Nov
11
High Taxes Matter
Filed Under American Politics | 10 Comments
Thankyou to Rhoda for providing the link on this one.
William Voegeli, who wrote a piece I wrote about here has focused again on the negative impact of high taxes to states. In the first article, he showed that very little benefits high tax states aside from paying for the cost of employing public servants, who unlike the taxpayer, get to benefit very nicely out of a high tax regime. But in this article, he goes on to show how well defined the differences between low tax and high tax economies are (along with their political implications).
America’s federal system allows, at the state level, for 50 different clubs to join. At first glance, the states seem to differ between those that bundle numerous high-quality public benefits with high taxes and those that offer packages of low benefits and low taxes. These alternatives, of course, define the basic argument between liberals and conservatives over the ideal size and scope of government. Except for Oregon, John McCain carried every one of the 17 states with the lowest tax levels in the 2008 presidential election, while Barack Obama won every one of the 17 at the top of the list except for Wyoming and Alaska.
Besides Mississippi, every one of the 17 states with the lowest state and local tax levels had positive net internal migration from 2000 to 2007. Except for Wyoming, Maine, and Delaware, every one of the 17 highest-tax states had negative net internal migration over the same period.
So much for that permanent Democratic majority. People like low tax, low spending, low regulatory environments. Or to put it another way, people like freedom.
And if you want to escape a depression; stop spending the taxpayers money!
Summarizing the findings of a report they wrote for the American Legislative Exchange Council, Laffer and Moore pointed out that between 1998 and 2007, the states without an individual income tax “created 89 percent more jobs and had 32 percent faster personal income growth” than the states with the highest individual income-tax rates. California’s tax and regulatory policies, the report predicts, “will continue to sap its economic vitality,” while Texas’s “pro-growth” policies will help it “maintain its superior economic performance well into the future.” The clear implication is that California should become more like Texas.
Unfortunately I don’t have time to do this justice today, but both this article and the one my original post referenced (here) make for interesting reading as part of the high tax, high benefit vs the low tax, low benefit economies.
Thoughts?
Nov
3
Two Choices
Filed Under American Politics | 1 Comment
William Voegeli of the LA Times compares the outcomes of two differing political choices as evidenced by Texas and California:
In America’s federal system, some states, such as California, offer residents a “package deal” that bundles numerous and ambitious public benefits with the high taxes needed to pay for them. Other states, such as Texas, offer packages combining modest benefits and low taxes. These alternatives, of course, define the basic argument between liberals and conservatives over what it means to get the size and scope of government right.
California and Texas are not perfect representatives of the alternative deals, but they come close. Overall, the Census Bureau’s latest data show that state and local government expenditures for all purposes in 2005-06 were 46.8% higher in California than in Texas: $10,070 per person compared with $6,858. Only three states and the District of Columbia saw higher per capita government outlays than California, while those expenditures in Texas were lower than in all but seven states. California ranked 10th in overall taxes levied by state and local governments, on a per capita basis, while Texas, one of only seven states with no individual income tax, was 38th.
Higher government spending requires a bureaucracy to administer it and creates a dependent political class who benefit from it. what is more debatable, is whether higher government spending feeds its way through to the benefit of the public at large. Certainly the comparative evidence from Texas and California suggests otherwise:
Today’s public benefits fail that test, as urban scholar Joel Kotkin of NewGeography.com and Chapman University told the Los Angeles Times in March: “Twenty years ago, you could go to Texas, where they had very low taxes, and you would see the difference between there and California. Today, you go to Texas, the roads are no worse, the public schools are not great but are better than or equal to ours, and their universities are good. The bargain between California’s government and the middle class is constantly being renegotiated to the disadvantage of the middle class.”
These judgments are not based on drive-by sociology. According to a report issued earlier this year by the consulting firm McKinsey & Co., Texas students “are, on average, one to two years of learning ahead of California students of the same age,” even though per-pupil expenditures on public school students are 12% higher in California. The details of the Census Bureau data show that Texas not only spends its citizens’ dollars more effectively than California but emphasizes priorities that are more broadly beneficial. Per capita spending on transportation was 5.9% lower in California, and highway expenditures in particular were 9.5% lower, a discovery both plausible and infuriating to any Los Angeles commuter losing the will to live while sitting in yet another freeway traffic jam.
