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Posts Tagged ‘States’

Let’s enjoy some semi-good news today.

We’ve discussed many times why Obamacare is bad news, whether we’re looking at it from the perspective of the healthcare system, taxpayers, or workers.

But it could be worse. Writing in the Washington Post, Robert Samuelson explains that two-dozen states have refused the lure of expanding Medicaid (the means-tested health care program) in exchange for “free” federal money.

From 1989 to 2013, the share of states’ general funds devoted to Medicaid has risen from 9 percent to 19 percent, reports the National Association of State Budget Officers. Under present law, the squeeze will worsen. The White House report doesn’t discuss this. …To the White House, the right-wing anti-Obamacare crusade is mean-spirited partisanship at its worst. The 24 non- participating states are sacrificing huge amounts of almost-free money… Under the ACA, the federal government pays all the cost of the Medicaid expansion through 2016 and, after that, the reimbursement rate drops gradually to a still-generous 90 percent in 2020.

But that “almost-free money” isn’t free, of course. It’s simply money that the federal government (rather than state governments) is diverting from the productive sector of the economy.

So the 24 states that have rejected Medicaid expansion have done a huge favor for America’s taxpayers. To be more specific, Nic Horton of Watchdog.org explains that these states have lowered the burden of federal spending (compared to what it would have been) by almost $90 billion over the next three years.

By not expanding Medicaid, 24 states are saving taxpayers $88 billion over the next three years. That is $88 billion that will not be added to the national debt — debt that will not be passed on to future generations of taxpayers. On the other hand, states that have expanded Medicaid through Obamacare are adding roughly $84 billion to the national debt through 2016.

Returning to Samuelson’s column, he would like a grand bargain between states and the federal government, with Washington agreeing to pay for all of Medicaid (currently, states pay a portion of the bill) in exchange for states taking over all spending for things such as roads and education.

We could minimize this process for states and localities by transferring all Medicaid costs to Washington (or at least the costs of the elderly and disabled). To pay for it, Washington would reduce transportation and education grants to states. Let Washington mediate among generations. Let states and localities concentrate on their traditional roles of education, public safety and roads. Spare them the swamp of escalating health costs. This is the bargain we need — and probably won’t get.

I like half of that deal. I want to transfer education, law enforcement, and roads back to the state level (or even the local level).

But I don’t want Washington taking full responsibility for Medicaid. Instead, that program also should be sent down to the states as well. This video explains why that reform is so desirable.

P.S. Since we’re on the topic of Obamacare, this Chip Bok cartoon perfectly captures the essence of the Hobby Lobby decision. The left wants the mandate that contraception and abortifacients be part of health insurance packages.

Rather than exacerbate the damage of using insurance to cover routine costs, wouldn’t it make more sense to have employers simply give their workers more cash compensation and then allow the workers to use their money as they see fit?

That way there’s no role for those evil, patriarchal, oppressive, and misogynistic bosses!

I realize this might upset Sandra Fluke, but at least she has the comfort of knowing that her narcissistic statism generated some good jokes (here, here, and here).

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More than three years ago, I wrote that the Department of Transportation should be dismantled for the simple reason that we’ll get better roads at lower cost with the federalist approach of returning responsibility to state and local governments.

I echoed those sentiments in this CNBC interview.

Since there’s only an opportunity to exchange soundbites in these interviews, let me elaborate on some of the reasons why transportation should be a state and local responsibility.

1. Washington involvement is a recipe for pork and corruption. Lawmakers in Congress – including Republicans – get on the Transportation Committees precisely because they can buy votes and raise campaign cash by diverting taxpayer money to friends and cronies.

mitchells-first-theorem-of-government2. Washington involvement in transportation is just the tip of the iceberg. As I said in the interview, the federal budget is mostly a scam where endless streams of money are shifted back and forth in leaky buckets. This scam is great for insiders and bad news for taxpayers.

3. Washington involvement necessarily means another layer of costly bureaucracy. And this is not a trivial issues since the Department of Transportation is infamous for overpaid bureaucrats.

4. Washington involvement gives state and local politicians an excuse to duck responsibility for low-quality infrastructure. Why make adult decisions, after all, when you can shift the blame to DC for not providing enough handouts.

While I think I made some decent points in the interview, I should have addressed the assertion that our infrastructure is falling apart. My colleague at the Cato Institute, Chris Edwards, effectively dealt with this scare tactic in his recent Congressional testimony.

I also should have pointed out that a big chunk of the gas tax is diverted to boondoggle mass transit projects.

Last but not least, I’m disappointed that I failed to connect some very important dots. Gov. Rendell and the CNBC host both fretted that the current system isn’t producing a desirable outcome, but they’re the ones advocating for a continuation of the status quo! Heck, they want even more of the system that they admit doesn’t work.

Sigh.

P.S. While I obviously want to get rid of the Department of Transportation, it’s not at the top of my list for the most wasteful and counterproductive federal bureaucracy.

P.P.S. On a completely separate topic, I can’t resist sharing this Ramirez cartoon.

And since we’re making fun of our Statist-in-Chief, here’s some satire about the award Obama received from Steven Spielberg.

The teleprompters are a nice touch, reminiscent of some very amusing jokes here, here, here, and here.

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As you can imagine, there’s a lot to choose from in the contest for the most spectacular waste of tax dollars.

But the politicians in Oregon must really want the prize, because they managed to flush several hundred million dollars down a rat hole by putting together a state-run Obamacare website that has to be abandoned because it is so dysfunctional.

And if the Oregon website is so bad that it’s switching to the much-derided Washington Obamacare website, it must be a disaster of unparalleled dimensions!

Here are some excerpts from an AP report.

After months of trying to get its problem-plagued online health exchange to work, Oregon on Friday officially gave up on the state portal… Officials say fixing the existing system would be too costly at $78 million and would take too long. …Oregon’s exchange is seen as the worst in more than a dozen states that developed their own online health insurance marketplaces. The general public still can’t use Cover Oregon’s website to sign up for coverage in one sitting. Instead, Oregonians must use a time-consuming hybrid paper-online process to sign up for insurance — despite $134 million the state paid Oracle Corp. to build the online exchange. …In March, the federal Government Accountability Office announced an investigation of Oregon’s exchange, including looking at whether the federal government can reclaim grant money given to Cover Oregon if taxpayer funds were mismanaged.

Heck, it’s not just the GAO that’s investigating.

The FBI reportedly is probing the failed launch of Oregon’s ObamaCare insurance exchange, joining several other agencies looking into the multimillion-dollar program that was scrapped last month.  …the FBI has interviewed several people as part of the inquiry. The Oregonian reported that the bureau held a 90-minute meeting with a former Republican lawmaker who detailed potential wrongdoing — including suspicions that the state showed the feds a misleading demonstration to keep money flowing. …A U.S. House committee already is probing the Oregon debacle, as is the Government Accountability Office. The state received more than $300 million in federal grants to launch and operate the health care system. Much of what it has spent so far has gone to Oracle Corp.

But let’s be fair. Not all of the $300 million was squandered on the failed website.

The politicians also coughed up $3 million for this video, which presumably was supposed to lure people to the non-working website but probably just made people think Oregon is infested by patchouli-soaked deadbeats.

The video almost stands by itself as a form of left-wing self parody.

But what makes it especially amusing is that it generated this amusing segment on one of HBO’s programs.

Well done.

I don’t watch TV, so I don’t know if the guy who did this segment is on the right, the left, or somewhere in between.

But it would be nice to have a talk show host who is willing to go after all sides, unlike Colbert and Stewart who clearly bend over backwards to curry favor with the White House.

Anyhow, if you like videos that use humor to mock government-run healthcare, here are some good options.

*The head of the National Socialist Workers Party finds out he can’t keep his health plan.

*A creepy version of Uncle Sam wants to know about your sex life.

*Young people discover that they’re screwed by Obamacare.

*One of the biggest statists of the 20th century is angry that the Obamacare exchanges don’t work.

*A cartoon video showing how to buy coffee in an Obamacare world.

But never forget that this is a serious issue. Government has screwed up the healthcare system, yet politicians then use the mess they create to justify even more intervention.

The only effective solution is economic liberty.

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Last August, I shared a fascinating map from the Tax Foundation.

It showed which states have chased away taxable income and which ones have attracted more taxpayers (along with their taxable income).

In other words, what are the “Golden Geese” doing with their money?

Well, the obvious and unsurprising answer is that they are escaping high-tax states and moving to states that aren’t quite so greedy.

Now we have another map from the Tax Foundation. They’ve just released the latest data on state and local tax burdens as a share of state income. Because of lags in data, we’re looking at 2011 numbers, but that’s not important. The main thing is to notice that the states with the highest tax burdens are very much correlated with the states that suffered the great loss of taxable income.

State-Local Tax

You can tell a few additional things just by looking at the map, most notably that the high-tax states are largely along the Pacific coast, in the upper Midwest, and much of the Northeast.

The rest of the nation seems more reasonable.

If you specifically want to know the best and worst states, I’ve put together a list. But I’ve reversed the order. The state with the lowest tax burden is #1 while the state with the greediest politicians is #50.

Best-worst tax states

A couple of observations on the data.

First, it helps to have no state income tax. The top four states, and seven out of the top 10, avoid that punitive levy.

Second, while it’s no surprise to see which states are at the bottom because of harsh tax burdens, it will be interesting to see how Chris Christie and Scott Walker explain the poor rankings of their respective states should they run for President.

This isn’t to say it’s their fault. After all, New Jersey and Wisconsin were high-tax states when they took office. But it will be incumbent upon them to say what they’ve done to make a bad situation better (or at least to keep a bad situation from getting worse).

Here are some more interesting maps, including international comparisons, national comparisons, and even one local comparison.

Which nations have the most red ink.

Which nations are money laundering centers (hint, not tax havens).

A crazy left-wing “Happy Planet” map.

Another silly map showing that America is supposedly one of the world’s most authoritarian nations.

Here are some good state maps with useful information.

Which states give the highest welfare payments.

In which state is the burden of government spending climbing most rapidly.

Which states are in a “death spiral” because of too many takers and too few makers.

Which states have too many school bureaucrats compared to teachers.

There’s even a local map.

How many of the nation’s richest counties are in the D.C. metro region.

