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Posts Tagged ‘State Government’

I’ve posted more than 3,500 items since I started International Liberty. And if you look at the earliest posts, way back in April of 2009, you’ll find that one of the very first of them made the link between big government and big corruption.

My premise was very simple. When government is very large, with all sorts of power to provide unearned wealth via taxes, spending, and regulation, then you will get more sleaze.

Sort of like the way a full dumpster will attract lots of rats and roaches.

A story in Fortune reports that government corruption at the state level is very costly.

…corruption is everywhere, in one form or another. And it’s costing U.S. citizens big time. A new study from researchers at the University of Hong Kong and Indiana University estimates that corruption on the state level is costing Americans in the 10 most corrupt states an average of $1,308 per year… The researchers studied more than 25,000 convictions of public officials for violation of federal corruption laws between 1976 and 2008 as well as patterns in state spending to develop a corruption index that estimates the most and least corrupt states in the union.

Most Corrupt StatesHere’s the list of the 10-most corrupt states. At first glance, there doesn’t seem to be a pattern.

Southern states are over-represented, it appears, but that’s obviously not an overwhelming factor since Georgia, South Carolina, Arkansas, and Texas (among others) didn’t make the list.

But it turns out that there is a factor that seems to be very prevalent among corrupt states.

The researchers also found that for 9 out of the 10 of the most corrupt states, overall state spending was higher than in less corrupt states (South Dakota was the only exception).

The authors suggest an attack on corruption could lead to a lower burden of government spending.

Attacking corruption, the researchers argue, could be a good way to bring down state spending.

I don’t disagree, but I wonder whether there’s an even more obvious lesson. Maybe the primary causality goes the other direction. Perhaps the goal should be to lower state spending as a way of reducing corruption.

Returning to the analogy I used earlier, a smaller dumpster presumably means fewer rats and roaches.

That’s not the only interesting data from the study. Fortune also reports that infrastructure projects and bloated bureaucracies are linked to corruption.

The paper explains that construction spending, especially on big infrastructure projects, is particularly susceptible to corruption… Corrupt states also tend to, for obvious reasons, simply have more and better paid public servants, including police and correctional officers.

I’m not surprised by those findings. Indeed, I would even argue that a large bureaucracy, in and of itself, is a sign of corruption since it suggests featherbedding and patronage for insiders.

For more info on the size of government and corruption, here’s a video I narrated for the Center for Freedom and Prosperity. It’s several years old, but the message is even more relevant today since the public sector is larger and more intrusive.

P.S. Speaking of corruption, there’s actually a serious effort on Capitol Hill to shut down the Export-Import Bank, which has been a cesspool of corruption and cronyism.

P.P.S. Switching to a different topic (though it also fits under corruption), we have another member for our potential Bureaucrat Hall of Fame. Or maybe this person belongs in a politician-ripping-off-the-system Hall of Fame.

Here are some of the details from an Irish news report and you can judge for yourself.

Ireland’s outgoing European Commissioner, Maire Geoghegan-Quinn, is entitled to a total €432,000 EU pay-off over the next three years to help her adjust to life after Brussels. …EU commissioners leaving office are entitled, subject to certain conditions, to a “transitional allowance” over three years varying between 45pc and 65pc of salary. Mrs Geoghegan-Quinn’s entitlement amounts to 55pc of her salary, or €137,000 per year.

Huh?!? A transitional allowance? For what? That’s more than $500,000 in American money.

Is it really that difficult to end one’s term as an overpaid European Union Commissioner?

But what really makes Ms. Geoghegan-Quinn an inspiration to other bureaucrats (and a nightmare for taxpayers) is that she’ll also have her snout buried deeply in Ireland’s public trough.

And from this autumn, she can also resume collecting her Irish TD and ministerial pensions totalling €108,000 a year – giving her total pension entitlements worth over €3,000 a week.

Though to be fair, she’s simply doing what other politicians already have done. Not only in Ireland, but also in America.

Government has become a racket for the benefit of insiders.

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There are all sorts of ways to measure the burden of government spending.