But there is one are that California far exceeds Texas; that dependent political class:
California’s state and local government employees were the best compensated in America, according to the Census Bureau data for 2006. And the latest posting on the website of the California Foundation for Fiscal Responsibility shows 9,223 former civil servants and educators receiving pensions worth more than $100,000 a year from California’s public retirement funds. The “dues” paid by taxpayers in order to belong to Club California purchase benefits that, increasingly, are enjoyed by the staff instead of the members.
None of this happens by accident. California’s interlocking directorate of government employee unions, issue activists, careerists and campaign contributors has become increasingly aggressive and adept at using rhetoric extolling public benefits for all to deliver targeted advantages to itself. As a result, the political reality of the high-benefit/high-tax model is that its public goods are, increasingly, neither public nor good. Instead, the beneficiaries are the providers of the public services, and certain favored or connected constituencies, rather than the general population.
All of that would be moot if it could be demonstrated that Californians were significantly better off than Texans. Unfortunately for Californians, that isn’t the case. California ranks fourth out of fifty for welfare recipients per capita, Texas only ranks 28th.
American people are voting with their feet. Their preference is to live in a Texas stle economy rather than a Californian one:
One way to assess how Americans feel about the different tax and benefit packages the states offer is by examining internal U.S. migration patterns. Between April 1, 2000, and June 30, 2007, an average of 3,247 more people moved out of California than into it every week, according to the Census Bureau. Over the same period, Texas had a net weekly population increase of 1,544 as a result of people moving in from other states. During these years, more generally, 16 of the 17 states with the lowest tax levels had positive “net internal migration,” in the Census Bureau’s language, while 14 of the 17 states with the highest taxes had negative net internal migration.
Private sector creativity versus public sector bribery. I would be voting with my feet too.
Oct
26
California’s Treasurer Gets It
Filed Under American Politics | 5 Comments
Legislators, particularly Democrats, are so in the pockets of the special interests, unions and the like, that any meaningful legislation gets filled up with “junk”. A sop to a union here, some politically correct pandering there and some nice juicy pork to round it all off. Legislation should be trimmed so that it meets it’s original purpose, nothing more, nothing less. On both sides of the pond, and on both sides of the aisle, government needs to learn the meaning of efficiency and good sense.
In the words of treasurer Bill Lockyer:
Just stop!
Sep
27
The Effects Of Regulation
Filed Under American Politics | 40 Comments
HotAir have the details of a report conducted into the effects of regulation on the disastrous Californian economy:
This study measures and reports the cost of regulation to small business in the State of California. It uses original analyses and a general equilibrium framework to identify and measure the cost of regulation as measured by the loss of economic output to the State’s gross product, after controlling for variables known to influence output. It also measures second order costs resulting from regulatory activity by studying the total impact – direct, indirect, and induced. The study finds that the total cost of regulation to the State of California is $492.994 billion which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. The cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business.
Barack Obama and the Democrats are trying to increase the amount of regulation in the economy, through Cap and Trade and Health Care reform. The dysfunctional California should provide a stark warning as to the effects of such measures.
It could be argued however that California restricts itself economically by making it harder to raise taxes to compensate for economic problems. A two-thirds majority is required to pass a budget in the State House, and Proposition 13 limits the amount of property taxes that can be raised. But Obama has done that too himself to with his promise to not raise taxes on the middle classes.
An overly regulated economy and self-imposed taxation restrictions do not point to strong economic recovery. Small businesses in America provide the dynamism that fuels economic growth and they are the ones best placed to react quicker to increases or decreases in regulation.
Sep
2
Barack Obama and the Democrats in Congress are proposing “blue state” solutions for the problems facing America today. Increased regulation, universal health care, heavy government spending and climate change legislation. But if one is too look at the different states in America, one can see that this may be exactly the wrong thing to do. Ross Douthat has done precisely that:
Consider Texas and California. In the Bush years, liberal polemicists turned the president’s home state — pious, lightly regulated, stingy with public services and mad for sprawl — into a symbol of everything that was barbaric about Republican America. Meanwhile, California, always liberalism’s favorite laboratory, was passing global-warming legislation, pouring billions into stem-cell research, and seemed to be negotiating its way toward universal health care.