P.S. I wrote recently about the foolishness of anti-money laundering laws, which impose very high costs without having any positive impact in terms of thwarting crime.

Now bureaucrats want to make these laws even worse. Casinos are going to be required to be more intrusive, regardless of whether there’s any evidence or suspicion that customers have done anything wrong. I’m not a gambler, so I don’t worry about the fate of Las Vegas, but even I feel sorry for the casinos since many high rollers from overseas will decide to go to Macau, Monaco, or other locations where they’re not treated poorly because of misguided government.

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I’ve been asked whether I’m a hypocrite because I support decentralization while at the same time being critical of state and local governments.

I don’t think there’s any inconsistency in my position. Here’s some of what I wrote last July.

I’m a strong believer in federalism, but not because I think state and local governments are competent. Politicians and interest groups are a toxic combination in all circumstance. But at least people have considerable ability to cross borders if they want to escape greedy and despotic governments at the state and local level. And when the geese with the golden eggs can fly away, this facilitates competition between governments and forces politicians to restrain their appetites.

Maybe I’m just daft (as my leftist friends often claim), but I think that’s a perfectly defensible position.

Anyhow, I feel compelled to give that bit of background because it’s once again time to mock state and local governments.

Here’s an excerpt from the Detroit News that tells you everything you’ll ever need to know about the stupidity of government. The city actually loses money on parking enforcement.

The city is paying $32 to issue and process a $30 parking violation, and it hasn’t adjusted rates since 2001. On top of that, about half of Detroit’s 3,404 parking meters are not operating properly at any given time, says Orr’s spokesman, Bill Nowling.

Wow, this must be an all-time record. A local government can’t even fleece people competently.

The only thing more shocking is when the government is too incompetent to give away money, which actually happened with one boondoggle in the United Kingdom.

Now let’s travel a few thousand miles and look at another example of how Washington isn’t the only place where government does strange things.

I’ve written many times about the lavish pay and gold-plated benefits of bureaucrats, but cops in Hawaii may have set a new record for fringe benefits. Or maybe this is a new version of friends with fringe benefits, to coin a phrase.

Here are the fun (and PG-13-rated) details in Jacob Sullum’s article in Reason.

Hawaii’s prostitution law includes an exemption for “any member of a police department, a sheriff, or a law enforcement officer acting in the course and scope of duties.” …That’s right: Cops insisted that they must be free not just to receive blowjobs and handjobs from prostitutes but also to engage in vaginal and anal intercourse with them. Evidently the police also need permission to engage in “flagellation or torture by or upon a person as an act of sexual stimulation or gratification” (Hawaii’s definition of “sadomasochistic abuse”). Just in case. Since an entire chamber of the state legislature agreed to this request, the cops must have had a pretty persuasive argument.

Hmmm…makes me wonder if the legislators also added an exemption for themselves. Based on the state’s tax rates, we already know they screw taxpayers for money, so it’s not much of a leap to suspect they’re doing the same thing on a one-on-one basis.

Though, as shown in this cartoon, they’re not used to spending their own money.

All kidding aside, Jacob makes the very sensible point that the real problem is that politicians have enacted laws against a victimless crime.

…the double standard demanded by police highlights the utter absurdity of prostitution laws. Police do not commit murder to catch killers or knock over banks to catch robbers. Yet here they are insisting that they need the leeway to have sex with prostitutes in order to stop people from having sex with prostitutes. Even if cops never take advantage of that freedom, they routinely commit the crime of agreeing to pay for sex, except that in their case it is not treated as a crime. That exemption is considered acceptable only because exchanging money for sex, unlike murder and robbery, does not violate anyone’s rights. But if so, why not broaden the exemption to cover everyone?

I agree. I find the whole business of prostitution very distasteful, just as I feel nothing but disdain for illegal drugs. But prohibition just makes matters worse.

P.S. Since this post looks at both parking meters and prostitution, you’ll be amused by the way the Germans combined those two topics.

P.P.S. I periodically share polling data that strikes me as significant. Most recently, for instance, I noted that crazy left wingers openly admitted they want higher tax rates even if the government doesn’t raise any revenue. That was a depressing result, but I was encouraged to see that a vast majority of Americans view big government as a threat to the nation’s future.

Here are a couple of new polls that caught my attention.

1. I’m rather worried that a new Rasmussen poll found that “for the first time, fewer than half of voters believe tax cuts help the economy.” For what it’s worth, I suspect this is because politicians often gravitate to “tax cuts” that fail to reduce the burden on productive activity. Instead, they make the code more complex by expanding credits, deductions, exemptions, preferences, and exclusions.

If they started pushing for lower marginal tax rates or fundamental tax reform, the polling numbers would probably be better.

2. Let’s now cross the ocean and look at some remarkable Gallup data on the role of government in thwarting small businesses.

Gallup Europe Entrepreneurship

I already knew Greece had stunningly absurd barriers to entrepreneurship (click here for an unbelievable example), so one can only imagine the types of nonsense imposed by Italy’s feckless government.

3. Let’s close with some very good news. It seems that young people are beginning to realize that Ronald Reagan was right (see second video) when he said government is the problem rather than the solution.

Check out this excerpt from a report by National Journal.

Millennials who may have voted with youthful exuberance in 2008 seem to have grown fatigued with the government’s inability to get things done. In 2009, 42 percent of millennials said government programs are usually inefficient and wasteful, according to Pew data. By 2012, that number had increased to 51 percent. And young people say they’re losing trust in the government to Do the Right Thing. In 2009, 44 percent of millennials said they trust the government to do what’s right all or most of the time. By 2013, that dropped to 29 percent.

Makes me think maybe these youngsters finally figured out that programs like Social Security are empty Ponzi schemes.

By the way, here are the best poll numbers I’ve ever seen.

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When I first started working on fiscal policy in the 1980s, I never thought I would consider Sweden any sort of role model.

It was the quintessential cradle-to-grave welfare state, much loved on the left as an example for America to follow.

But Sweden suffered a severe economic shock in the early 1990s and policy makers were forced to rethink big government.

They’ve since implemented some positive reforms in the area of fiscal policy, along with other changes to liberalize the economy.

I even, much to my surprise, wrote a column in 2012 stating that it’s “Time to Follow Sweden’s Lead on Fiscal Policy.”

More specifically, I’m impressed that Swedish leaders have imposed some genuine fiscal restraint.

Here’s a chart, based on IMF data, showing that the country enjoyed a nine-year period where the burden of government spending grew by an average of 1.9 percent per year.

Swedish Fiscal Restraint

From a libertarian perspective, that’s obviously not very impressive, particularly since the public sector was consuming about two-thirds of economic output at the start of the period.

But by the standards of European politicians, 1.9 percent annual growth was relatively frugal.

And since Mitchell’s Golden Rule merely requires that government grow slower than the private sector, Sweden did make progress.

Real progress.

It turns out that a little bit of spending discipline can pay big dividends if it can be sustained for a few years.

This second chart shows that the overall burden of the public sector (left axis) fell dramatically, dropping from more than 67 percent of GDP to 52 percent of economic output.

Swedish Spending+Deficit as % of GDP

By the way, the biggest amount of progress occurred between 1994 and 1998, when spending grew by just 0.27 percent per year. That’s almost as good as what Germany achieved over a four-year period last decade.

It’s also worth noting that Sweden hasn’t fallen off the wagon. Spending has been growing a bit faster in recent years, but not as fast as overall economic output. So the burden of spending is now down to about 48 percent of GDP.

And for those who mistakenly focus on the symptom of red ink rather than the underlying disease of too much spending, you’ll be happy to know that spending discipline in the 1990s turned a big budget deficit (right axis) into a budget surplus.

Now let’s get the other side of the story. While Sweden has moved in the right direction, it’s still far from a libertarian paradise. The government still consumes nearly half of the country’s economic output and tax rates on entrepreneurs and investors max out at more than 50 percent.

And like the United Kingdom, which is the source of many horror stories, there are some really creepy examples of failed government-run health care in Sweden.

Though I suppose if the third man grew new legs, maybe we would all reassess our views of the Swedish system. And if the first guy managed to grow a new…oh, never mind.

But here are the two most compelling pieces of evidence about unresolved flaws in the Swedish system.

First, the system is so geared toward “equality” that a cook at one Swedish school was told to reduce the quality of the food she prepared because other schools had less capable cooks.

Second, if you’re still undecided about whether Sweden’s large-size welfare state is preferable to America’s medium-size welfare state, just keep in mind that Americans of Swedish descent earn 53 percent more than native Swedes.

In other words, Sweden might be a role model on the direction of change, but not on the level of government.

P.S. On a separate topic, regular readers know that I’m a fan of lower taxes and a supporter of the Second Amendment. So you would think I’d be delighted if politicians wanted to lower the tax burden on firearms.

This is not a hypothetical issue. Here’s a passage from a local news report in Alabama about a state lawmaker who wants a special sales tax holiday for guns and ammo.

Rep. Becky Nordgren of Gadsden said today that she has filed legislation to create an annual state sales tax holiday for gun and ammunition purchases. The firearms tax holiday would occur every weekend prior to the Fourth of July. Alabama currently has tax holidays for back-to-school shopping and severe weather preparedness. Nordgren says the gun and ammunition tax holiday would be a fitting way to celebrate the anniversary of the nation’s birth and Alabama’s status as a gun friendly state.

I definitely admire the intent, but I’m enough of a tax policy wonk that the proposal makes me uncomfortable.

Simply stated, I don’t want the government to play favorites.

For instance, I want to replace the IRS in Washington with a simple and fair flat tax in part because I don’t want the government to discriminate based on the source of income, the use of income, or the level of income.

And I want states to have the lowest-possible rate for the sales tax, but with all goods and services treated equally. Alabama definitely fails on the first criteria, and I wouldn’t be surprised if it also granted a lot of loopholes.

So put me in the “sympathetic skepticism” category on this proposal.

Though I imagine this Alabama lass could convince me to change my mind.

P.P.S. A few days ago, the PotL noticed that I shared some American-European humor at the end of a blog post. She suggests this would be a good addition to that collection.

Europe Heaven Hell

I can’t comment on some of the categories, but I will say that McDonald’s in London is just as good as McDonald’s in Paris, Milan, Geneva, and Berlin.

