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Archive for the ‘California’ Category

I shared a very amusing column last year about “a modest proposal” to reduce income inequality.

Written tongue-in-cheek by David Azerrad of the Heritage Foundation, the premise was that society could be made more “fair” by exiling – or perhaps even selling to the highest bidder – America’s richest people.

David’s piece cleverly made the point that such a policy would dramatically lower inequality, but would do nothing to boost the living standards of poor people. Indeed, when you consider all the damage that would be caused if America lost its top entrepreneurs, investors, and business owners, lower-income people obviously would suffer immense hardship as the economy shrank.

Unfortunately, there’s no evidence that Hillary Clinton read his article. Or, if she did, she obviously didn’t learn anything. Her agenda, which is echoed by almost all leftists, is endlessly higher taxes to fight the supposed scourge of inequality.

I’ve always thought inequality was the wrong target. If politicians really cared about the less fortunate, they would instead focus on growth in order the reduce poverty.

But our friends on the left apparently believe (or, if they’re familiar with historical data, they pretend to believe) that the economy is a fixed pie. So if someone in the top-1 percent, top-5 percent, top-10 percent, or top-20 percent gets more money, then the rest of us must have less money.

Heck, they don’t even understand the data that they like to cite. Writing for National Review, Thomas Sowell debunks many of the left’s most-cherished talking points about inequality.

When we hear about how much more income the top 20 percent of households make, compared with the bottom 20 percent of households, one key fact is usually left out. There are millions more people in the top 20 percent of households than in the bottom 20 percent of households. …In 2002, there were 40 million people in the bottom 20 percent of households and 69 million people in the top 20 percent. A little over half of the households in the bottom 20 percent have nobody working. You don’t usually get a lot of income for doing nothing. In 2010, there were more people working full-time in the top 5 percent of households than in the bottom 20 percent. …Household income statistics can be very misleading in other ways. …The number of people per American household has declined over the years. When you compare household incomes from a year when there were 6 people per household with a later year when there were 4 people per household, you are comparing apples and oranges. Even if income per person increased 25 percent between those two years, average household income statistics will nevertheless show a decline.  …household income statistics can show an economic decline, even when per capita income has risen.

My Cato Institute colleague, Mike Tanner, has a must-read comprehensive study on inequality that was just released today. Here are some of the parts I found especially enlightening, starting with a very important passage from his introduction.

…contrary to stereotypes, the wealthy tend to earn rather than inherit their wealth… Most rich people got that way by providing us with goods and services that improve our lives. Income mobility may be smaller than we would like, but people continue to move up and down the income ladder. Few fortunes survive for multiple generations, while the poor are still able to rise out of poverty. More important, there is little relationship between inequality and poverty. The fact that some people become wealthy does not mean that others will become poor.

Mike then spends a few pages debunking Thomas Piketty (granted, an easy target, but still a necessary task) and pointing out that some folks overstate inequality.

But more importantly, he then points out that there is still considerable income mobility in the United States. Rich people often don’t stay rich and poor people frequently don’t stay poor.

…wealth often dissipates across generations; research shows that the wealth accumulated by some intrepid entrepreneur or businessperson rarely survives long. In many cases, as much as 70 percent has evaporated by the end of the second generation and as much as 90 percent by the end of the third. Even over the shorter term, the composition of the top 1 percent often changes dramatically. If history is any guide, roughly 56 percent of those in the top income quintile can expect to drop out of it within 20 years. …of those on the first edition of the Forbes 400 in 1982, only 34 remain on the 2014 list, and only 24 have appeared on every list. …At the same time, it remains possible for the poor to become rich, or, if not rich, at least not poor. Studies show that roughly half of those who begin in the bottom quintile move up to a higher quintile within 10 years. …And their children can expect to rise even further. One out of every five children born to parents in the bottom income quintile will reach one of the top two quintiles in adulthood.

Here’s his graph with the relevant data.

Mike also debunks that notion that poor people are poor because rich people are rich.

…it is important to note that poverty and inequality are not the same thing. Indeed, if we were to double everyone’s income tomorrow, we would do much to reduce poverty, but the gap between rich and poor would grow larger. Would this be a bad thing? …The idea that gains by one person necessarily mean losses by another reflects a zero-sum view of the economy that is simply untethered to history or economics. The economy is not fixed in size, with the only question being one of distribution. Rather, the entire pie can grow, with more resources available to all.

His study is filled with all sorts of data, but this graph may be the most important tidbit.

It shows that the poverty rate has remained relatively constant, oscillating around 14 percent, during the period when the so-called top-1 percent were generating large amounts of additional income.

Mike then spends some time agreeing that inequality can be bad if it is the result of subsidies, bailouts, protectionism, and handouts.