But flash forward to the current recession, and suddenly Texas looks like a model citizen. The Lone Star kept growing well after the country had dipped into recession. Its unemployment rate and foreclosure rate are both well below the national average. It’s one of only six states that didn’t run budget deficits in 2009.
Meanwhile, California, long a paradise for regulators and public-sector unions, has become a fiscal disaster area. And it isn’t the only dark blue basket case. Eight states had unemployment over 11 percent in June; seven went for Barack Obama last November. Fourteen states are facing 2010 budget gaps that exceed 20 percent of their G.D.P.; only two went for John McCain. (Strikingly, they’re McCain’s own Arizona and Sarah Palin’s Alaska.) Of the nine states that have raised taxes this year, closing deficits at the expense of growth, almost all are liberal bastions.
Texas is a good example of an economy benefitting from business friendly measures. Of the fastest growing 30 cities in America in the last year, a full eleven of them were from Texas. And most of the others were either from red states like Idaho, Oklahoma and the Dakotas, or swing states like Colorado. Of traditional blue states, only Washington with two entries appears in the top 50. A damming indictment of the growth potential for the blue state liberal economy.
Texas’ relative success is quite startling. In 2008, 70% of all jobs created in the United States were created in Texas, Texas now has more fortune 500 companies than New York has. How has this been done?
Gov. Rick Perry says holding the line on taxes, having a reasonable regulatory structure and offering economic development incentives such as the Texas Enterprise Fund and Texas Emerging Technology Fund have attracted hundreds of employers to Texas. He notes that 7,300 new jobs were created in Texas in November 2008 alone.
It is all about making the economy business friendly. And nothing demonstrates this more than tort reform:
In fact, new businesses and doctors have flooded into the state in the wake of the lawsuit abuse reform legislation, which capped non-economic damages at $250,000. According to the Dallas Morning News, the average award prior to tort reform was $1.21 million; now it is $880,000.
Malpractice lawsuits have plummeted. In 2003, in a last-minute rush before lawsuit reform took effect, 1,108 medical liability suits were filed in Dallas County. Only 142 cases were filed the following year. In 2007, 184 cases were filed.
But tort reform does not necessarily mean throwing the people or the patient under the wheels of the business juggernaut:
To ensure protection for patients, the legislature beefed up the power of the Texas Medical Board and disciplinary actions against doctors have nearly tripled since 2001.
These differences in economic outcomes aren’t just restricted to Texas and California:
This assumption is borne out by an analysis of economic cycles by the website JobBait.com, which has found that since 1990 the states most vulnerable to economic downturns include the Great Lakes states of Michigan, Illinois, Ohio, and New York as well as Connecticut and California. Those most resistant have been generally red bastions such as the Dakotas, Nebraska, and Texas, and resource-rich states such as Alaska, Montana, New Mexico, and Wyoming.
The blue state mentality is to prop up a union based economy, a legacy that Obama is continuing. But whilst unions may be good for their employees, they hurt those outside the unions. Having gold plated health insurance, guaranteed jobs, and reduced working hours may be great for members of the UAW, but the federal propping up of these unions (for example, the Democrats are funnelling $10 billion of taxpayers money to the UAW as part of the Health Care bill) means that resources are being denied to non-union members. And whilst it may be coincidence that blue state economies are union based economies whilst red states are less likely to be, it’s also not difficult to see a high probability of causality there.
There is no guarantee that what works for Texas may not work for America, but isn’t it something that at least should be considered. But that would mean ignoring powerful Democratic supporters like trial lawyers and trade unions in favour of America at large. And the Democrats are never going to do that.
May
21
When they have to pay them.
Ace is reporting that even in the five most liberal counties in California, they voted against the tax hikes.
He then quotes Jennifer Rubin:
Politicians be forewarned: the public’s tolerance for tax hikes even in an overwhelmingly liberal state is non-existent. The president and Congress shouldn’t bank on running up the tab and handing the bill to the taxpayers. The taxpayers might just vote ‘no’ on all of them.
So how does Obama plan to pay for his massive deficits? My bet, tax rises in his second term when it won’t matter to him how unpopular he might become.