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I’ll be first in line if there’s a contest over who thinks most strongly that politicians are corrupt, or whether they can waste money in creative ways.

But if somebody asserts that politicians are stupid, I’m going to argue on the other side.

This isn’t because I’m a fan of elected officials. Far from it. However, having been a student of public policy for three decades, I have a grudging admiration for their animal cunning. They’ve developed some remarkably clever ways of extracting more and more revenue from taxpayers.

The bureaucrats at the Paris-based Organization for Economic Cooperation and Development are turning an old pact on mutual administrative assistance between governments into something akin to a World Tax Organization that will have the power to penalize nations that don’t impose onerous tax burdens.

Showing amazing capacity for innovation, Pakistan’s tax police hires transgendered people to encourage (presumably homophobic) taxpayers to cough up more money.

The tax police in England have floated a proposal to have all paychecks go directly to the tax authority, which would then decide how much gets forwarded to taxpayers.

And since we’re talking about the United Kingdom, that nation’s despicable political class wants to improve compliance by indoctrinating kids to snitch on their parents.

Speaking of snitches, tax authorities in both the state of New York and the city of Chicago have programs encouraging neighbors to rat our neighbors.

World Bank bureaucrats put together a report card on the tax systems of different nations, and the way to get a high grade is to impose high tax burdens.

Our friends at the Internal Revenue Service have something called the Taxpayer Advocate Service that mostly exists to – get ready for a surprise – push policies to expand the size and power of the IRS.

And who among us isn’t impressed that the German tax authorities have figured out how to levy a prostitute tax using parking meters.

That last example is a good segue into our newest example of great moments in tax enforcement.

The state of New York has won the right to impose a sales tax on lap dances and other…um…services at strip clubs. Here are some excerpts from the Daily News.

The jiggling and gyrating strippers at Larry Flynt’s Hustler Club are selling sexual fantasy — not demonstrating their dance skills — in the private rooms at the Hell’s Kitchen skin palace, an administrative law judge ruled. “The dancing portion of the service is merely ancillary to the performer removing her clothes or creating the sexual fantasy,” Judge Donna Gardiner wrote in a decision released Monday that means the raunchy moves are subject to the state sales tax. …Gardiner said the Hell’s Kitchen jiggle joint will have to pay $2.1 million in sales tax on the $23.8 million worth of scrip, or the club’s in-house currency, that it sold between June 1, 2006 and November 2008.

And don’t think the government didn’t investigate this issue closely before rendering a decision.

After listening to strippers’ testimony and watching the club’s videotapes, Gardiner ruled that some of the strippers’ routines involve dance, choreography and music, but overall, these are not artistic performances.

I wonder if they also read copies of Hustler magazine? This might be a case where government officials went above and beyond the call of duty to study a topic.

Larry Flynt’s Hustler Club owes $2.1 million in taxes for lap dances performed at the Hell’s Kitchen jiggle joint.Regardless, the strip club didn’t prevail. I guess art, like beauty, is in the eye of the beholder.

I suppose this is the point where I should make some more jokes, but I’m enough of a tax dork that instead I’m going to make a serious point.

The problem in New York is not that the Hustler Club is now being taxed. The problem is that there’s an exemption from the sales tax for “artistic performances.”

Don’t get me wrong. I would prefer that there not be an income tax or sales tax in New York. But if the state is going to impose a sales tax, then all consumption should be treated equally.

This is also my view on the flat tax. I would prefer no income tax, and America did quite well with that approach until 1913. But if there is going to be an income tax, then you minimize corruption and economic damage by having the levy apply equally and neutrally.

At least one Judge in New York seems to have the right perspective on this issue. Here’s another blurb from the Daily News report.

One judge, Robert Smith, criticized the majority, arguing that it was making a distinction based on their preferences. …“Perhaps, for similar reasons I do not read Hustler magazine; I would rather read the New Yorker,” he wrote. “I would be appalled, however, if the state were to exact from Hustler a tax that the New Yorker did not have to pay, on the ground that what appears in Hustler is insufficiently ‘cultural and artistic.’”

Needless to say, I doubt politicians pay much attention to these philosophical and economic arguments for genuine fairness in the tax code.

They simply want more money. And even though I wish they were stupid and incompetent in this regard, they have great talents when it comes time to take our money.

But there is one easy way to avoid heavy taxation. Just drop out of the labor force and live off the government. Millions of your neighbors already have taken this route.

It’s not good for the nation, but it sure is the logical response to perverse government policies that make it less and less attractive to pull that wagon and more and more comfortable to ride in the wagon.

As Henry Payne sarcastically noted, it’s time to party like the Greeks!

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What’s the best state in America?

I’m not sure I can answer that broad question, but I can address the more narrow issue of which state has the most economic freedom. Last month, for instance, I shared some data from the Canada-based Fraser Institute which showed that South Dakota was America’s most laissez-faire state, followed by Tennessee, Delaware, Texas, and Virginia (though all of them trailed the Canadian province of Alberta).

And one year ago, I posted about a fascinating Mercatus study that ranked states based on total freedom (including, interestingly, a “bachelor party” variable). That research put North Dakota at the top, followed by South Dakota, Tennessee, New Hampshire, and Oklahoma.

Now we have another measure of overall economic liberty at the state level. The Texas Public Policy Foundation has put together a “soft tyranny” index that measures total economic oppression, both for the United States and for the 50 states.

As you would suspect, the ranking was constructed with various measures of spending, taxes, and regulation.

Since we’re focusing today on state competitiveness, let’s first look at that data. As you can see, Texas is in the top spot with the lowest burden of government, followed by South Dakota, Nevada, New Hampshire, and Tennessee.

Soft Tyranny States
Since South Dakota and Tennessee appear in the top 5 of all measures, I’m guessing that means they are the best states (and it’s presumably no coincidence that they don’t have broad-based income taxes).

Now let’s review the data for the United States.

Probably the most relevant thing to notice is that economic freedom improved during the Reagan and Clinton years, whereas it worsened under Carter, both Bush Administrations, and Obama.

Soft Tyranny USA

And since America’s last two presidents have imposed a larger burden of government, it’s no surprise that the United States has fallen in both major global measures of economic freedom.

P.S. On a totally separate issue, I’m not surprised to learn that Republicans who are philosophically corrupt sometimes are personally corrupt as well.

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If you’re a libertarian, you generally don’t act and think like other people. Most folks, when they heard about Governor Christie’s bridge-closing scandal, focused on the potential political ramifications.

But not me. My immediate reaction was to think that the problem could have been avoided if the bridge and its various entry points were privately owned. Sort of like the Ambassador Bridge between Canada and Michigan, which is the busiest border crossing in North America. Or the Progreso International Bridge, a major transportation link between Mexico and Texas.

If the George Washington Bridge also had private owners, they would want to maximize the flow of traffic, not arbitrarily close lanes for petty political purposes. So while others may speculate about Chris Christie and the 2016 presidential race, I daydreamed about how privatized bridges would improve transportation (just as I couldn’t stop myself from pontificating about private fire departments when sharing some libertarian humor).

All that being said, I’m digressing before I even get started. The purpose of today’s column is to focus on the real scandal in New Jersey.

New research from the Mercatus Center looks at cash solvency, budget solvency, long-run solvency, and service-level solvency to show which states are fiscally responsible and which states face serious long-run problems.

And while Chris Christie may have taken a few steps to rein in excessive compensation for state bureaucrats (causing me to become giddy with infatuation), he still has a long way to go because the Garden State is in last place in this comprehensive new ranking of fiscal responsibility.

And that means New Jersey is even behind fiscal hell holes such as California, New York, and Illinois.

Here are the key takeaways from the study, which ranks all 50 states.

This paper contributes to that stream of research by applying models of fiscal condition to create indices measuring cash, budget, long-run, and service-level solvency as well as overall fiscal condition at the state level. It also discusses the relative strengths and weaknesses of each solvency index and provides a ranking — based on these indices and using fiscal year 2012 data — of the 50 US states. …Table 9…shows the state rankings based on fiscal condition with all four dimensions taken into account. …the states at the bottom are there due to years of poor financial management decisions, bad economic conditions, or a combination of both. New Jersey and Illinois face similar problems of tax revenues that have not kept up with expenditures, use of budget practices that only appeared to balance their annual budgets, and significant debt levels as a result of decades of using bonds without being able to pay for them. In addition, both states have underfunded their pension systems, resulting in   billions in unfunded liabilities.

Now let’s take a look at the main chart from the study, showing the ranking for all 50 states.

And I want to focus on the bottom 10, which are a rogue’s gallery of big-government basket cases. New Jersey, as already noted, is in last place, but the next-worst state is Connecticut, which has become a fiscal mess ever since making the horrible mistake of adopting an income tax more than two decades ago.

Mercatus State Fiscal Ranking

Illinois is in 48th place, which is not surprising since the state is infamous for tax-and-spend fiscal policy. Massachusetts is number 47, making it the fourth-worst state…just as it is the fourth-worst state in the Tax Freedom Day rankings.

California is number 46, and I was surprised (given Jerry Brown’s attempts to drive successful people from the state) to read in the study that its fiscal condition actually has gotten better in recent years. And no rating of fiscal irresponsibility is complete without New York, which is in 45th place.

Indeed, you’ll notice that there’s a good bit of overlap between the states at the bottom of the Mercatus study and the “death spiral” states that I shared last year. No wonder taxpayers are fleeing these oppressive jurisdictions.

Likewise, you’ll see that there’s also overlap between the highest-ranking states and the states that have avoided the mistake of imposing an income tax.

And since we’re on the topic of top-ranked states, it is worth noting that five of the top 10 don’t have an income tax, but we should issue a caveat. Both Alaska and Wyoming have a lot of natural resources, so politicians in those states have lots of revenue to spend. Indeed, too much if we believe these numbers showing state debt in Alaska.

And the same is true for North Dakota, which makes the mistake of maintaining an income tax while also collecting a flood of severance tax revenue.

P.S. If you want to further explore state fiscal performance, here are four additional rankings.

