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Archive for the ‘New York’ Category

Politicians from New York want states to get a big bailout from Uncle Sam. I explained earlier this month that this would be a bad idea.

Simply stated, the Empire State is in big trouble because it has a bloated government, not because of the coronavirus.

Probably the strongest piece of evidence is that New York is ranked #50 for fiscal policy according to Freedom in the 50 States.

If you want to understand how New York’s politicians have created a fiscal disaster, let’s compare the Empire State to Florida, which is ranked #1.

I’ve already done that three times (Round #1, Round #2, and Round #3), so this will be Round #4.

The Wall Street Journal compared the two states in an editorial two days ago.

…let’s do the math to consider which state has managed its economy and finances better over the last decade. …Democrats in Albany are claiming to be victims of events that are out of their control. But they have increased spending by $43 billion since 2010—about $570,000 for each additional person. Florida’s budget has increased by $28 billion while its population has grown 2.7 million—a $10,400 increase per new resident. New York has a top state-and-local tax rate of 12.7%, while Florida has no income tax. Yet New York has a growing budget deficit, while Mr. Scott inherited a large deficit but built a surplus and paid down state debt. The difference is spending. …Blame New York’s cocktail of generous benefits, loose eligibility standards and waste. New York spends about twice as much per Medicaid beneficiary and six times more on nursing homes as Florida though its elderly population is 20% smaller. …The rate of private job growth in Florida has been about 60% higher than in New York from January 2010 to January 2020. Finance jobs expanded by 25% in Florida compared to 9.7% in New York. …The policy question is why taxpayers in Florida and other well-managed states should pay higher taxes to rescue an Albany political class that refuses to restrain its tax-and-spend governance. Public unions soak up an ever-larger share of tax dollars, but Albany refuses to change.

If you want further details on the difference between the two states, Chris Edwards takes a close look at the burden of government spending.

New York and Florida have similar populations of 20 million and 21 million, respectively. But governments in New York spent twice as much as governments in Florida, $348 billion compared to $177 billion. On some activities, spending in the two states is broadly similar… But in other budget areas, New York’s excess spending is striking. New York spent $69 billion on K-12 schools in 2017 compared to Florida’s $28 billion. Yet the states have about the same number of kids enrolled—2.7 million in New York and 2.8 million in Florida. New York spent $71 billion on public welfare compared to Florida’s $28 billion. Liberals say that governments provide needed resources to people truly in need. Conservatives say that generous handouts induce high demand whether people need it or not. Given that New York’s welfare costs are 2.5 times higher than Florida’s, the latter effect probably dominates. …New York governments employed 1,196,632 workers in 2017 compared to Florida’s 889,950 (measured in FTEs). …Most New York residents do not benefit from bloat in government payrolls, inefficient transit, excessive welfare, and deficit spending. To them, the high taxes are disproportionate to the government services received. That is why they are moving to better‐​managed states with lower taxes.

Here’s the accompanying chart.

And he also compares the level of bureaucracy in both states.

New York’s excess includes spending more on handouts such as welfare. Another cause of New York’s high spending is employment of more government workers and paying them more than in Florida. …New York governments employ 34 percent more workers than Florida governments. …The two states have similar K-12 school enrollments of 2.7 million in New York and 2.8 million in Florida. But New York employs 31 percent more teachers and administrators than Florida. Do the 111,000 extra staff in New York generate better school outcomes? Apparently not…study puts Florida near the top and New York in the middle on school quality. Does New York really need two times more highway workers than Florida and three times more welfare workers? …Government workers in New York make 42 percent more in wages than government workers in Florida, on average.

Here’s the accompanying chart.

The bottom line is that New York is a great place to be an over-paid bureaucrat in an over-staffed bureaucracy.

But if you’re a taxpayer, Florida is the easy winner – which may explain why so many productive people are leaving the Empire State and permanently migrating to the Sunshine State.

P.S. The same pattern exists all across the United States. Taxpayers are escaping the poorly managed states and fleeing to low-tax states. Especially ones with no income taxes.