Amen. Rich people deserve their money if they earn it in the marketplace. But if they get rich via TARP bailouts, Ex-Im Bank subsidies, protectionist barriers, green-energy boondoggles, or some other form of cronyism, that’s reprehensible and unjustified.

Most important of all, he closes by explaining that inequality isn’t what’s important. Policy should be focused on reducing poverty, which means more economic growth.

There are…two ways to reduce inequality. One can attempt to bring the bottom up by reducing poverty, or one can bring the top down by, in effect, punishing the rich. Traditionally, we have tried to reduce inequality by taxing the rich and redistributing that money to the poor. …Despite the United States spending roughly a trillion dollars each year on antipoverty programs at all levels of government, by the official poverty measure we have done little to reduce poverty. …we are unlikely to see significant reductions in poverty without strong economic growth. Punishing the segment of society that most contributes to such growth therefore seems a poor policy for serious poverty reduction. …While inequality per se may not be a problem, poverty is. …policies designed to reduce inequality by imposing new burdens on the wealthy may perversely harm the poor by slowing economic growth and reducing job opportunities.

Exactly. The notion that we can help the poor by making America more like a high-tax European-style welfare state is laughable.

By every possible standard, the United States is out-pacing Europe in terms of jobs and growth. And what’s really remarkable is that this is happening even though Obamanomics has given us the weakest recovery since the Great Depression. Imagine how big the gap would be if we has the kind of market-oriented policies that dominated the Reagan and Clinton years!

Let’s close with a very amusing bit of data about inequality from a report in the New York Times.

The author looked at income changes in each state between 1990 and 2014 at all levels of income distribution.

By looking at the state level, we’re delineating the rich and poor within that state. Which is to say that the 90th percentile of personal income in Arkansas will not be the same as the 90th percentile of personal income in New York. This calculation helps us avoid making unfair comparisons of income between places with different costs of living.

Since I wrote just two days ago about the importance of adjusting state income data to reflect the cost of living, I obviously view this as a useful exercise.

But here’s the part that grabbed my attention. As I was reviewing the various charts for all the states, I noticed that inequality has expanded dramatically in the most infamous left-wing states. And usually not simply because rich people got richer faster than poor people got richer. In New York, Illinois, and California, rich people were the only winners.

Yet if you look at Kansas (which is the favorite whipping boy of the left because of Gov. Brownback’s big tax cuts) or the stereotypical red state of Texas, you’ll notice the lower-income and middle-income people did much better.

I guess we can use this data as additional evidence of how statist policies cause inequality.

Best of all, it was in the New York Times, so our leftist friends will have a hard time reflexively dismissing the data. It’s always good when the other side scores an “own goal.”

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Something doesn’t add up. People like me have been explaining that California is an example of policies to avoid. Depending on my mood, I’ll refer to the state as the France, Italy, or Greece of the United States.

But folks on the left are making the opposite argument.

A writer for the Huffington Post tells readers that California is proof that the blue-state model can work.

Many factors contribute to California’s preeminence; one being its liberalism. Republicans don’t like to acknowledge California’s success. …The state’s job growth outpaced the nation’s in the first nine months of last year. California’s non-farm employment of 15.7 million people is at an all-time high. …California’s economy has thrived in spite of relatively high taxes and stringent regulations.

Meanwhile, a couple of columnists for the Washington Post are doing a victory dance based on recent California numbers.

…the…experiences of California…run counter to a popular view, particularly among conservative economists, that tax cuts tend to supercharge growth and tax increases chill it. California’s economy grew by 4.1 percent in 2015, according to new numbers from the Bureau of Economic Analysis, tying it with Oregon for the fastest state growth of the year. That was up from 3.1 percent growth for the Golden State in 2014, which was near the top of the national pack. …almost no one can say that raising taxes on the rich killed that recovery.

And let’s not forget that Paul Krugman attacked me two years ago for failing to acknowledge the supposed success story of job creation in California. I thought he made a very silly argument since the Golden State at that time had the 5th-highest unemployment rate in the nation.

But Krugman and the other statists cited above do have a semi-accurate point. There are some statistics showing that California has out-performed many other states over the past couple of years. Let’s look at the numbers. The St. Louis Federal Reserve Bank has a helpful website filled with all sorts of economic data, including figures from the Bureau of Economic Analysis on per-capita income in states.

I selected California for the obvious reason, but also Texas (since it’s often seen as the quintessential “red state”) and Kansas (which has become infamous for a big tax cut). And, lo and behold, if you look at what’s happened to per-capita income in those states, California has enjoyed the most growth.

Is this evidence that high taxes and a big welfare state are good for growth?

Hardly. California’s numbers only look decent because the state fell into a deep hole during the recession. And, generally speaking, a severe recession almost always is followed by good numbers, even if an economy is simply getting back to where it started.