The most obvious approach is to look at the share of economic output consumed by the public sector. That’s what I did, for instance, when comparing fiscal policy in France and Switzerland. And it goes without saying (but I’ll say it anyhow) that Switzerland’s comparative frugality helps to explain why its economy is much stronger than the French economy.

It’s also good to know whether a country is heading in the wrong direction or right direction. If one country has a bigger government but has implemented reforms that slow the growth of the public sector, it may have a better future than another country where government currently is a smaller burden but the long-term fiscal outlook is grim.

For this reason, I was very interested in the data showing that most European nations actually increased the size of government in recent years – notwithstanding all the hyperbole about “savage” and “draconian” austerity.

That’s why the “exceptions to the rule” in Europe – such as Estonia and Germany – are so noteworthy. While their neighbors are doing the wrong thing, these countries are being at least semi-responsible and trying to rein in the burden of government spending.

The same thing is true for state governments, which is why this new map from the Tax Foundation is worth sharing. It shows how fast spending has increased in each state over the past 10 years.

Louisiana gets the worst grade for profligacy, followed by Wyoming and New Jersey, while Alaska has been the most frugal, followed by West Virginia and South Carolina.

State Spending Map

It would be interesting to see annual numbers. Is Louisiana’s poor performance due to Governor Jindal, for instance, or in spite of him? Likewise, has Chris Christie made any difference in New Jersey?

Looking at states that have done well, did Governor Palin make a difference in Alaska? And did Governor Sanford make a difference in South Carolina? Again, without seeing the annual data, there’s no way of answering these questions.

Moreover, it might be interesting to also know what has happened to local government spending, particularly since some states may have artificially low or high numbers depending on whether there have been changes in how overall spending is allocated.

Last but not least, we should remember that the key goal of fiscal policy is – or should be – to have government grow slower than the private sector. To determine whether states are satisfying my Golden Rule, you need the Tax Foundation data on spending, but it needs to be augmented by similar data for economic output.

And if you look at personal income growth on a state-by-state basis, adjust it for inflation, and then compare it to spending growth, you get some interesting results.

It turns out that North Dakota is the state that most satisfies Mitchell’s Golden Rule, followed by South Dakota and Alaska. West Virginia and South Carolina stay in the top 10, but they drop to 4 and 9, respectively.

New Jersey, meanwhile, takes over as the worst state, followed by Arizona and Louisiana.

Not only has New Jersey been the biggest failure based on my Golden Rule, it also doesn’t have a lot of breathing room. If you look at this info-graph on state debt, you can see that it has the nation’s 7th biggest debt load. In other words, the Garden State’s politicians have been making a bad situation even worse.

And since New Jersey also has a punitive death tax, the obvious message is that productive people should flee the state. Which is exactly what’s been happening. Thanks to migration, about $70 billion of wealth escaped between 2004 and 2008 alone.

But be careful where you move. Other states that get black marks on both spending and debt are Ohio, Illinois (gee, what a surprise), and New Mexico.

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I shared some fascinating details the other day about how federal taxes inhibited the development of America’s beer industry.

And I’ve used a story about buddies sharing beer to illustrate the dangers of redistribution and class warfare.

But this blog hasn’t paid much attention to wine. Well, thanks to this new map from the Tax Foundation, that oversight has been addressed.

I reckon the politicians in Kentucky don’t have much use for those effete, wine-sipping bi-coastal elites?

P.S. If you like maps, here are some interesting ones, starting with some international comparisons.

Here are some good state maps with useful information.

There’s even a local map.

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I’m a proponent of a pro-growth and non-corrupt tax code.

I mostly write and talk about the flat tax, though I’d be happy to instead accept a national sales tax if we could somehow get rid of the 16th Amendment and replace it with something so ironclad that even Justices such as John Roberts and Ruth Bader Ginsburg couldn’t rationalize that the income tax was constitutional.

But since there’s no chance of any good tax reform with Obama in the White House, there’s no need to squabble over the best plan. Instead, our short-term goal should be to educate voters so that we create a more favorable intellectual climate for genuine reform in 2017 and beyond.

That’s why I’ve argued in favor of lower tax rates and shared the latest academic research showing that tax policy has a significant impact on economic performance.