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I looked last year at how Florida was out-competing New York in the battle to attract successful taxpayers, and then followed up with another column analyzing how the Sunshine State’s low-tax policies are attracting jobs, investment, and people from the Empire State.

Time for Round #3.

A new article in the Wall Street Journal explains how successful investors, entrepreneurs, and business owners can save a massive amount of money by escaping states such as New York and moving to zero-income-tax states such as Florida.

This table has the bottom-line numbers.

As explained in the article, taxpayers are discovering that the putative benefits of living in a high-tax state such as New York simply aren’t worth the loss of so much money to state politicians (especially now that the 2017 tax reform sharply reduced the tax code’s implicit subsidy for high-tax states).

There’s a way for rich homeowners to potentially shave tens of thousands of dollars from their tax bills. They can get that same savings the next year and the following years as well. They can cut their taxes even further after they die. What’s the secret? Moving to Florida, a state with no income tax or estate tax. Plenty of millionaires and billionaires have been happy to ditch high-tax states like New York, New Jersey, Connecticut and California. …A New York couple filing jointly with $5 million in taxable income would save $394,931 in state income taxes by moving to Florida… If they had moved from Boston, they’d save $252,500; from Greenwich, Conn., they’d knock $342,700 off their tax bill. …Multimillionaires aren’t just moving their families south, they are taking their businesses with them, says Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County. “We’ve brought in well over 70 financial-services firms” in the past few years, she says. “The higher the taxes, the more our phone rings.”

An article in the Wall Street Journal late last year explained how states such as Florida are big beneficiaries of tax migration.

David Tepper, Paul Tudor Jones and Barry Sternlicht are among the prominent transplants who have pulled up roots in New York, New Jersey or Connecticut in recent years for Florida. New Yorker Carl Icahn has said he is moving his company to Miami next year. …The loss of the super-wealthy isn’t just a matter of reputation. The exodus of billionaires can crimp state budgets. …The SALT cap has widened the gap between Florida and other states with no income tax, such as Wyoming, and New York City, where residents can owe income taxes at rates that approach 13%.

In a column for National Review, Kevin Williamson analyzes the trade-offs for successful people…and the implications for state budgets.

…one of the aspects of modern political economy least appreciated by the class-war Left: Rich people have options. …living in Manhattan or the nice parts of Brooklyn comes with some financial burdens, but for the cool-rich-guy set, the tradeoff is worth it. …metaphorically less-cool guys are in Florida. They have up and left the expensive, high-tax greater New York City metropolitan coagulation entirely. …Florida has a lot going for it…: Lower taxes, better governance, superior infrastructure… The question is not only the cost, but what you get for your money. Tampa is not as culturally interesting as New York City. …the governments of New York City and New York State both are unusually vulnerable to the private decisions of very wealthy households, because a relatively small number of taxpayers pays an enormous share of New York’s city and state taxes: 1 percent of New Yorkers pay almost half the taxes in the state, and they know where Florida is. New York City has seen some population loss in recent years, and even Andrew Cuomo, one of the least insightful men in American politics, understands that his state cannot afford to lose very many millionaires and billionaires. “God forbid if the rich leave,” he has said. New York lost $8.4 billion in income to other states in 2016 because of relocating residents.

Earlier in 2019, the WSJ opined on the impact of migration on state budgets.

Democrats claim they can fund their profligate spending by taxing the rich, but affluent New Yorkers are now fleeing to other states. The state’s income-tax revenue came in $2.3 billion below forecast for December and January. Mr. Cuomo blamed the shortfall on the 2017 federal tax reform’s $10,000 limit on state-and-local tax deductions. But the rest of the country shouldn’t have to subsidize New York’s spending, and Mr. Cuomo won’t cut taxes.

To conclude, this cartoon cleverly captures the mentality of politicians in high-tax states.

Needless to say, grousing politicians in high-tax states have no legitimate argument. If they don’t provide good value to taxpayers, they should change policies rather than whining about out-migration.

By the way, this analysis also applies to analysis between nations. Why, for instance, should successful people in France pay so much money to their government when they can move to Switzerland and get equivalent services at a much-lower cost.