P.P.S. I have a confession to make. I’m currently on vacation in Nevis with the PotL. Nevis 3Sounds like an idyllic (albeit very temporary) lifestyle, particularly since it’s cold back in Washington. But every night has been a battle because I can’t figure out how to operate the bloody thermostat. It’s automatically set for 64 degrees, which is far too cold for my tastes, but I don’t know how to change the temperature. It’s a digital device and when I move the temperature up or down, the word “set” starts blinking on the screen, but with no indication of how to actually implement that command. Nevis TempSo I have to get up in the middle of the night and turn the device to “on” or “off” depending on whether I’m too cold or too hot. You may be asking yourself why I don’t inquire with the hotel staff, but that’s not an option. A friend on the island arranged for me to rent a private condo, so there’s nobody I can contact. Sort of reminds me of the time in Slovakia when I couldn’t figure out how to operate a shower, or the time in Switzerland when I was baffled by a toilet. And if I can’t figure out how to operate household fixtures, how on earth will I ever figure out how to shrink the size and scope of the federal government.

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The Tax Foundation in Washington does some great work on fiscal issues, but I also admire their use of maps when they want to show how various states perform on key indicators.

They’re best known for “Tax Freedom Day,” which measures how long people have to work each year before they’ve earned enough to satisfy the tax demands of federal, state, and local government. And they have a map so you can easily see how your state ranks.

But my favorite map from the Tax Foundation is the one showing that the geese with the golden eggs are moving from high-tax states to low-tax states. That’s tax competition in action!

I also like their map showing which states have done the best and worst jobs of controlling the burden of government spending, as well as their map showing which states steal the biggest share of economic output from taxpayers.

So it should go without saying that I’m going to share their new State Business Tax Climate Index. And the accompanying map.

Tax Foundation State Tax Ranking

What are some important takeaways from this ranking? Five things caught my eye.

1. It’s a very good idea for a state to not impose an income tax. The top six states all avoid this punitive levy and every no-income tax state is in the top 15. And you won’t be surprised to learn that these states grow faster and create more jobs.

2. It’s just a matter of time before states such as New York and California are beset by fiscal crisis. When a jurisdiction has something special – like California’s climate or the appeal (to some) of New York City – it can get away with imposing higher tax burdens. But there’s a limit, and migration patterns show that productive people are voting with their feet.

3. Scott Walker and Chris Christie often are mentioned as serious 2016 presidential candidates, and both have become well known for trying to deal with the problem of over-compensated state bureaucrats. But they both preside over states in the bottom 10 of this ranking, and presumably should address this problem if they want to demonstrate that they’re on the side of taxpayers.

4. It’s possible for a state to make a dramatic jump. North Carolina currently is one of the bottom 10, but that will soon change because of reforms – including a flat tax – that were enacted this year. As the Tax Foundation noted: “While the state remains ranked 44th for this edition, it will move to as high as 17th as these reforms take effect in coming years.”

5. States also can move dramatically in the wrong direction. Connecticut is now one of America’s least-competitive states, in large part because politicians managed to push through a state income tax in the early 1990s.

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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Maybe this means I’m not a nice person (notwithstanding my high score for tenderness in a recent test), but I can’t help but be happy when I read bad news about fiscal policy in high-tax welfare states.

And because I’m a huge fan of tax competition, I get even happier when I find out that bloated governments are in trouble because people are escaping to places where government isn’t quite so greedy.

With that in mind, I smiled when I read what the Washington Examiner just wrote about tax competition and tax migration inside the United States.

States like California…can’t afford to be hospitable to business while also funding massive public employee entitlements. …job-creating businesses flee big-government Blue States for limited-government Red States. In short order, Blue States find themselves in financial straits. …between 2000 and 2010, the big Blue States of New York, California, and Illinois chased off hundreds of thousands of residents taking billions in income with them ($45.6 billion, $29.4 billion, and $20.4 billion respectively). Each of these states have highly progressive, high-marginal rate tax codes. California, for example, has 10 income tax brackets and a top rate of 13.3 percent. New York has eight brackets and an 8.82 percent top rate. Where did all those formerly Blue State income go? To low-tax, Red State jurisdictions, including Florida (no income tax), Texas (no income tax), and Arizona (4.54 percent top rate). Those three alone raked in $67.3 billion, $17.7 billion, and $17.6 billion, respectively.

Indeed, there have been studies looking at how specific states are driving high-income taxpayers to emigrate. And that means big Laffer-Curve effects.

Which is good news because even politicians are probably capable of learning – sooner or later – that high tax rates won’t raise much revenue if the geese that lay the golden eggs decide to fly away.

And since a picture tells a thousand words, here’s the map of taxable income migration put together by the Tax Foundation using IRS data.

Tax Foundation Income Migration Map

Before closing, I want to highlight one other passage from the Examiner column that touches on a very critical point.

Thanks to the few federalist principles that are still protected in the Constitution, Americans remain free to vote with their feet and escape economically suffocating places like California in order to move to the vastly more hospital economic climates found in Red States like Texas.

Amen. Federalism is a very valuable way of protecting people from statism. We see it when people move from New York. We see it when they escape from California. We see it from a big-picture perspective in the Tax Foundation map.

Federalism enables to producers to escape the looters and moochers.

But federalism has been weakened over the years by the expansion of federal government. If we want to bolster competition among the states – and therefore constrain the greed of the political class, we need to devolve programs from Washington.

This is why welfare reform during the Clinton years was such a good idea. And it’s why block-granting Medicaid is so desirable (above and beyond the fiscal need to implement good entitlement reform).

P.S. It’s rather appropriate that I’m writing about federalism since I’m now in Lausanne, Switzerland, for the 2013 Liberty Conference and Switzerland is probably the world’s best example of genuine federalism.

P.P.S. One small correction to the Examiner’s piece. Illinois is a high-tax state. Illinois is a big-government state. Illinois is a state heading toward fiscal collapse. There are many things wrong with the Land of Lincoln, but it hasn’t compounded those other mistakes with a “progressive” tax that discriminates against those who add more to economic output. Indeed, the fact that Illinois has a flat tax helps to explain why politicians had such a hard time pushing through a tax hike a couple of  years ago. They eventually succeeded, but the politicians faced an uphill battle because they couldn’t play the divide-and-conquer game of raising taxes on a limited segments of the population.

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Back in 2010, I put together a “Moocher Index” as a rough measure of which states had the highest levels of welfare dependency after adjusting for poverty rates.

My goal was to answer this question.

Is there a greater willingness to sign up for income redistribution programs, all other things being equal, from one state to another?

It turned out that there were huge differences among states. Nearly 18 percent of non-poor Vermont residents were utilizing one or more welfare programs, putting them at the top of the Moocher Index.

In Nevada, by contrast, less the 4 percent of non-poor residents had their snouts in the public trough.

Does this mean Nevada residents are more self-reliant and Vermont residents are culturally statist?

To be perfectly frank, I don’t know, in part because the Moocher Index was an indirect measure of attitudes about dependency.

So I was very interested when I came across some state-by-state numbers from the Department of Agriculture showing food stamp participation compared to food stamp eligibility.

Food Stamp Participation Rate

There are some clear similarities between these food stamp numbers and the Moocher Index. Maine and Vermont are in the top 3 of both lists, which doesn’t reflect well on people from that part of the country.

And Nevada and Colorado are in the bottom 10 of both lists.

But there’s no consistent pattern. Mississippi and Hawaii are in the top 10 of the Moocher Index but bottom 10 for food stamp utilization.

What really stands out, though, is that the people of California win the prize for self reliance, at least with regard to food stamps. Only 55 percent of eligible people from the Golden State have signed up for the program. Doesn’t make sense when you look at some of the crazy things that are approved by California voters, but I assume the numbers are accurate.

I’m also surprised that folks from New Jersey are relatively unlikely to utilize food stamps.

On the other hand, why are Tennessee residents so willing to use my wallet to buy food?

As you can see from the map, they not only have a very high participation/eligibility rate, but also have one of the highest overall levels of food stamp dependency.

Oregon, not surprisingly, always does poorly, whether we’re looking at a map or a list.

Let’s close with a few real-world examples of what we’re getting in exchange for the tens of billions of dollars that are being spent each year for food stamps.

With stories like this, I’m surprised my head didn’t explode during this debate I did on Larry Kudlow’s show.

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I feel sorry for the people of California.  They’re in a state that faces a very bleak future.

And why does the Golden State have a not-so-golden outlook?

Because interest groups have effective control of state and local political systems and they use their power to engage in massive rip-offs of taxpayers. One of the main problems is that there’s a bloated government workforce that gets wildly overcompensated. Here are some staggering examples.

A state nurse getting $331,000 of annual compensation.

A county administrator getting $423,000 pensions.

A state psychiatrist getting $822,000 of annual compensation.

Cops that get $188,000 of annual compensation.

A city manager getting $800,000 of annual compensation.

But overpaid bureaucrats are not the only problem. California politicians are experts at wasting money in other ways, such as the supposedly high-speed rail boondoggle that was supposed to cost $33 billion and now has a price tag of $100 billion.

You may be thinking that I’ve merely provided a handful of anecdotes, so let’s recycle some numbers that I first shared back in 2010.

California state spending has outgrown the state’s tax base by 1.3 percentage points annually for 25 years. Simple arithmetic dictates that in lieu of constant tax increases, this perpetuates a deficit. From 1985 to 2009 state GDP in California grew by 5.5 percent per year, on average (not adjusted for inflation). Annual growth in state spending was 6.8 percent, on average.

In other words, California politicians have routinely violated my Golden Rule for good fiscal policy. And when government grows faster than the productive sector of the economy for an extended period of time, bad things are going to happen.

And those bad things can happen even faster when upper-income taxpayers can leave the state.

Walter Williams sarcastically suggested last year that California barricade the state to prevent emigration, reminiscent of the actions of totalitarian regimes such as East Germany.

But since state politicians fortunately don’t have that power, successful taxpayers can escape, and hundred of thousands of them have “voted with their feet” to flee to states such as Texas.

One recent example is NBA superstar, Dwight Howard, who left the Los Angeles Lakers for the Houston Rockets. There are probably several reasons that he decided to make the switch, but the Wall Street Journal opines on a very big reason why he’ll be happier in Texas. The WSJ starts by looking at Mr. Howard’s two options.

NBA labor agreement…allows the Lakers to offer Mr. Howard $117 million over five years, compared to a maximum of $88 million over four years in Houston.

That looks about even when you look at annual pay, with the Lakers offering $23.4 million per year and the Rockets offering $22 million per year, but there’s another very important factor.