So let’s expand on the above numbers and look at what’s happened not just over the past five years, but also since 2000 and 2005.

And if you look at California’s relative performance over a 10-year period or 15-year period, all of a sudden the Golden State looks a bit tarnished.

By the way, these numbers are not adjusted for either inflation or for cost of living. The former presumably doesn’t matter for our purposes since changing to inflation-adjusted dollars wouldn’t alter the rankings. Meanwhile, the data on cost of living would matter for comparative living standards (for instance, $46,745 in Texas probably buys more than $52,651 in California), but remember that we’re focusing on changes in per-capita income (i.e., which state is enjoying the most growth, regardless of starting point or how much money can buy in that state).

In any event, the numbers clearly show there’s more long-run growth in Texas and Kansas, and it’s long-run growth rates that really matter if you want more prosperity and higher living standards for people.

But let’s not stop there. Our left-wing friends frequently tell us that per-capita income numbers are sometimes a poor measure of overall prosperity since a few rich people can skew the average.

It’s better, they tell us, to look at median household income since that’s a measure of the well-being of ordinary people. And we can get those numbers (only through 2014, though adjusted for inflation) from the Census Bureau. What does this data show for Texas, California, and Kansas?

As you can see, California is in last place, regardless of whether the starting point is 2000, 2005, or 2010. In other words, California may have enjoyed some decent growth in recent years as it got a bit of a bounce from its deep recession, but it appears that the benefits of that growth have mostly gone to the Hollywood crowd and the Silicon Valley folks. I guess this is the left-wing version of “trickle down” economics.

Perhaps most interesting, the short-run numbers show that tax-cutting Kansas has a comfortable lead over tax-hiking California.

If that trend continues, then over time we can expect that the long-run numbers will begin to diverge as well.

Let’s close by looking at some analysis about those two states for those who want some additional perspective.

Victor David Hanson, a native Californian, has a pessimistic assessment of his state. Here’s some of what he wrote for Real Clear Politics.

The basket of California state taxes — sales, income and gasoline — rates among the highest in the U.S. Yet California roads and K-12 education rank near the bottom. …One in three American welfare recipients resides in California. Almost a quarter of the state population lives below or near the poverty line. …the state’s gas and electricity prices are among the nation’s highest. …Current state-funded pension programs are not sustainable. California depends on a tiny elite class for about half of its income tax revenue. Yet many of these wealthy taxpayers are fleeing the 40-million-person state, angry over paying 12 percent of their income for lousy public services. …Connecticut and Alabama combined in one state. A house in Menlo Park may sell for more than $1,000 a square foot. In Madera three hours away, the cost is about one-tenth of that. In response, state government practices escapism, haggling over transgendered restroom issues and the aquatic environment of a 3-inch baitfish rather than dealing with a sinking state.

The bottom line is that he fears the trend line for his state is moving in the wrong direction.

John Hood takes a look at why the Kansas tax cuts have resulted in budget turmoil, while tax cuts in has state of North Carolina haven’t caused much controversy.

How did Kansas and North Carolina end up in such different conditions? For one thing, while the two states both enacted major tax cuts, they weren’t structured the same way. Kansas punched a large hole in its income-tax base by excluding self-employment income. North Carolina briefly created a version of this exclusion in the immediate aftermath of the Great Recession, but then wisely eliminated it in favor of applying a low, uniform tax rate on a broad base of personal income. In Kansas, lawmakers also allowed themselves to be bamboozled by some out-of-state tax “experts” claiming that cutting income taxes would generate so much new investment, entrepreneurship, and population growth that the revenue loss to the state would be substantially offset. This can actually be true, of course — in the very long run, counted in decades. In the short run of state budgeting, however, policymakers are better off making far more conservative assumptions about revenue feedbacks. …Our state policymakers didn’t just reduce and reform taxes. They also controlled expenditures. Since the enactment of the 2013 tax changes, their authorized budgets have never pushed spending growth above the combined rates of inflation and population growth. Actual spending, in fact, has often come in below even these budgeted amounts.

John’s message is that pro-growth tax cuts don’t generate overnight miracles. Lawmakers have to be prudent when calculating Laffer Curve feedback. And they also should make sure there is concomitant restraint on the spending side of the budget.

The bottom line is that the Kansas tax cuts are good for the state’s economy, but they might not be sustainable unless politicians don’t quickly make reforms to cap spending.

P.S. Closing with some California-specific humor, this Chuck Asay cartoon speculates on how future archaeologists will view California. This Michael Ramirez cartoon looks at the impact of the state’s class-warfare tax policy. And this joke about Texas, California, and a coyote is among my most-viewed blog posts.

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It’s difficult to be a libertarian.