Heck, why move to Switzerland when you can move to places where government provides similar services at even lower cost (assuming, of course, that anti-tax competition bureaucracies such as the OECD don’t succeed in their odious campaign to thwart the migration of people, jobs, and money between high-tax nations and low-tax nations).

P.S. If you want to see how states rank for tax policy, click here, here, here, and here.

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Following their recent assessment of the best and worst countries, the Tax Foundation has published its annual State Business Tax Climate Index, which is an excellent gauge of which states welcome investment and job creation and which states are unfriendly to growth and prosperity.

Here’s the list of the best and worst states. Unsurprisingly, states with no income tax rank very high, as do states with flat taxes.

It’s also no surprise to see New Jersey in last place. The state has fallen dramatically, especially considering that it was like New Hampshire as recently as the 1960s, with no state income tax and no state sales tax.

And the bad scores for New York, California, and Connecticut also are to be expected. The Nutmeg State is an especially sad story. There was no state income tax 30 years ago. Once politicians got that additional source of revenue, however, Connecticut suffered a big economic decline.

Here’s a description of the methodology, along with the table showing how different factors are weighted.

…the Index is designed to show how well states structure their tax systems and provides a road map for improvement.The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. …This does not mean, however, that a state cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the second highest-rate corporate income tax in the country and a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.

For those who want to delve into the details, here are all the states, along with their rankings for the five major variables.

If you want to know which states are making big moves, Georgia enjoyed the biggest one-year jump (from #36 to #32) and Kansas suffered the biggest one-year decline (from #27 to #34). Keep in mind that it’s easier to climb if you’re near the bottom and easier to fall if you’re near the top.

Looking over a longer period of time, the states with the biggest increases since 2014 are North Carolina (+19, from #34 to #15), Wisconsin (+12, from #38 to #26), Kentucky (+9, from #35 to #24), Nebraska (+8, from #36 to #28), Delaware (+7, from #18 to #11), and Rhode Island (+6, from #45 to #39).

The states with the biggest declines are Kansas (-9, from #25 to #34), Hawaii (-8, from #29 to #37), Massachusetts (-8, from #28 to #36), and Idaho (-6, from #15 to #21).

We’ll close with the report’s map, showing the rankings of all the states.

P.S. My one quibble with the Index is that there’s no variable to measure the burden of government spending, which would give a better picture of overall economic liberty. This means that states that finance large public sectors with energy severance taxes (which also aren’t included in the Index) wind up scoring higher than they deserve. As such, I would drop Wyoming and Alaska in the rankings and instead put South Dakota at #1 and Florida at #2.

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Identifying the worst government policy would be a challenge. Would it be minimum wage laws, which deprive low-skilled workers of a chance for employment and upward mobility? Would it be class-warfare tax rates that generate large amounts of economic damage compared to potential (if any) revenue?

Those are tempting choices, but there’s a strong case that nothing is as foolish as rent control.

Here’s a map showing which states impose or allow this destructive form of intervention.

California politicians are very susceptible to bad ideas.

True to form, as reported by the New York Times, they actually want to impose statewide rent control.

California lawmakers approved a statewide rent cap on Wednesday covering millions of tenants, the biggest step yet in a surge of initiatives to address an affordable-housing crunch nationwide. The bill limits annual rent increases to 5 percent after inflation and offers new barriers to eviction… a momentous political swing. For a quarter-century, California law has sharply curbed the ability of localities to impose rent control. Now, the state itself has taken that step. …Economists from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing. Studies in San Francisco and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes. And since rent controls typically have no income threshold, they have been faulted for benefiting high-income tenants.

I’m glad the article included the evidence from economists, especially since the headline is grossly inaccurate. If we care about evidence, it’s far more accurate to say that rent control will exacerbate the state’s housing problems.

Which is why the Wall Street Journal opined that this type of intervention is especially destructive.