…this picture looks a lot different once the tax man cometh: “Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $600,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $8 million in after-tax income.” California has the highest top rate for personal income in the nation, while Texas has no state income tax.

Some of you may be thinking this is no big deal. After all, the Lakers will sign somebody to take Dwight Howard’s place and that person will also get a huge salary.

That’s true, though Lakers fans probably aren’t happy that they’re destined to be a middle-of-the-pack team. The bigger point, though, is that there are tens of thousands of other high-paid people who can leave the state and there’s no automatic replacement. And many of them already have escaped.

Including very well-paid Chevron workers.

Ramirez California Promised LandNow that California’s moochers and looters have imposed an even higher top tax rate of 13.3 percent, expect that exodus to continue. Other pro athletes are looking to escape, and even famous leftists are thinking about fleeing.

In other words, Governor Jerry Brown can impose high tax rates, but he can’t force people to earn income in California. I don’t know whether to call this “the revenge of the Laffer Curve” or “a real life example of Atlas Shrugs,” but I know that California will be a very bleak place in 20 years.

P.S. Here’s the famous joke about California, Texas, and a coyote. And here’s an amusing picture of the California bureaucracy in (in)action.

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I’ve shared some outrageous stories about bureaucrats ripping off taxpayers.

So perhaps it is time to create a Bureaucrat-of-the-Year Award to honor the parasite who best exemplifies the unofficial SEIU motto of “Better Living on the Taxpayer Teat.”

And I think we already have a very strong candidate for 2013. Ms. Dorothy Dugger certainly has the right skills, working the system to get 19 months of vacation time after being forced out of her position. Here are some excerpts from a story in the Washington Times.

A former official of the Bay Area Rapid Transit raked in more than $333,000 last year without working a single day after she resigned under pressure in May 2011. Dorothy Dugger, the BART’s former general manager, quietly stayed on the payroll, burning off nearly 80 weeks of unused vacation time, drawing paychecks and full benefits for more than 19 months after she agreed to quit more than two years ago, San Jose Mercury News reported.

But that’s only part of the story. Yes, she was grossly overpaid and, yes, she has been bilking the grotesquely lavish fringe benefits system reserved for the bureaucracy.

But she also got a big fat severance package! Sort of a reward she received because she was an incompetent employee who wasn’t properly fired by an incompetent government.

But no worries. Taxpayers are there to smooth everything over.

The months of extra pay were in addition to the $920,000 Ms. Dugger was paid to leave after the BART’s board botched an effort to fire her by violating public meetings laws, San Jose Mercury News reported.

You’ll be happy to know, however, that Ms. Dugger is willing to acknowledge that some people may not be happy about

When asked by the paper if she thought the payout was fair to BART riders, she said: “That’s a fair issue to debate.”

How generous of her to say this is a “fair issue” now that she’s already pocketed all her loot and left “government service.”

But don’t forget that there are millions of other bureaucrats still on the payroll, earning more than us while working less than us.

And while Ms. Dugger has some impressive credentials for the Bureaucrat-of-the-Year Award, she does face some stiff competition. John Geary, for instance, used his job as a welfare bureaucrat to perpetrate a welfare-for-sex scam. And Susan Muranishi managed to snag a guaranteed yearly payment of $423,664 for the rest of her life.

We pay, they play.

P.S. Let’s be thankful we’re not Denmark.

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I’m either a total optimist or a glutton for punishment. I recently explained the benefits of “tax havens” for the unfriendly readers of the New York Times.

Now I’m defending a different form of tax competition for CNN, another news outlet that leans left. In this case, the topic is whether states can reach beyond their borders for tax revenue.

Here’s some of what I wrote about the so-called Marketplace Fairness Act that was just approved by the Senate and presumably will soon be considered by the House. I start by explaining that the powers of governments should be constrained by borders.

Let’s assume you live in Utah, Hawaii or South Carolina, and you go to Nevada for a vacation. While in Las Vegas, you spend some money in the casinos. Gambling is illegal in the state where you live, so should the cops in your home state be able to track your activities and arrest you for what happened in Nevada? The answer, needless to say, is no. Or at least it should be no. Common sense tells us that state laws should only apply to things that happen inside a state’s borders. But this sensible principle is being tossed out the window by the U.S. Senate, which has approved a proposal that would give states the ability to impose their taxes on out-of-state sellers.

I also explain that this issue isn’t about whether the Internet should be taxed. Indeed, as a fan of the flat tax, I don’t want special favors or special penalties in the tax code. Internet profits and Internet sales should face the same (ideally low) taxes as all other sectors of the economy.

Instead, the fight is really about whether a state government has the right to force out-of-state merchants to act as deputy tax collectors. If you believe that borders should limit the power of governments, the answer is no.

But that rubs politicians the wrong way.

…some governors and state legislators don’t like this system because many states don’t bother imposing any tax on sales to out-of-state consumers. And even if states levied taxes on sales to out-of-state consumers, what about the five states that don’t have any sales tax? Wouldn’t those states become “tax havens” for Internet sales? For these reasons, some politicians fret that the Internet will put competitive pressure on them to keep their sales tax rates from getting too high.

But this is exactly why politicians shouldn’t be allowed to tax beyond their borders. We want tax competition in order to limit the greed of the political class.

States with no payroll income taxes, such as Nevada, Florida, Tennessee, Texas and New Hampshire, help restrain the greed of politicians in states that have punitive income tax systems, such as California, Illinois, New York and Massachusetts. And if politicians in the high-tax states refuse to adjust their bad tax policies, then people should have the freedom to escape and earn income in other states. The same principle applies to sales taxes. If politicians in, say, Arizona are worried that consumers will go online or travel across the border to avoid the punitive sales tax, then they should reduce their sales tax rate.

So what’s the bottom line?

Politicians can choose to maintain uncompetitive tax systems, of course, but they also should be prepared to accept the consequences. I don’t think California and Illinois should try to become the France and Greece of America, but that’s something for the voters of those states to figure out for themselves. In any event, they shouldn’t have the right to force out-of-state sellers to act as deputy tax collection officials if they decide to impose bad tax policy. …To be blunt, a sales tax cartel is bad news for tax policy and bad news for privacy. Let’s limit the power of state governments so they can only screw up things inside their own borders.

Let’s close on a light note. Here’s a clever cartoon from Nate Beeler.

Internet Tax Shark Cartoon

I agree with the cartoon’s message, at least to the extent that onerous taxes can be very deadly to an industry. But, as noted above, I don’t want special tax-free status for the Internet.

So the ideal cartoon would show lots of surfers from all industries exercising the freedom to pick the waves with the smallest and least destructive sharks. Some might even call that federalism.

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I can say with great confidence that government bureaucrats are overpaid compared to people in the productive sector of the economy.

Why am I sure that this is true, particularly when the so-called Federal Salary Council claims bureaucrats are underpaid?

For the simple reason that the “job opening and labor turnover” data from the Department of Labor is the best way to measure whether a group of workers is overpaid or underpaid.

And you probably won’t be surprised to learn from this data that bureaucrats at the federal, state, and local level are only about 1/3rd as likely to quit their jobs as workers in the private sector.

They’re less likely to leave their jobs, needless to say, because they generally get paid more than they’re worth.

But just in case you think this data is unconvincing, let’s look at some additional research.

Sita Slavov of the American Enterprise Institute explores this topic in an article for U.S. News & World Report.

…studies show that, while the salaries of public sector workers are roughly in line with those paid in the private sector, public sector workers receive substantially more generous fringe benefits, such as pensions, health benefits, vacation and job security. …Why are public sector workers so highly compensated? And, why is their compensation so heavy on benefits? Workers certainly value benefits, such as access to group health insurance, and many benefits are tax advantaged. But do public sector workers really value these benefits more than private sector workers? Edward Glaeser and Giacomo Ponzetto have attempted to address these questions in a recent National Bureau of Economic Research working paper entitled “Shrouded Costs of Government: The Political Economy of State and Local Public Pensions.” The authors present a formal model in which public sector compensation is determined by a political process that pits politicians against each other in a competition for votes. They show that this political process results in a public sector compensation package with generous benefits.

In other words, bureaucrats are over-compensated, and much of their excess compensation is in the form of generous fringe benefits.

The new study cited by Sita looks at why this happens.

Public sector workers have an information advantage over other voters. In particular, they are better informed about their own compensation packages. Moreover, this information advantage is more pronounced for benefits than salary. This is plausible because information about public sector salaries is available to the general public… In contrast, information about public sector pensions is less widely available, and because of complications involved in valuing future pension benefit promises, it is also more difficult to interpret. As a result, politicians propose generous public sector compensation that is tilted towards benefits rather than salary. A politician who tries to scale back public sector benefits will lose support from public sector voters (who are hurt by the benefit cut) without gaining much support from other voters (who gain from lower taxes but are poorly informed).

My interpretation of these findings is that politicians and bureaucrats basically conspire to rip off taxpayers.

In exchange for campaign contributions and other forms of political support, the politicians give the bureaucrats excessive compensation. But they make it difficult for taxpayers to figure out how they’re getting robbed by concentrating a big share of the excess in harder-to-measure fringe benefits.

Another advantage of that approach, by the way, is that the bill for all the retiree benefits doesn’t come due until some point in the future, by which time the politicians who put taxpayers on the hook often have retired or moved on to some other position.

But these promises do translate into real costs sooner or later, as taxpayers have painfully learned in places such as diverse as California and Greece.

Though, to be fair, governments get into fiscal trouble because they also make irresponsible commitments to all workers, including those in the private sector. America’s long-term fiscal crisis, for instance, is because of poorly designed entitlement programs.

Bu this isn’t an excuse to do nothing. It just means we have to reform entitlements and also trim back the excessive compensation for the bureaucracy. This video elaborates.

P.S. If you still aren’t convinced that bureaucrats are overpaid, look at this remarkable map.

P.P.S. You probably won’t be surprised to learn that bureaucrats also don’t work as hard as the rest of us.

P.P.P.S. I’m more concerned about the overall size of government than I am about the pay levels of bureaucrats. I’d much rather focus on shutting down the Department of Housing and Urban Development, for instance, instead of simply trying to reduce the pay of HUD bureaucrats.

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It’s time to celebrate.