Politicians and bureaucrats do so many foolish things that you can spending your entire day being outraged.

But that’s probably not healthy, so it’s good to keep things in perspective with some political humor.

Even if libertarians are the ones being mocked, and that’s the case for my most-viewed post on libertarian humor.

Fortunately, some libertarians are capable of generating anti-government humor.

Such as Libertarian Jesus, which has been my most-popular example of pro-libertarian humor.

And here’s a new addition to my collection. We can all relax because Los Angeles is dealing the crisis of…GASP…driving past the same spot twice in a 6-hour period! And somebody at Reddit decided this merited some sarcastic applause.

Huh?!? I’m trying to imagine what could motivate such a law.

  • Does Los Angeles actually have a problem with people driving past the same point every six hours?
  • What victims are being saved thanks to this law?
  • Do cops in the city really have nothing better to do with their time?
  • If this street is between you and your local supermarket, do you have to…ahem…cruise the produce section for six hours before heading home?

Being a diligent researcher, I tried to find the answer to these question. Lo and behold, here’s the relevant passage from the underlying law establishing L.A.M.C. 80.36.10.

This Ordinance is urgently necessary for the preservation of the public health and safety. Cruising has resulted in the congregating of persons in certain areas engaging in destructive activities. It has also resulted in traffic congestion.

The law doesn’t tell us what “destructive activities” are being facilitated by driving past the same spot more than once in a six-hour period.

Though I’m guessing it must have something to do with the drug trade or prostitution.

Like most liberty-minded people, I don’t think the government should make it illegal for people to do stupid things to themselves. I believe in being tough on crime, but a real crime has to have a real victim.

But let’s set aside my libertarian grousing and focus on a practical issue.

If I’m a random idiot looking to buy some drugs or sex, what’s to prevent me from driving to the relevant part of town and conducting that transaction without circling past the same spot more than one time?

Since I don’t consume drugs and don’t consort with prostitutes (other than the non-sexual ones that are so common in Washington), maybe there’s something about those markets that I don’t understand. So perhaps a no-cruising rule will have a genuinely disruptive effect.

I’m guessing though, that this is akin to money-laundering laws, which were passed – at least in theory – to discourage crime by making it harder for crooks to get their loot into the financial system.

But these laws have imposed very high costs on law-abiding people and institutions while having no measurable impact on actual criminal activity.

So it’s very likely that anti-cruising laws in Los Angeles won’t have any impact of drugs or prostitution.

P.S. It’s not libertarian-specific humor, but let’s end with a joke about how President Obama dealt money-laundering laws.

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Just like with nations, there are many factors that determine whether a state is hindering or enabling economic growth.

But I’m very drawn to one variable, which is whether there’s a state income tax. If the answer is no, then it’s quite likely that it will enjoy better-than-average economic performance (and if a state makes the mistake of having an income tax, then a flat tax will be considerably less destructive than a so-called progressive tax).

Which explains my two main lessons for state tax policy.

Anyhow, I’ve always included Tennessee in the list of no-income-tax states, but that’s not completely accurate because (like New Hampshire) there is a tax on capital income.

That’s the bad news. The good news is that the Associated Press reports that Tennessee is getting rid of this last vestige of  income taxation.

The Tennessee Legislature has passed a measure that would reduce and eventually eliminate the Hall tax on investment income. The Hall tax imposes a general levy of 6 percent on investment income, with some exceptions. Lawmakers agreed to reduce it down to 5 percent before eliminating it completely by 2022.

It’s not completely clear if the GOP Governor of the state will allow the measure to become law, so this isn’t a done deal.

That being said, it’s a very positive sign that the state legislature wants to get rid of this invidious tax, which is a punitive form of double taxation.

Advocates are right that this will make the Volunteer State more attractive to investors, entrepreneurs, and business owners.

Keep in mind that this positive step follows the recent repeal of the state’s death tax, as noted in a column for the Chattanooga Times Free Press.

Following a four-year phase out, Tennessee’s inheritance tax finally expires on Jan. 1 and one advocacy group is hailing the demise of what it calls the “death tax.” “Tennessee taxpayers can finally breath a sigh of relief,” said Justin Owen, head of the free-market group, the Beacon Center of Tennessee, which successfully advocated for the taxes abolishment in 2012.

On the other hand, New York seems determined to make itself even less attractive. Diana Furchtgott-Roth of the Manhattan Institute writes for Market Watch about legislation that would make the state prohibitively unappealing for many investors.

New York, home to many investment partnerships, now wants to increase state taxes on capital gains… New York already taxes capital gains and ordinary income equally, but apparently that’s not good enough. …The New York legislators want to raise the taxes on carried interest to federal ordinary income tax rates, not just for New York residents, but for everyone all over the world who get returns from partnerships with a business connection to the Empire State. Bills in the New York State Assembly and Senate would increase taxes on profits earned by venture capital, private equity and other investment partnerships by imposing a 19% additional tax.