But tax reform also means getting rid of the rat’s nest of deductions, credits, exemptions, preferences, exclusions, shelters, loopholes, and other distortions in the tax code.

Why? Because people should make decisions on how to earn income and how to spend income on the basis of what makes economic sense, not because they’re being bribed or penalized by the tax code. That’s just central planning through the back door.

And if you don’t think this is a problem, I invite you to peruse three startling images, each of which measures rising complexity over time.

  1. The number of pages in the tax code.
  2. The number of special tax breaks.
  3. The number of pages in the 1040 instruction booklet.

Today’s Byzantine system is good for tax lawyers, accountants, and bureaucrats, but it’s bad news for America. We need to wipe the slate clean and get rid of this corrupt mess.

But as I explain in this appearance on Fox Business News, we won’t make progress until we control the burden of government spending and unless we make sure that deductions are eliminated only if we use every penny of revenue to lower tax rates.

I’ve previously explained why it’s okay to get rid of itemized deductions for mortgage interest, charitable contributions, and state and local tax payments.

Let’s now take a moment to explain why the internal revenue code shouldn’t be artificially steering capital toward state and local governments at the expense of private investment.

Under current law, there’s no federal income tax imposed on interest from municipal bonds. No matter how rich you are, Uncle Sam doesn’t tax a penny of the interest you receive if you use your wealth to lend money to state and local governments.

Should the tax code steer money to Detroit politicians?

This “muni-bond exemption” has two unfortunate effects.

  • It makes it easier and cheaper for state and local governments to incur debt, thus encouraging more wasteful spending by cities such as Detroit and states such as California.
  • By making the debt of state and local governments more attractive than private business investment, the loophole undermines long-term growth by diverting capital to unproductive uses.

The politicians at the state and local level certainly understand what’s at stake. They’re lobbying to preserve this destructive tax break. Here are some excerpts from a story in the New York Times.

Mr. Firestine [of Montgomery County, MD] is on the front lines of a lobbying campaign by local and state governments, bond dealers, insurers and underwriters that is trying to pre-empt any attempt to limit or even kill the tax exemption. …At present, the federal government forgoes about $32 billion a year in taxes by exempting the interest that investors earn from municipal bonds. …The National Commission on Fiscal Responsibility and Reform, known as the Simpson-Bowles commission, has suggested taxing all municipal bond interest, not just the interest paid to people in the top bracket. …Officials of some other government groups, like the New York City Housing Development Corporation, have formed a coalition with Wall Street groups like the Bond Dealers of America to lobby on the issue. But there is the sense of an uphill battle. …Capping the tax exemption would cause high-bracket taxpayers to look for higher-yielding investments, he said, and the county would have to offer more interest to lure them back.

Based on the last sentence in the excerpt, I gather we’re supposed to think it would be bad news if we got rid of this tax preference and taxpayers shifted more of their money to private-sector investments.

Needless to say, that’s misguided. Only in the upside-down world of Washington do people think it is smart to create tax preferences that lead to more wasteful spending by state and local governments, while simultaneously imposing punitive forms of double taxation on saving and investment in the private sector.

By the way, this shouldn’t be an ideological issue. If this amazing chart is any indication, leftists who want workers to enjoy more income should be clamoring the loudest for a tax system that doesn’t tilt the playing field against capital formation.

P.S. While simplicity is a good goal for tax policy, you will understand why it shouldn’t be the only goal if you check out this potential Barack Obama tax reform plan.

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As a public finance economist, I normally focus on big-picture arguments against excessive government.

If the public sector is too large, for instance, that undermines economic growth by diverting resources from the productive sector of the economy.

The damage is then compounded by a needlessly destructive and punitive tax system.

But I’ve also discovered that it helps to personalize the analysis by pointing out examples of ridiculous and wasteful behavior by government.

From England: The world’s most useless sign

That’s one of the reasons I share horror stories as part of the U.S. vs U.K. government stupidity contest.

Some actions by government, however, belong in a different category. I’m not sure what word I would choose to describe them – perhaps venal, evil, despicable, reprehensible, or disgusting would be good options.