That’s because we have reached Tax Freedom Day, meaning that – in the aggregate – we have finally earned enough money to pay for all the federal, state, and local taxes that will be imposed on us this year by our political masters.

But we’re not collectivists, so aggregate measures don’t really matter. Our individual tax burdens can vary considerably depending on the level and composition of our income, as well as the state in which we live.

Speaking of that, the good folks of North Dakota are the only ones actually celebrating Tax Freedom Day on this exact date. If you look at the map, Tax Freedom Day is as early as late March for residents of Louisiana and Mississippi, and as late as May for the unfortunate residents of New York, Connecticut, and New Jersey.

Tax Freedom Day Map

You’ll notice, by the way, that Tax Freedom Day is correlated with average state income. That’s one of the reasons why low-income states tend to get better scores. Simply stated, it’s hard to collect a lot of revenue from people who don’t have much money.

And a state that historically has been wealthy, like Connecticut, will probably collect a lot of revenue even if it has a good tax system (though, for the record, Connecticut has veered dramatically in the wrong direction in the past couple of decades).

So if you want to measure whether a state has a good or bad tax system, I recommend the “fiscal” and “tax burden” categories in the “Freedom Index” from the Mercatus Center. Using that measure, South Dakota gets the best score (compared to the 6th-best score using Tax Freedom Day).

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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Art Laffer has a guaranteed spot in the liberty hall of fame because he popularized the common-sense notion that you can’t make any assumptions about tax rates and tax revenue without also figuring out what happens to taxable income.

Lot’s of people on the left try to denigrate the “Laffer Curve,” but it’s worth noting that even left-wing economists now admit that you don’t maximize revenue with a 100 percent tax rate.*

Indeed, I think the only people who now cling to that absurd view are the bureaucrats at the Joint Committee on Taxation.

But this post isn’t about the Laffer Curve. It’s about a disappointing column that Art Laffer wrote for today’s Wall Street Journal.

The issue is whether states should have the power to impose taxes on sales that take place outside their borders. Art starts the column with a very good point about the link between growth and living standards.

After enjoying an average growth rate above 3.5% per year between 1960 and 1999, Americans have had to make do with less than one-half that pace since 2000. The consequences are already dramatic and will become even more so over time. Overall we are 20% poorer today than we would be had the pre-2000 growth rate persisted.

That’s a great point. I’ve also tried to get people to focus on the importance of long-run growth.

Heck, just look at what’s happened in Hong Kong and Singapore and you’ll agree.

In his column, Art also correctly defines good tax policy.

The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems.

But he then asserts that an Internet sales tax cartel somehow will result in better policy.

…there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web. So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet). …The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes.

This is a very disappointing collection of sentences. Let’s review.

1. States have declining sales-tax bases because state lawmakers treat that levy the same way that politicians in Washington treat the income tax – they put in loopholes in exchange for campaign cash and political support. For them to complain about declining sales-tax bases is sort of like the old joke about the guy who murders  his parents and then asks the court for mercy because he’s an orphan.

2. Art offers zero evidence that state governments would use the additional revenue from a state sales tax cartel to reduce income tax rates. What’s next, a column saying we should have a value-added tax because the politicians may use the revenue to get rid of the income tax? Yeah, good luck with that approach.

3. Why is it “inequitable” for there to be different tax policies in different states? That’s another way of describing federalism, and it’s something we should be celebrating and promoting. Particularly since it promotes tax competition, which is one of the most effective ways of restraining the greed of the political class.

4. The Internet sales tax cartel being promoted by Art and various politicians requires that governments have the ability to tax sales that tax place outside their borders. That’s an assault of sovereignty, particularly since out-of-state merchants will be coerced into being tax collectors for a distant government. This is the same dangerous ideology that is used by high-tax governments to promote global anti-tax competition policies.

5. Art offers zero evidence that the absences of a state sales tax cartel has led to higher income tax rates. Yes, some states have raised tax rates in recent years, but others have lowered tax rates.

For more information on why a sales tax cartel among the states would be a bad idea, here’s my short speech to an audience on Capitol Hill.

*This should be an obvious point, but I can’t resist emphasizing that maximizing revenue should not be the goal of fiscal policy.

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Sometimes I myopically focus on fiscal policy, implying that the key to prosperity is small government.

But I’ll freely admit that growth is maximized when you have small government AND free markets.

That being said, our goal should be to expand freedom, not merely to have the largest possible GDP.

Which is why the Freedom Index is a good complement to Economic Freedom of the World.

It shows, for instance, that Singapore may be ranked #2 for economic freedom, but it is only #39 when you look at all freedoms.

We also have a comprehensive ranking of economic and personal freedom for the 50 states.

Here are the full rankings from the newly released Freedom in the 50 States from the Mercatus Center, showing North Dakota as the state with the most freedom, with South Dakota (#2), Tennessee (#3), New Hampshire (#4), and Oklahoma (#5) also deserving praise for high scores.

Mercatus State Freedom Ranking

What makes Freedom in the 50 States so interesting is that you can mix and match variables based on your own preferences.

I checked the “fiscal” and “tax burden” categories, and South Dakota (no state income tax!) jumped to #1 for both of those measures.

You won’t be surprised to learn that New York is the worst state, not only overall, but also for various fiscal policy measures.

Who would have guessed, by the way, that there’s a “bachelor party” category based on laws governing alcohol, marijuana, prostitution, and fireworks. Interesting, Massachusetts is ranked #1, though I suspect most guys will still opt for #3-ranked Nevada.

P.S. I must be learning. I grew up in New York, which is #50 in the rankings of freedom in the states, and then in Connecticut, which ranks only #40. But I went to college in Georgia, which is #9 in the rankings, and I now live in the Virginia, which is #8. But I somehow doubt that I’ll ever wind up in North Dakota.

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The food stamp program seems to be a breeding ground of waste, fraud, and abuse. Some of the horror stories I’ve shared include:

With stories like this, I’m surprised my head didn’t explode during this debate I did on Larry Kudlow’s show.

So exactly how bad is the food stamp program?

One way of measuring the cost of the program, both to taxpayers and to the people who get trapped in dependency, is to see what share of a state’s population is utilizing the program.

I just did a “Mirror, Mirror” post on states with the most education bureaucrats compared to teachers and got a lot of good feedback, so let’s do the same thing for food stamps.

Here’s a rather disturbing map from the Washington Post.

Food Stamp Map

A couple of things stand out. I can understand Mississippi, Louisiana, and New Mexico being among the worst states because they have relatively low average incomes. And that’s sort of an excuse for Tennessee, though it’s worth noting that economically and demographically similar states such as Georgia and Alabama don’t fall into the same dependency trap.

Why such a significant handout culture?

But the state that stands out is Oregon. Based on the state’s income, there’s no reason for more than 20 percent of resident’s to be on the dole. The state does get a “high” ranking on the Moocher Index, so there’s some evidence of an entitlement mentality. And welfare handouts also are above average in the Beaver State as well.

It’s also disappointing to see that food stamp dependency has doubled since 2008 in Florida, Rhode Island, Nevada, Utah, and Idaho. Though it’s a credit to the people of Utah that they’re still in the least-dependent category. But the trend obviously is very bad.

And it’s also depressing to look at the bar chart on the right and see that spending on the program has tripled in the past 10 years. Heck, food stamps were about 70 percent of the cost of a recent Senate “farm bill.”

P.S. A local state legislator asked an official in Richmond why Virginia got such a bad score in the ranking of teachers compared to education bureaucrats. The good news, so to speak, is that Virginia is not as bad as suggested by the official numbers. According to the response sent to this lawmaker, “VDOE has determined that the data it reported on school division personnel and assignments to NCES for 2005-2006 through 2009-2010 through the US Department of Education’s EdFacts Portal were inaccurate.”

The bad news, as you can see from this table, is that there are still more edu-crats than teachers, but the ratio apparently isn’t as bad with this updated data.

Virginia Bureaucrat-Teacher Numbers

As a Virginia taxpayer, I suppose I should be happy. But it’s hard to get overly excited when other states are taking positive steps to bring choice and competition to education, and the best thing I can say about the Old Dominion is that we’re not quite as infested with bureaucrats as we originally thought.

P.P.S. I guess I should give the left-wing Washington Post some credit for sharing the map on food stamp dependency. And, to be fair, the paper did reprint this remarkable chart showing how bad Obama’s record is on jobs compared to Reagan and Clinton. And the paper also printed this chart showing how the economy’s performance is way below average under Obama.

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Two months ago exactly, I appeared on TV to talk about the concept of eliminating the personal and corporate income tax in Louisiana.

Now Governor Jindal has unveiled a specific proposal.

The plan will eliminate two major tax types: personal income tax and corporate income and franchise tax. Eliminating income taxes in a revenue-neutral manner and improving sales tax administration will dramatically simplify Louisiana’s tax system and reduce administrative problems for families and small businesses. The effective start date of the program is January 1, 2014. …The plan will ensure revenue neutrality by…[b]roadening the state sales tax base and raising the state rate to 5.88%.

This is a superb plan.

Of all the possible ways for a state to generate revenue, the income tax is the most destructive.

My new man crush

That’s why researchers consistently have found that states without this punitive levy grow faster and create more jobs.

It’s also worth noting that jurisdictions such as Monaco, Bermuda, and the Cayman Islands manage to be very prosperous in the absence of an income tax, though the incredible wealth of these places is partly a function of bad policy elsewhere, so the comparison isn’t perfect.

Anyhow, Gov. Jindal expands on this research with some very powerful data.

Over the last ten years, more than 60 percent of the three million new jobs in American were created by the nine states without an income tax. Every year for the past 40 years, states without an income tax had faster growth than states with the highest income taxes.  Economic growth in the nine states without income taxes was 50 percent faster than in the nine states with the highest top income tax rates.  Over the past decade, states without income taxes have seen nearly 60 percent higher population growth than the national average. …While we have reversed the more than two-decade problem of out-migration, we can do more to keep people here. Here are a couple of staggering statistics. Between 1995 and 2010, according to IRS data, Louisiana lost $3 billion in adjusted gross income to Texas.

Amen.

I particularly like that he recognizes the power of tax competition as an argument for better tax policy. Taxpayers win when Texas and Louisiana compete to have less oppressive tax systems.