Diana correctly explains this would be a monumentally foolish step.

If the bill became law, New York would likely see part of its financial sector leave for other states, because many investors nationwide would become subject to taxes that were 19 percentage points higher….No one is going to pick an investment that is taxed at 43% when they could choose one that is taxed at 24%.

Interestingly, even the state’s grasping politicians recognize this reality. The legislation wouldn’t take effect until certain other states made the same mistake.

The sponsors of the legislation appear to acknowledge that by delaying the implementation of the provisions until Connecticut, New Jersey and Massachusetts enact “legislation having an identical effect.”

Given this condition, hopefully this bad idea will never get beyond the stage of being a feel-good gesture for the hate-n-envy crowd.

But it’s always important to reinforce why it would be economically misguided since those other states are not exactly strongholds for economic liberty. This video has everything you need to know about the taxation of carried interest in particular and this video has the key facts about capital gains taxation in general

Not let’s take a look at the big picture. Moody’s just released a “stress test” to see which states were well positioned to deal with an economic downturn.

Is anybody surprised, as reported by the Sacramento Bee, that low-tax Texas ranked at the top and high-tax California and Illinois were at the bottom of the heap?

California, whose state budget is highly dependent on volatile income taxes, is the least able big state to withstand a recession, according to a “stress test” conducted by Moody’s Investor Service. Arch-rival Texas, meanwhile, scores the highest on the test because of “lower revenue volatility, healthier reserves relative to a potential revenue decline scenario and greater revenue and spending flexibility,” Moody’s, a major credit rating organization, says. …California not only suffers in comparison to the other large states, but in a broader survey of the 20 most populous states. Missouri, Texas and Washington score highest, while California and Illinois are at the bottom in their ability to withstand a recession.

Of course, an ability to survive a fiscal stress test is actually a proxy for having decent policies.

And having decent policies leads to something even more important, which is faster growth, increased competitiveness, and more job creation.

Though perhaps this coyote joke does an even better job of capturing the difference between the two states.

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Long-run trends are an enormously important – yet greatly underappreciated – feature of public policy.

  • Slight differences in growth can have enormous implications for a nation’s long-run prosperity.
  • Gradual shifts in population trends may determine whether a nation faces demographic decline.
  • Modest changes in the growth of government can make the difference between budgetary stability and fiscal crisis.
  • And migration patterns can impact a jurisdiction’s viability.

Or, in the case of California, its lack of viability. Simply stated, the Golden State is committing slow-motion suicide by discouraging jobs, entrepreneurs, investors, and workers.

Let’s look at some of the data. Carson Bruno of the Hoover Institution reviews data showing that the aspirational class is escaping California.

California’s consistent net domestic out-migration should be concerning to Sacramento as it develops state policy. As the adage goes, people vote with their feet and one thing is clear, more people are choosing to leave California than come. …Between 2004 and 2015, roughly 930,000 more people left California than moved to the Golden State… The biggest beneficiaries of California’s net loss are Arizona, Texas, Nevada, Oregon, and Washington. California is bleeding working young professional families. …those in the heart of their prime working-age are moving out. Moreover, while 18-to-24 year olds (college-age individuals) make up just 1% of the net domestic out-migrants, the percentage swells to 17% for recent college graduates (25 to 39 year olds).

And here’s why these long-run migration trends matter.

…while there is a narrative that the rich are fleeing California, the real flight is among the middle-class. …the Golden State’s oppressive tax burden – California ranks 6th, nationally, in state-local tax burdens – those living in California are hit with a variety of higher bills, which cuts into their bottom line. …which leads to a less economically productive environment and less tax revenue for the state and municipalities, but a need for more social services. And when coupled with the fact that immigrants – who are helping to drive population growth in California – tend to be, on average, less affluent and educated and also are more likely to need more social services, state, county, and municipal governments could find themselves under serious administrative and financial stress. …the state’s favorable climate and natural beauty can only anchor the working young professionals for so long.

We’re concentrating today on California, but other high-tax states are making the same mistake.

Here’s some data from a recent Gallup survey.

Residents living in states with the highest aggregated state tax burden are the most likely to report they would like to leave their state if they had the opportunity. Connecticut and New Jersey lead in the percentage of residents who would like to leave… Nearly half (46%) of Connecticut and New Jersey residents say they would like to leave their state if they had the opportunity. …States with growing populations typically have strong advantages, which include growing economies and a larger tax base. Gallup data indicate that states with the highest state tax burden may be vulnerable to migration out of the state…data suggest that even moderate reductions in the tax burden in these states could alleviate residents’ desire to leave the state.