California already boasts the highest housing costs in the country, and even liberals have come around to acknowledging that not enough homes are built to meet demand. The state has added about half as many housing units as needed to accommodate population growth, and more than half of Californians spend 30% of their income on rent.Blame a thousand regulatory burdens. Local governments limit what housing developers can build and where. They layer on permitting fees, and then there are the state’s high labor costs and expensive green-energy mandates and restrictions that opponents can exploit to block projects for years. …The upshot is that an “affordable” housing unit in California costs $332,000 to build and nearly $600,000 in San Francisco, according to state budget figures. Developers can’t turn a profit on low- and middle-income homes… And now Democrats want to constrain housing prices by fiat. Mr. Newsom and Democratic legislators are pushing a law to limit annual rent increases across the state to 5% plus inflation. …Building permits in the first seven months this year have fallen 17% compared to 2018 despite an increase in state subsidies. …California’s progressive regulatory complex is contributing to this housing slowdown by driving businesses and people from the state. More than 700,000 residents have left since 2010.

By the way, the politicians in Albany already made the same mistake.

And, as you might expect, the Wall Street Journal‘s editorial page had the correct response.

Law by law, Gov. Andrew Cuomo and Democrats are chipping away at the policies that made New York City livable after decades of decline… Democrats this week are ramming through rent-control bills that…effectively dictates rents for one million or so rent-regulated apartments and restricts landlords’ ability to evict tenants who don’t pay. …Once a tenant moves out—which doesn’t happen often since folks can pass on the entitlement to friends and relatives—landlords would be required to offer the unit to another tenant at restricted rates. …Nor could they raise rates by more than 2% annually to pay for improvements or evict a nonpaying tenant who “cannot find a similar suitable dwelling in the same neighborhood.” Since landlords would have less incentive to make fixes, more apartments will deteriorate and come to resemble New York City’s squalid public housing. …One result will be less housing investment… Progressives are vindicating CEO Jeff Bezos ’s decision to pull Amazon’s second headquarters out of New York. Don’t be surprised if other businesses follow.

You won’t be surprised to learn that politicians in other nations sometimes make the same mistake.

The U.K.-based Guardian wrote about how rent control has backfired in Sweden.

Half a million are on the waiting list for rent-controlled flats in Stockholm, meaning a two-tier system, bribes and a thriving parallel market… the system is experiencing acute pressures. Building of rental homes almost dried up after a financial crisis in the early 1990s, and there is a dire shortage of properties. Demand is such that it is almost impossible to get a direct contract. With nearly half of all Stockholmers – about 500,000 people – in the queue, it can take 20 or 30 years to get to the top of the pile. …The result is a thriving rental property black market, with bribes of as much as 100,000 kronor per room to obtain a direct contract, McCormac says. Many people sublet space in their rental apartments. …“Rent controls were supposed to enable people to live in central locations, but now it is having the opposite effect,” McCormac says. “People without social connections will have a very hard time finding a flat,” says Kleberg.

And Germany is making the same mistake – even though it should have learned from the mistakes under Hitler’s national socialism and East Germany’s communism.

…the kinds of ideas traditionally associated with planned economies are gaining more and more support all over Germany. …Substantial numbers of people have moved to Germany’s major cities…the supply of housing has failed to keep pace with these significant developments, and this is largely because construction approval processes are so long-winded and the latest environmental regulations have made building prohibitively expensive. …In Germany’s capital, Berlin, …it now takes 12 years to draft and approve a zoning plan, which in many cases is a prerequisite for the development of new dwellings. …An initiative in Berlin calling for the expropriation of private real estate companies has collected three times as many signatures as it needed to initiate a petition for a referendum. …Kevin Kühnert, chairman of the youth organization of the center-left SPD…has gone as far as calling for a complete ban on private property owners renting out their apartments. …Berlin’s Senate approved the main components of a rent freeze in the German capital. …Advocates of such central economic planning react sensitively when they are reminded that it has already been tried… An earlier rent freeze was approved in Germany on April 20, 1936, as a gift from the National Socialist Party to the citizens of Germany on Adolf Hitler’s 47th birthday. The National Socialists’ rent cap was adopted into the GDR’s socialist law by Price Regulation No. 415 of May 6, 1955, and it remained in force until the collapse of the GDR in 1989.