Indeed, this should help explain why I am so fixated on the importance of making governments compete with each other. Simply stated, governments are very prone to over-tax and over-spend if they think taxpayers have no escape options.

So let’s keep our fingers crossed that Gov. Jindal’s proposal gets a friendly reception from the state legislature.

If he succeeds, I imagine he will vault himself to the top tier of Republicans looking to replace Obama.

And, who knows, maybe he can reinvigorate the argument that we can replace the corrupt internal revenue code with a national sales tax?

P.S. Jindal is good on more than just tax policy. He’s already implemented some good school choice reform, notwithstanding wretched and predictable opposition from the state’s teachers’ union.

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Back in 2010, I shared parts of a Dave Barry column that mocked the government for bizarre examples of stupid law enforcement.

Barry was specifically making fun of OSHA bureaucrats for fining a company for the horrible transgression of saving a worker when a trench collapsed. But there are many other examples of law enforcement run amok.

  1. The Food and Drug Administration raiding a dairy for the terrible crime of selling unpasteurized milk to people who prefer unpasteurized milk.
  2. New York City imposing a $30,000 fine on a small shop because it sold a toy gun.
  3. The pinheads at the Equal Employment Opportunity Commission going after Hooters for not having any male waiters in hot pants and tight t-shirts.
  4. Indiana’s Department of Natural Resources is legally attacking a family for rescuing a baby deer.

And now we have another Kafkaesque episode.

Here are some of the strange details from a local newspaper.

Anthony Brasfield saw romance when he released a dozen heart-shaped balloons into the sky over Dania Beach with his sweetie. A Florida Highway Patrol trooper saw a felony. Brasfield, 40, and his girlfriend, Shaquina Baxter, were in the parking lot of the Motel 6 on Dania Beach Boulevard when he released the shiny red and silver mylar balloons and watched them float away Sunday morning. …Brasfield was charged with polluting to harm humans, animals, plants, etc. under the Florida Air and Water Pollution Control Act. …Between 2008 and 2012, the Florida Department of Law Enforcement said there were 21 arrests statewide under the rarely used environmental crime statute. The third-degree felony is punishable by up to five years in prison.

Let’s now think about what this means.

We have a guy who almost certainly had no idea he was committing a crime. He presumably isn’t rolling in money since he was staying at a Motel 6. Yet now he faces a harder life because he has a felony arrest on his record.

I’m assuming, by the way, that the government surely won’t send him to prison. I’m also guessing – or at least hoping – that the state won’t even impose a heavy fine. And perhaps the prosecutor’s office will drop or reduce the charges so he won’t have a felony conviction on his record. Though maybe I’m being too generous in those assumptions.

Anyway, my main point is to question why the unfortunate Mr. Brasfield was arrested in the first place. What was the cop thinking, that a felony arrest would help fill his quota?

By the way, I’m not claiming that there shouldn’t be a rule against releasing balloons near a nature preserve. It may be that imposing some sort of sanction is the right way, from a cost-benefit perspective, to preserve and protect the environment.

But Mr. Brasfield wasn’t a big corporation dumping chemicals into the water with full knowledge of lawbreaking and potentially doing millions of dollars of damage. That’s the situation where felony arrests and prosecutions are completely appropriate.

Releasing a few balloons, by contrast, should be treated more like jaywalking or littering. Though I realize that would require common sense from lawmakers, law enforcement, and the justice system. So good luck with that.

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The number one goal for fiscal policy is to reduce the burden of government spending.

The simple way to achieve this goal is to adhere to Mitchell’s Golden Rule and and make sure the private sector grows faster than the public sector.

But when politicians fail to exercise that modest amount of fiscal restraint, bad things happen.

Consider my state of Virginia, which is largely controlled by Republicans. Except party labels apparently don’t mean much because state spending has been growing at twice the rate of inflation.

Virginia State Spending

And when politicians engage in profligacy on the spending side of the fiscal ledger, it’s just a matter of time before they engage in greed on the other side of the fiscal ledger.

That’s certainly happened in Virginia, where the interest groups, lobbyists, bureaucrats, and politicians just achieved a major victory over taxpayers.

The Wall Street Journal is appropriately disappointed.

"I hope you're not upset that I'm copying your fiscal policy, Mr. President"

“I hope you’re not upset that I’m copying your fiscal policy, Mr. President”

There’s one thing uglier than a Democratic tax-and-spend spree. A Republican one. On Friday Virginia Governor Bob McDonnell and a GOP-run legislature approved a five-year, $6 billion transportation bill financed almost entirely with higher sales and car taxes.

Here are some of the grim details.

The sales tax rises to 6% from 5% in Hampton Roads and populous Northern Virginia and to 5.3% everywhere else. The hated car tax (which Republicans once vowed to eliminate) rises to 4.3% from 3%, meaning a new $30,000 car or truck will come with a $1,290 tax bill. Then there’s a new 0.25% sales tax on homes in Northern Virginia, plus a new hotel tax.

More taxes, not surprisingly, will mean more spending.

Mr. McDonnell even cut an 11th-hour deal with Democrats over the expansion of Medicaid under ObamaCare. …Mr. McDonnell says the commission means Virginia won’t expand Medicaid as long as Republicans control the legislature, but wait until the hospital lobby gets done working the same Republicans who raised taxes.

The governor doubtlessly has made lots of friends with the interest groups that dominate Richmond, so he’ll have plenty of opportunities to cash in when he leaves office.

The state’s taxpayers, by contrast, won’t be so lucky. And now the GOP is now divided and dispirited and will face an uphill battle in this November’s elections.

This fiasco will haunt Republicans in a state that holds elections in November. Probable Democratic nominee for Governor Terry McAuliffe endorsed the bill knowing it erases any GOP advantage on taxes and spending. Mr. Cuccinelli, the likely Republican nominee, opposed the bill but must now find a way to rally a splintered GOP and demoralized conservatives. At least Republicans can erase Mr. McDonnell’s name as a national candidate or VP choice in 2016.

I don’t lose a lot of sleep worrying about Republican political prospects, but I am irked that politicians are taking more of my money for their vote-buying schemes.

To add insult to injury, I’m not rich, so I don’t have the ability to directly benefit from tax competition by moving to a zero-income-tax state such as Florida or Texas.

And moving to Maryland or DC would be jumping out of the fiscal frying pan and into the tax fire, so that’s also not an option.

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I’ve been pointing out the differences between California stagnation and Texas prosperity for quite some time.

And since California voters approved a new 13.3 percent top tax rate last November, I expect the gap to become even wider.

Simply stated, California is the France of America and Texas is the Cayman Islands of America.

So it’s understandable that the Governor of Texas is telling employers in California that his state has a better climate for job creation.

John Fund of National Review opines on this bit of competition between states.

Texas governor Rick Perry knows how to start a rumble. Last week, he spent a mere $24,000 on radio ads in California, urging firms there to move to Texas, with its “zero state income tax, low overall tax burden, sensible regulations, and fair legal system.” …He begins a four-day barnstorming tour of California today, touting Texas’s virtues to business owners. …several observers acknowledged that Perry has gotten the better of the battle.

Texas is clearly doing better on jobs, and it’s easy to avoid higher taxes when you obey Mitchell’s Golden Rule and restrain the burden of government spending.

Indeed, in the last five years Texas has gained 400,000 new jobs while California has lost 640,000. The Lone Star State’s rate of job growth was 33 percent higher than California’s last year, even as the Golden State finally pulled out of the recession. …Texas’s legislature has just trimmed its $188 billion two-year budget by 8 percent, and the state may have more revenue than it can legally spend because it is barred from raising outlays more than the rate of economic growth.

Here’s a very good Steve Breen cartoon about Perry’s fishing trip to the west coast.

Texas Seduction Cartoon

And remember my post about Phil Mickelson threatening to leave the state? Well, Chip Bok has a humorous take on that looming departure.

California Escape Cartoon

I’ve already written about the exodus of jobs from California, and expect even more in the future.

P.S. Texas is far from perfect. There’s a good bit of crony capitalism in the state. But there’s also some bad policy in the Cayman Islands, so the analogy is appropriate.

P.P.S. This “coyote” joke about California and Texas is the fourth-most viewed post in the history of this blog.

P.P.P.S. Here’s a photo that shows the California bureaucracy in action, and a cartoon featuring archaeologists from the future.

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Texas is in much better shape than California. Taxes are lower, in part because Texas has no state income tax.

No wonder the Lone Star State is growing faster and creating more jobs.

And the gap will soon get even wider since California voters recently decided to drive away more productive people by raising top tax rates.

But a key challenge for all governments is controlling the size and cost of bureaucracies.

Government employees are probably overpaid in both states, but the situation is worse in California, as I discuss in this interview with John Stossel.

But being better than California is not exactly a ringing endorsement of Texas fiscal policy.

A column in today’s Wall Street Journal, written by the state’s Comptroller of Public Accounts, points out some worrisome signs.

As the chief financial officer of the nation’s second-largest state, even I have found it hard to get a handle on how much governments are spending, and how much debt they’re taking on. Every level of government is piling up incredible bills. And they’re coming due, whether we like it or not. Even in low-tax Texas, property taxes have risen three times faster than the inflation rate and four times faster than our population growth since 1992. Our local governments, meanwhile, more than doubled their debt load in the last decade, to more than $7,500 in debt for every man, woman and child in the state. In Houston alone, city-employee pension plans are facing an unfunded liability of $2.4 billion. But too many taxpayers aren’t given the information they need to make informed decisions when they vote debt issues. Recently I spent several months holding about 40 town-hall meetings with Texans across our state. Each time, I asked the attendees if they could tell me how much debt their local governments are carrying. Not a single person in a single town had this information.

In other words, taxpayers need to be eternally vigilant, regardless of where they live. Otherwise the corrupt rectangle of politicians, bureaucrats, lobbyists, and interest groups will figure out hidden ways of using the political process to obtain unearned wealth.

P.S. The second-most-viewed post on this blog is this joke about Texas, California, and a coyote, so it must be at least somewhat amusing. If you want some Texas-specific humor, this police exam is amusing and you’ll enjoy this joke about the difference between Texans, liberals and conservatives. And if you want California-specific humor, this Chuck Asay cartoon hits the nail on the head.

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I’m a big fan of the flat tax as a way of neutering the punitive and convoluted internal revenue code in Washington.