Writing for the Orange County Register, Joel Kotkin explains how statist policies have created a moribund and unequal society.

…in the Middle Ages, and throughout much of Europe, conservatism meant something very different: a focus primarily on maintaining comfortable places for the gentry… California’s new conservatism, often misleadingly called progressivism, seeks to prevent change by discouraging everything – from the construction of new job-generating infrastructure to virtually any kind of family-friendly housing. …since 2000 the state has lost a net 1.7 million domestic migrants. …California’s middle class is being hammered. …Rather than a land of opportunity, our “new” California increasingly resembles a class-bound medieval society. …California is the most unequal state when it comes to well-being… Like a medieval cleric railing against sin, Brown seems somewhat unconcerned that his beloved “coercive power of the state” is also largely responsible for California’s high electricity prices, regulation-driven spikes in home values and the highest oil prices in the continental United States. Once the beacon of opportunity, California is becoming a graveyard for middle-class aspiration, particularly among the young.

In other words, class-warfare policies have a very negative impact_ on ordinary people.

Meanwhile, returning to California, a post at the American Interest ponders some of the grim implications of bad policy.

…many of the biggest, bluest states in the country—including New York, Illinois, and Massachusetts—have also experienced major exoduses over the last five years (although these outflows have been offset, to varying degrees, by foreign immigration). These large out-migrations represent serious policy failures… The new statistics out of California are a bad omen for the future of the state’s doctrinaire blue model governance. …if families and the young continue to flee California, the population will become older and less economically dynamic, creating a shortfall in tax revenue and possibly pressuring Sacramento raise rates even higher. Meanwhile, California faces a severe pension shortfall, both at the state and local level.

Here’s a map from the Tax Foundation showing top income tax rates in each state. If you remember what Carson Bruno wrote about California’s emigrants, you’ll notice that states with no income tax (Washington, Texas, and Nevada) are among the main beneficiaries.

So the moral of the story is that states with no income taxes are winning, attracting jobs and investment. And high-tax states like California are losing.

But remember that the most important variable, at least for purposes of today’s discussion, is how these migration trends impact long-run prosperity. More jobs and investment mean a bigger tax base, which means the legitimate and proper functions of a state government can be financed with a modest tax burden.

In states such as California, by contrast, even small levels of emigration begin to erode the tax base. And if emigration is a long-run trend (as is the case in California), there’s a very serious risk of a “death spiral” as politicians respond to a shrinking tax base by imposing even higher rates, which then results in even higher levels of emigration.

Think France and Greece and you’ll understand what that means in the long run.

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Normally I’m very happy to work for the Cato Institute, both because it is a principled and effective organization.

But I wondered about my career choices last night because I was stuck with the very unpleasant task of live-tweeting the Democrat presidential debate. Cleaning out septic tanks would have been a more enjoyable way to spend my time.

Of all the crazy things that were discussed (you can see my contemporaneous reactions on my Twitter feed), the Clinton-Sanders-O’Malley support for so-called Paycheck Fairness legislation would be at the top of my list.

Yes, I was irked by the myopic fixation on income inequality, the support for class-warfare taxation, and the reflexive advocacy for more government spending, but messing around with the price system – because of an assertion that women are paid 77 cents for every $1 received by men – is an entirely different level of foolishness.

Here’s some of what I wrote in 2012, for instance, when discussing proposals to give politicians power over wage levels.

…what’s really at stake is whether we want resources to be allocated by market forces instead of political edicts. This should be a no-brainer. If we look at the failure of central planning in the Soviet Union and elsewhere, a fundamental problem was that government officials – even assuming intelligence and good intentions – did not have the knowledge needed to make decisions on prices. And in the absence of a functioning price system, resources get misallocated and growth suffers. So you can imagine the potential damage of giving politicians, bureaucrats, and courts the ability to act as central planners for the wage system.

In other words, higher taxes and more spending will dampen growth, and that’s no good, but pervasive intervention in the price system can screw up an entire economy. Indeed, I suspect only bad monetary policy is capable of inflicting a greater level of damage.

Moreover, the left’s theory is based on the assumption that greedy businesses and investors are deliberately sacrificing profits by choosing to pay men more when they could hire equally qualified women for less money.

To use a highly technical economic phrase, that’s friggin’ nuts.

Yet our leftist friends want to replace market-based compensation with coercion-based wages.

Consider, for instance, a report from the Pew Charitable Trusts about initiatives on the state level.

…the California Legislature…sent Democratic Gov. Jerry Brown a “pay equity” bill… California isn’t alone in acting. …the governors of Connecticut, Delaware, Illinois, North Dakota and Oregon have signed equal pay laws this year. New York legislators unanimously passed a bill that Democratic Gov. Andrew Cuomo has indicated he will sign. And Massachusetts has two bills pending. Equal pay bills also were introduced in 21 other states.