Am I being overly dramatic? Perhaps, but is there any other reaction when the government persecutes a family with possible jail time for rescuing Bambi?

Here are some absurd and disturbing details from the Indianapolis Star.

When Connersville police officer Jeff Counceller first encountered the baby deer, she was curled up in the corner of a front porch.It was clear the fawn was injured. Counceller could see the wounds… If left to its own, the animal would surely die… So the Councellers took in the deer, which they named Dani, cleaned and dressed its wounds and nursed it back to health, all with the intention of turning it out into the wild once it was big enough and strong enough to have a chance on its own. …she was unable to stand, and her maggot-infested wound was ugly. The Councellers contacted DNR at the time but were told to return the deer to the wild and let nature take its course. “It would have been a death sentence,” Jeff said.

So the family did what any decent people would do. They nursed the deer back to health. But decency and government often are in conflict.

Trouble is, what the Councellers did is against the law. Now, more than two years after rescuing the deer, more than six months after conservation officers began an investigation, the Indiana Department of Natural Resources wants them prosecuted. …DNR officials began an investigation that entailed half a dozen visits to their home and numerous calls to local authorities. In July, the agency issued an eight-page report and asked for a special prosecutor from another county to handle the case. Why the charges are being sought now — six months later — isn’t clear.

Bureaucrats wanted to kill this baby deer

Bureaucrats wanted to kill this baby deer

I think the answer is obvious. The bureaucrats from the Department of Natural Resources are sulking because their imperious demands weren’t obeyed.

So they’re lashing out at an innocent family, as indicated by the following excerpts.

…when the DNR came calling, the Councellers say they were almost ready to release Dani back into the woods. They were just waiting for the summer drought to pass and the nearby corn crops to mature enough to offer cover and food for Dani. They say they weren’t aware it was illegal to keep the deer.

That’s when the bureaucratic nightmare began.

When the DNR began its investigation, the Councellers say the conservation officer suggested they obtain a rescue permit. But that was denied. Soon, the DNR said the deer must be euthanized, that it was a safety threat to humans.

Fortunately, an unknown good Samaritan intervened and freed Dani before the government could kill the helpless animal.

But on the day of Dani’s scheduled execution, the deer turned up missing, its enclosure left open. The Councellers say they didn’t arrange the escape or know how the deer was freed but acknowledge that they didn’t probe too deeply to find out.

But no good deed goes unpunished when spiteful bureaucrats are involved.

…there was nothing but silence from the DNR until the Councellers received notice of the charges earlier this month. They plan to fight the case, even though jail is unlikely and the lawyer costs — which could reach $5,000 — are significantly higher than a likely fine. It’s a matter of principle, they say. They don’t want to plead guilty for trying to help an animal and when they had no criminal intent.

Not surprisingly, the rest of the community is on the side of the deer (and the persecuted family). Indeed, there’s even a Facebook page for folks who want to register their displeasure with this example of government thuggery.

“People are outraged at the DNR and that the government has nothing better to do than harass these people,” said John Waudby, an Indianapolis man who created the Facebook page after hearing about the story. “Anybody in their right mind would have done the same thing.”

All things considered, this story from Indiana shouldn’t be part of the government stupidity and incompetence contest. Given the venality of the bureaucrats, it belongs with this list of horrifying examples of government thuggery.

In a just world, a court will immediately dismiss the charges against the Counceller family.

I would urge that the family then be awarded damages, but that’s not the right response. The bureaucrats would merely shrug and let taxpayers pick up the cost.

The only good outcome is to unceremoniously fire every bureaucrat who played a role in this outrageous episode.

Like most bureaucrats, I suspect the pinheads at the Indiana Department of Natural Resources are overpaid. So losing their pampered positions would be genuine punishment and it would send a message to the rest of the paper pushers not to harass innocent and good people.

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One of my favorite Cato publications is the Fiscal Policy Report Card on America’s Governors, which is produced by my colleague Chris Edwards.

The report card uses variables such as the burden of government spending and the degree of class warfare tax policy to determine which states are moving in the right direction and which ones are moving in the wrong direction.