But I’m even more aggressive at the state level.

That’s why I’m very excited about a new proposal from Governor Bobby Jindal of Louisiana.

He’s already implemented some good school choice reform, notwithstanding wretched and predictable opposition from the state’s teachers’ union.

Now he wants to get rid of the state’s personal and corporate income taxes.

This would be a big and bold step, and I shared some evidence recently showing that states with no income tax grow faster and create more jobs.

I also discussed Jindal’s proposal last week on Fox Business News.

Some people probably think Jindal is pushing this agenda merely because he may run for President in 2016.

My attitude is “so what?”

Income Tax? The answer is NO

So long as he implements better policy, I don’t care if he’s motivated by a Ouija board.

But since he has a reputation for being a policy wonk, I suspect his motivations are to make Louisiana a more prosperous state.

And if bold reform also happens to increase his national stature, I’m sure he’s more than happy to reap any political benefits.

If he succeeds, Louisiana will enjoy more growth.

Equally important, as I stated in the interview, his success would show that Obama’s class-warfare agenda may have some appeal in basket-case states such as California, but it doesn’t have much support among people who understand that growth is the only effective (and moral) way of achieving a better life.

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Three years ago, I put together a “Moocher Index” that measured the degree to which non-poor people in a state were benefiting from redistribution programs.

As you can see if you click on the nearby table, Vermont was the worst state, followed by Mississippi, Maine, New York, and Massachusetts.

I confessed that my Moocher Index was a crude and imprecise tool, but it was one of my most popular posts in the early days of this blog. Probably because it was a way of measuring the degree to which people were being lured to ride in the wagon of government dependency (a very disturbing trend put in visual form by these two cartoons).

So I was very interested when I found that somebody at Forbes did something vaguely similar and came up with a list of “death spiral” states.

Death Spiral StatesEleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii. …Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector. …what happens when these needy types outnumber the providers? Taxes get too high. Prosperous citizens decamp. Employers decamp. That just makes matters worse for the taxpayers left behind. Let’s say you are a software entrepreneur with 100 on your payroll. If you stay in San Francisco, your crew will support 139 takers. In Texas, they would support only 82. Austin looks very attractive. Ranked on the taker/maker ratio, our 11 death spiral states range from New Mexico, with 1.53 takers for every maker, down to Ohio, with a 1-to-1 ratio. …The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co., a money manager… Its formula downgrades states for large debts, an uncompetitive business climate, weak home prices and bad trends in employment. …A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking. It’s easy to see how California got on our list. It has pampered a large army of civil servants while using every imaginable trick to chase private-sector jobs away, the latest being a quixotic scheme to reduce the globe’s atmospheric carbon.

Not surprisingly, there is considerable overlap between the top states in the Moocher Index and the death-spiral states.

So be forewarned. If you live in California, Hawaii, Maine, Mississippi, or New York, it’s quite likely that you are surrounded by people who want you to work harder and pay higher taxes so they can get more handouts.

Heck, that’s true in most states, so you should worry regardless of where you live. Click here to see a very depressing chart about the nationwide increase in dependency.

So what lessons can we learn? Well, if you look at this map, you’ll notice that none of the states without an income tax are death-spiral states.

And if you look at this map, you’ll see that there’s no overlap between death-spiral states and states with the lowest tax burdens.

Hmmm…sort of makes one think that maybe higher taxes aren’t the right way to solve a fiscal mess. Maybe somebody should inform the President.

Last but not least, here’s a map showing the state-by-state generosity of welfare benefits. I don’t detect any correlation with death-spiral states – except for New York and California.

If you live in either of those two states, you may want to escape before it’s too late.

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One of the key ways of controlling state and local tax burdens, according to this map from the Tax Foundation, is to not have an income tax.

But that’s not too surprising. States have just a couple of ways of generating significant tax revenue, so it stands to reason that states without an income tax would have relatively low tax burdens.

Light-blue states have no broad-based income tax

The more important question is whether this approach leads to better economic performance. The evidence is pretty clear that zero-income-tax states grow faster and create more jobs.

I’ve already shared some important research on this topic, including this review of research in the Cato Journal by Richard Rahn, as well as this summary of similar analysis in Rich States, Poor States by Art Laffer and Steve Moore.

There’s even some evidence that people in low-tax states are happier than those in high-tax states, though I’m not sure that I trust that kind of subjective research since there’s also a study showing people are happier in high-tax nations.  (at least, unlike Brazil, nobody in the U.S. is talking about making happiness a responsibility of government).

Let’s return to the more substantive topic of taxes and economic performance. There’s a column examining this issue in today’s Wall Street Journal. Authored by two experts from the Kansas Policy Institute, it finds that states with no income tax have a lower burden of government spending.

In the midst of a dismal recovery where every job counts, one fact stands out: States that tax less achieve better economic performance. …The secret to having low taxes is controlling spending, and that’s exactly what low-tax-burden states do. States with an income tax spent 42% more per resident in 2011 than the nine states without an income tax. …Every state has public schools, social-service programs, prisons, etc. Some just find ways to provide essentially the same basket of services at lower prices.

They also reveal that lower taxes and lower spending translate into more growth and prosperity.

States that allow taxpayers and employers to keep more of their earnings are reaping the benefits. States without an income tax have significantly better growth in private sector GDP (59% versus 42%) over the last 10 years. They increased the number of jobs by 4.9% while jobs in the rest of the states declined by 2.6%. States without an income tax gained population (+5.5%) from domestic migration (U.S. residents moving in and out of states) while all other states as a whole lost 1.3% of population between 2000 and 2009.

The migration data is particularly powerful, and it’s one of the reasons why California’s class-warfare tax policy is so suicidal and why Texas is growing so rapidly. As I’ve said many times before, tax competition is a critical way of disciplining profligate governments and rewarding jurisdictions with more responsible fiscal policy.

Last but not least, if you want a powerful example of why income taxes are economic poison, read this research showing how Connecticut’s economic performance dropped after imposing a state income tax about 20 years ago.

P.S. Here’s a list of America’s greediest state and local governments, as measured by top income tax rates and most onerous sales tax systems.

P.P.S. Here’s the famous Moocher Index of state dependency, and you’ll notice that states with no income tax are more likely to be near the bottom of the list (with Alaska being a notable – but not surprising – exception).

P.P.P.S. And if you like state fiscal data, the Cato Institute’s Fiscal Policy Report Card on America’s Governors shows which states are moving in the wrong direction and right direction.

P.P.P.P.S. According to this map from a left-wing group, it also seems that states with no income tax do a better job of controlling welfare spending.

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Over the years, I’ve shared some outrageous examples of overpaid bureaucrats.

Hopefully we’re all disgusted when insiders rig the system to rip off taxpayers. And I suspect you’re not surprised to see that the worst example on that list comes from California, which is in a race with Illinois to see which state can become the Greece of America.

Well, the Golden State has a new über-bureaucrat. Here are some of the jaw-dropping details from a Bloomberg report.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data.

Wow, $822,000 for a state psychiatrist. Not bad for government work. So what is Governor Jerry Brown doing to fix the mess? As you might expect, he’s part of the problem.

…the state’s highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime. …California has set a pattern of lax management, inefficient operations and out-of-control costs. …In California, Governor Jerry Brown hasn’t curbed overtime expenses that lead the 12 largest states or limited payments for accumulated vacation time that allowed one employee to collect $609,000 at retirement in 2011. …Last year, Brown waived a cap on accrued leave for prison guards while granting them additional paid days off. California’s liability for the unused leave of its state workers has more than doubled in eight years, to $3.9 billion in 2011, from $1.4 billion in 2003, according to the state’s annual financial reports. …The per-worker costs of delivering services in California vastly exceed those even in New York, New Jersey, Illinois and Ohio.

Actually, it’s not just that he’s part of the problem. He’s making things worse, having seduced voters into approving a ballot measure to dramatically increase the tax burden on the upper-income taxpayers.

I suppose the silver lining to that dark cloud is that many bureaucrats now rank as part of the top 1 percent, so they’ll have to recycle some of their loot back to the political vultures in Sacramento.

Cartoon California Promised Land

But the biggest impact of the tax hike – as shown in the Ramirez cartoon – will be to accelerate the shift of entrepreneurs, investors, and small business owners to states that don’t steal as much. Indeed, a study from the Manhattan Institute looks at the exodus to lower-tax states.

The data also reveal the motives that drive individuals and businesses to leave California. One of these, of course, is work. …Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

Yet another example of why tax competition is such an important force for economic liberalization. It punishes governments that are too greedy and gives taxpayers a chance to protect their property from the looter class.

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The half-joking response to the question in the title of this post is that policymakers should look at what’s happening in poorly run jurisdictions such as California, France, Illinois, and Greece – and then do just the opposite.

In other words, steer clear of punitive class-warfare tax rates and make sure to control the burden of government spending.

But there’s an even simpler rule that is very correlated with good fiscal policy, at least at the state level. Governments should not impose income taxes.

If you look at this map from the Tax Foundation, you’ll notice that there is a heavy overlap between the 10 states with the lowest overall tax burdens and the 9 states (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming) that don’t have income taxes.

More specifically, 7 of the non-income tax states are among the 10 states with the lowest tax burdens. Only Florida and Washington are outside the top 10.

It’s also worth noting that some of the states with the most “progressive” income tax systems are well represented on the list of the 10-worst states – including California, New York, New Jersey, Maine, and Rhode Island.

One important implication of this data is that proponents of limited government should never give politicians a new source of revenue, which is why fighting the value-added tax is one of my main priorities (and why advocates of small government should be worried not just about Obama winning re-election, but also worried about Romney winning).

P.S. New Hampshire and Tennessee impose income taxes on certain forms of capital income, so they are only probationary and tenuous members of the no-income-tax club.

P.P.S. Politicians from Illinois will probably complain that they didn’t make the 10-worst list, but they shouldn’t be too worried. The Tax Foundation was looking at 2010 data and Illinois almost surely will be closer to the bottom when the 2011 data gets released and includes the impact of the midnight, end-of-session, post-2010 election tax hike imposed by the state’s kleptocrat politicians.

P.P.P.S. For a humorous – but accurate – perspective on the VAT, take a look at these clever cartoons (here, here, and here).

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