The article cited my unflattering remarks on the issue.

…some critics, such as Daniel Mitchell of the Cato Institute, a libertarian think tank in Washington, said that the new legislation would put a “catastrophic burden” on businesses. “The notion that there’s some widespread discrimination in the marketplace, there’s just no real-world evidence for it,” Mitchell said. “They’re trying to give the government widespread authority to make very abstract judgments about the value of a job in the private sector.”

And I’m not the only critic.

Here are some excerpts from a recent column in the Wall Street Journal by Sarah Ketterer.

When it comes to economically foolish laws, California is second to none. A good example is the California Fair Pay Act… Like its national counterpart, it is an aggressive attempt to eradicate a wage gap between men and women that is allegedly due to discrimination in the workplace. But this wage gap is illusory, and the legislation will have unintended consequences, including for women.

She’s right. Policy that is bad when implemented by a state can cause widespread damage if imposed nationally.

Ms. Ketterer elaborates on why the proposal is misguided.

The Bureau of Labor Statistics (BLS) notes that its analysis of wages by gender does “not control for many factors that can be significant in explaining earnings differences.” What factors? Start with hours worked. …Men are significantly more likely than women to work longer hours, according to the BLS. And if we compare only people who work 40 hours a week, BLS data show that women then earn on average 90 cents for every dollar earned by men. Career choice is another factor. …Of the 10 lowest-paying majors—such as “drama and theater arts” and “counseling psychology”—only one, “theology and religious vocations,” is majority male. Conversely, of the 10 highest-paying majors—including “mathematics and computer science” and “petroleum engineering”—only one, “pharmacy sciences and administration,” is majority female. Eight of the remaining nine are more than 70% male. Other factors that account for earnings differences include marriage and children, both of which cause many women to leave the workforce for years.

And here’s the amazing part.

One of Obama’s top economic advisers, to maintain her academic credibility, admitted that the 77 cents number is fraudulent.

It’s unclear whether Clinton-Sanders-O’Malley know (or even care) that the number is garbage.  But what is clear is that legislation based on this dishonest data could cause massive economic distortions.

Though, to be fair, Ms. Ketterer points out that trial lawyers will enjoy more business.

What California’s Fair Pay Act will do, however, is make the state, already notorious for regulation and red tape, a more difficult place to do business. Companies must now ensure that every penny of wage differential between the men and women they employ is attributable to bona-fide differences in education, training, experience, quantity or quality of work, and so on. …even attempting to do so will only add to companies’ already substantial regulatory-compliance budgets. Some of these factors—quality of work, for instance—are inevitably subjective, yet trial lawyers will swoop in to turn every conceivable pay difference into a lawsuit.

A bunch of lawsuits would actually be the least-worst outcome.

What scares me far more is pervasive controls on wages, which is what our leftist friends ultimately prefer.

P.S. You probably won’t be surprised, given their history of mendacity, to learn that the left-wing bureaucrats at the Paris-based OECD also are peddling dishonest numbers to advance this ideological agenda.

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Here’s a quiz for readers.

When politicians increase taxes, the result is:

This is a trick question because the answer is (j), all of the above.

But let’s look at some of the evidence for (d), which deals with the fact that the geese with the golden eggs sometimes choose to fly away when they’re mistreated.

The Internal Revenue Service has a web page where you can look at how many taxpayers have left or entered a state, as well as where they went or where they came from.

And the recently updated results unsurprisingly show that taxpayers migrate from high-tax states to low-tax states.

Let’s look at some examples, beginning with Maryland. Here are some excerpts from a report in the Daily Caller.

Wealthy taxpayers and job-creating businesses fled Maryland at an accelerating rate as then-Gov. Martin O’Malley implemented a long list of tax hikes during his first five years in the state capital. More than 18,600 tax filers left Maryland with $4.2 billion in adjusted gross income from 2007 – O’Malley’s first year as governor — through 2012, according to a Daily Caller News Foundation analysis of the most recently available Internal Revenue Service state-level income and migration data. …Nearly 5,600 state-tax filers left Maryland in 2012 and took $1.6 billion with them, more than double the 2,300 who departed with $732 million in 2011. The fleeing 5,600 filers had average incomes of nearly $291,900. …Most of 2012’s departing residents moved to the more business-friendly Virginia, according to the data. …Florida was the third most common destination for Marylanders.

Here’s a chart looking at the income that moved into the state (green) compared to the much greater amount of income that left the state (red).

The story then makes a political observation.

O’Malley’s economic record may partially explain why his campaign for the 2016 Democratic presidential nomination has yet to gain traction among voters outside of Maryland.