Now let’s review some economic research.

Three Stanford professors researched the issue, looking specifically as San Francisco’s local rent control rules.

Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20% and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. …In the long run, landlords’ substitution toward owner-occupied and newly constructed rental housing not only lowered the supply of rental housing in the city, but also shifted the city’s housing supply towards less affordable types of housing that likely cater to the tastes of higher income individuals. Ultimately, these endogenous shifts in the housing supply likely drove up citywide rents, damaging housing affordability for future renters…it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. …rent control has contributed to widening income inequality of the city.

To be fair, rent control is just one of several bad policies that mess up the city’s housing market.

Now let’s shift to the other side of the country.

Jeff Jacoby of the Boston Globe shared evidence from a disastrous experiment in Massachusetts.

…a handful of Democratic lawmakers want to bring the horror of rent control… This isn’t happening only in Massachusetts. …Oregon’s governor just signed a statewide rent-control law and efforts to overturn rent-control bans are underway in Illinois, Colorado, and Washington state. …the folly of rent control is so well-established that to deny it requires, as Hillary Clinton might say, a willing suspension of disbelief. Massachusetts and most other states have banned rent control because the harm it causes far outweighs any benefit it confers. When politicians impose a ceiling on rent, the results are invariable: housing shortages, depressed real estate values, increased decay, less new construction. …The longer rent control persists, and the more harshly it is enforced, the worse the problem grows. …in New York City, where strict rent controls date back to World War II, the annual rate at which apartments turn over is less than half the national average, while the share of tenants who haven’t moved in more than 20 years is more than double the national average. …Acknowledging the damage caused by rent control is neither a right- nor left-wing issue. …the communist foreign minister of Vietnam…made…the…point in 1989: “The Americans couldn’t destroy Hanoi,” Nguyen Co Thach remarked, “but we have destroyed our city by very low rents.” …When Massachusetts voters struck down rent control in 1994, it was in the teeth of preposterous fearmongering by hardline tenant activists… What happened in reality was that tens of thousands of apartments were decontrolled with no ill effects… When tenants were analyzed by occupation, it was high-earning professionals and managers who predominated among the beneficiaries of rent control; semi-skilled and unskilled workers lagged far behind. Rent control always ends up benefiting the young, strong, and well-to-do at the expense of the old, weak, and poor.

Meanwhile, Meghan McArdle opined in the Washington Post about the perverse economic consequences of rent control.

…there are a few questions where there’s near unanimity, and rent control is one of them. Pretty much every economist agrees that rent controls are bad. …the policy appears to be making a comeback. …City governments may have to relearn why their predecessors pruned back rent-control policies. Rent control is supposed to protect poor, deserving tenants from the depredations of greedy landlords. And it does, up to a point. …The problem is that rent control doesn’t do anything about the reason that rents are rising, which is that there are more people who want to live in desirable areas than there are homes for them to live in. Housing follows the same basic laws of economics as other goods that consumers need… rent control also reduces the incentive to supply rental housing. …an actual solution to skyrocketing rents: Build more housing, so that the rent controls won’t be necessary… To do that, cities would need to ease the costly land-use regulations that make it so difficult for developers to fill the unmet demand. …Alas, that’s not going to happen… Declining housing stock is just one of the many potential costs of rent controls; others include a deteriorating housing stock as landlords stop investing in their properties, and higher rents. Yes, higher, because rent control creates a two-tier housing market. There are cheap, price-stabilized apartments that rarely turn over, because why would you give up such a great deal? Then there are the uncontrolled apartments, which everyone else in the city has to fight over, bidding up the price. …the people getting the biggest benefit are white, affluent Manhattanites.

By the way, you hopefully have noticed a pattern.

Rich people generally get the biggest benefits under rent control.

Let’s close with a look at how economists from across the philosophical spectrum view rent control

Here’s some survey data from the University of Chicago.

