkNew Jersey, and Illinois also will be lining up for bailouts.

Here’s the bottom line on Connecticut: As recently as 1990, the state had no income tax, which put it in the most competitive category.

But then politicians finally achieved their dream and imposed an income tax.

And in a remarkably short period of time, the state has dug a big fiscal hole of excessive taxes and spending (with gigantic unfunded liabilities as well).

It’s now in the next-to-last category and it’s probably just a matter of time before it’s in the 5th column.

P.S. While my former state obviously has veered sharply in the wrong direction on fiscal policy, I must say that I’m proud that residents have engaged in civil disobedience against the state’s anti-gun policies.

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Image credit: JJBers | CC BY 2.0.

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