Though I wonder whether this assertion is true. Given the popularity of Bernie Sanders, I can’t imagine many Democrat voters object to politicians who impose foolish tax policies.

Now let’s shift to California.

A column in the Sacramento Bee (h/t: Kevin Williamson) explores the same IRS data and doesn’t reach happy conclusions.

An unprecedented number of Californians left for other states during the last decade, according to new tax return data from the Internal Revenue Service. About 5 million Californians left between 2004 and 2013. Roughly 3.9 million people came here from other states during that period, for a net population loss of more than 1 million people. The trend resulted in a net loss of about $26 billion in annual income.

And where did they go?

Many of them went to zero-income tax states.

About 600,000 California residents left for Texas, which drew more Californians than any other state.

Here’s a map from the article and you can see other no-income tax states such as Nevada, Washington, Tennessee and Florida also enjoyed net migration from California.

Last but not least, let’s look at what happened with New York.

We’ll turn again to an article published by the Daily Caller.

More taxpaying residents left New York than any other state in the nation, IRS migration data from 2013 shows. During that year, around 115,000 New Yorkers left the state and packed up $5.65 billion in adjusted gross income (AGI) as well. …Although Democrat Governor Andrew Cuomo acknowledged that New York is the “highest tax state in the nation” and it has “cost us dearly,” he continues to put forth policies that economically cripple New York residents and businesses.

Once again, much of the shift went to state with no income taxes.

New York lost most of its population in 2013 to Florida — 20,465  residents ($1.35 billion loss), New Jersey — 16,223 residents ($1.1 billion loss), Texas — 10,784 residents ($354 million loss).

Though you have to wonder why anybody would move from New York to New Jersey. That’s like jumping out of the high-tax frying pan into the high-tax fire.

At this point, you may be wondering why the title of this column refers to lessons for Hillary when I’m writing about state tax policy.

The answer is that she wants to do for America what Jerry Brown is doing for California.

Check out these passages from a column in the Wall Street Journal by Alan Reynolds, my colleague at the Cato Institute.

Hillary Clinton’s most memorable economic proposal, debuted this summer, is her plan to impose a punishing 43.4% top tax rate on capital gains that are cashed in within a two-year holding period. The rate would drift down to 23.8%, but only for investors that sat on investments for six years. This is known as a “tapered” capital-gains tax, and it isn’t new. Mrs. Clinton is borrowing a page from Franklin D. Roosevelt, who trotted out this policy during the severe 1937-38 economic downturn, dubbed the Roosevelt Recession.

FDR had so many bad policies that it’s difficult to pinpoint the negative impact of any specific idea.

But there’s certainly some evidence that his malicious treatment of capital gains was spectacularly unsuccessful.

In the 12 months between February 1937 and 1938, the Dow Jones Industrial stock average fell 41%—to 111 from 188.4. That crash presaged one of the nation’s worst recessions, from May 1937 to June 1938, with GDP falling 10% and industrial production 32%. Unemployment swelled to 19% from 14%. Harvard economist Joseph Schumpeter, in his 1939 opus “Business Cycles,” noted that “the so-called capital gains tax has been held responsible for having accentuated, if not caused, the slump.” The steep tax on short-term gains, he argued, made it hard for small or new firms to issue stock. And the surtax on undistributed profits, Schumpeter wrote, “may well have had a paralyzing influence on enterprise and investment in general.” …A 2011 study from the Federal Reserve Bank of St. Louis reported…“The 1936 tax rate increases,” they concluded, “seem more likely culprits in causing the recession.” …A 2012 study in the Quarterly Journal of Economics attributes much of the 26% decline in business investment in the 1937-38 recession to higher taxes on capital.

So what’s Alan’s takeaway?

Hillary Clinton’s fix for an economy suffering under 2% growth is resuscitating a tax scheme with a history of ushering in recessions. The economy would be better off if the idea remained buried.

Maybe we should ask the same policy about her that we asked about FDR: Is she misguided or malicious?

P.S. Some folks may argue that Hillary has more leeway than governors to impose class-warfare tax policy because it’s harder to emigrate from America than it is to move across state borders.

That’s true.

The United States has odious exit taxes that restrict freedom of movement. And even though record numbers of Americans already have given up their passports, it’s still a tiny share of the population.

Likewise, not that many rich Americans have taken advantage of Puerto Rico’s status as a completely legal tax haven.

But while it’s true that it’s not easy for an American to escape the jurisdiction of the IRS, that doesn’t mean they’re helpless.

There are very simple steps that almost all rich people can take to dramatically lower their tax liabilities. So Hillary and the rest of the class-warfare crowd should think twice before repeating FDR’s horrible tax mistakes.

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