The new version was released today and it shows that Sam Brownback of Kansas and Rick Scott of Florida are the best governors in the nation.

Here are the top 8.

The top Democrat, for those who care about party affiliation, is John Lynch of New Hampshire.

What about the worst governors? Well, that field is more crowded, but somebody has to be the worst of the worst, and that honor goes to Pat Quinn of Illinois, who seems determined to have his state beat California in the race to Greek-style default and fiscal chaos.

No Republican was in the bottom 8, but Bill Haslam of Tennessee was in the bottom 10, and Gary Herbert of Utah and Jan Brewer of Arizona also had dismal D grades.

As Chris explains in his report, legislatures play a role in how well (or poorly) a state does in the report card – much as Bill Clinton’s reasonably good performance presumably was impacted by the GOP Congress. But Chris also looks at policies proposed by governors, so that enables a more accurate measure of each governor’s fiscal philosophy.

The Fiscal Policy Report Card is a great resource document, enabling apples-to-apples comparisons among states, just as the Economic Freedom of the World makes it easy to compare nations.

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I have a handful of simple rules for good tax policy.

  • Keep government small, since it’s impossible to have a reasonable tax system with a bloated welfare state.
  • Keep tax rates low to minimize penalties against income, production, and wealth creation.
  • Since capital formation is critical for long-run growth, don’t double-tax income that is saved and invested.
  • Eliminate corrupt and distorting loopholes that encourage people to make decisions that are economically irrational.

Some of these principles are interrelated. I don’t like loopholes in part because of the reasons I just listed. But I also don’t like them because politicians often claim that they need to boost tax rates to make up for the fact that they lose revenue due to various deductions, credits, exemptions, and preferences.

And sometimes a deduction in the tax code even leads to bad policy by state and local government. Today, I want to discuss preferences in the internal revenue code for state and local taxes. And I’m motivated to address this issue because some of the politicians on Capitol Hill have pointed out an inequity, but they want to fix it in the wrong way.

Under current law, state and local income taxes are fully deductible, but state and local sales taxes are only temporarily deductible. The right policy is to get rid of any deductibility for any state and local tax. But since that would create a windfall of new tax revenue for the spendaholics in Washington, every penny of that revenue should be used to lower tax rates.

Not surprisingly, the crowd in Washington doesn’t take this approach. Instead, they want to extend deductibility for the sales tax. And they may even be amenable to raising other taxes to impose that policy.

Here are some excerpts from a story in The Hill.

More than five dozen House members are pressing leaders of a tax panel to preserve a deduction for state and local sales taxes. The bipartisan group of lawmakers say it would be unfair to voters in their states not to extend the sales tax deduction, given that taxpayers would still be able to deduct state and local income taxes. …Eight states in all — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — currently use a sales tax, but either don’t have or have a very limited state income tax. …The letter comes as many lawmakers hope to finish off an extenders package once Congress returns to Washington after November’s elections. Lawmakers will have to grapple with expiring Bush-era tax rates — just one part of the so-called fiscal cliff — when they return, and tax extenders could be tacked on to a broader package. The Senate Finance Committee has already passed an extenders package of its own, which included a two-year extension — at a cost of an estimated $4.4 billion over a decade — of the sales tax deduction.

I have some sympathy for these members of Congress. They represent states that have wisely decided not to impose income taxes, yet the federal tax system rewards profligate high-tax states such as New York and California with a permanent deduction for state and local income taxes.

This is a very misguided policy. It means that greedy politicians such as Governor Brown of California or Governor Cuomo of New York can raise tax rates and tell voters not to get too upset because they can deduct that additional burden. This means that a $1 tax hike results in a loss of take-home pay of as little as 65 cents.

This is what a fair tax code looks like

But you don’t cure one bad policy with another bad policy. A deduction for state and local sales taxes just augments the IRS-enforced preference for bigger government at the state and local level.

The right answer is the flat tax. Put in place the lowest-possible tax rate, which is feasible because all loopholes are wiped out.

In the case of state and local tax deductibility (or lack thereof, with any luck), that’s a win-win-win situation.

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