Incidentally, there’s an obvious reason why politicians persist in pushing bad policy. In the case of rent control, it’s because tenants outnumber landlords.

So even if politicians understand that the policy will backfire, their desire to get votes will trump common sense. Especially if they assume they can blame “greedy landlords” for the inevitable housing shortages and then push for government housing subsidies as an ostensible solution.

Another example of Mitchell’s Law.

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In 2016, Bernie Sanders was considered very extreme for wanting to transform America into a very expensive European-style welfare state.

If the Democratic Party’s presidential debates this summer are any guide, that radical approach is now mainstream. Almost all the candidates have been competing over who could most quickly turn American into Greece.

The Mayor of New York City, Bill de Blasio, was especially determined to show that he was even more radical than Bernie Sanders. At one point, while watching de Blasio bellow about class-warfare taxes, I thought about a satirical version of the Pizza Hut commercial, with the Vermont Senator exclaiming “No one out-crazies the Bern.”

But give de Blasio credit for tryring. His only signature moment in an otherwise lackluster campaign occurred when he said he wanted to “tax the hell out of the wealthy.”

He even has a www.taxthehell.com website where he outlines his various proposals to cripple investment and entrepreneurship by imposing confiscatory taxes.

In other words, he is like Crazy Bernie in that he seems to really believe in ever-larger government. Consider these excerpts from a Q&A session he did with New York Magazine.

…our legal system is structured to favor private property. I think people all over this city, of every background, would like to have the city government be able to determine which building goes where, how high it will be, who gets to live in it, what the rent will be. I think there’s a socialistic impulse, which I hear every day, in every kind of community, that they would like things to be planned in accordance to their needs. And I would, too. Unfortunately, what stands in the way of that is hundreds of years of history that have elevated property rights… Look, if I had my druthers, the city government would determine every single plot of land, how development would proceed. And there would be very stringent requirements around income levels and rents. That’s a world I’d love to see, and I think what we have, in this city at least, are people who would love to have the New Deal back, on one level. They’d love to have a very, very powerful government, including a federal government… I’m calling for a millionaires tax… need to see the wealthy paying their fair share. It frustrates me greatly that we don’t have the power here to tax the wealthy in this city.

Not only does he talk the talk, he also walks the walk.

Albeit in a bad way.

Here are some excerpts from a news report about one of his attacks on property rights.

Liberal New York City Mayor Bill de Blasio is rolling out a new plan that would potentially allow the city government to seize buildings of landlords who force tenants out — a plan his opponents say amounts to “straight communism.” De Blasio…wants to take action against landlords who try to force tenants out by making the property unliveable — and pulled out an executive order to create a Mayor’s Office to Protect Tenants. He said that in the event the government intervenes, the buildings would then be controlled by a “community nonprofit.” …“My first reaction was: Is this communist Cuba?” state Assemblymember Nicole Malliotakis, who ran against De Blasio in the 2017 mayoral race, told Fox News. “ I can say that as a daughter of Cuban refugees who fled Castro’s Cuba in 1959, this is what happened to her family, she had her home taken, my grandfather had his gas station taken.” “This is extreme even for Mayor de Blasio, because we know that he has socialist leanings, but this is straight communism and I think it’s very scary to America-loving, democracy-loving people.”

By the way, I’m guessing that landlords are in a tough position because of NYC’s rent control laws.

To be fair, many of the problems in New York City didn’t start with de Blasio.

There’s a long history of wasting money.

To be more specific, unfunded pensions are the biggest reason NYC is in deep trouble.

…the city is staring bankruptcy in the face. …but there’s been little talk about one of the main causes of the city’s growing debt: public employee pensions. As of today, nearly 75 percent of the city’s $197.8 billion deficit is due to pension and other retirement liabilities. …Sick of high taxes, residents and businesses are already leaving in droves… NYC offers five different pension plans to its municipal employees, from teachers to members of the school board. These pensions serve as a source of retirement income to former city employees and are defined benefit plans, meaning that benefits are guaranteed by the employer. …it’s no surprise that the pension plans’ funded ratio, which shows the ratio of the plans’ assets to liabilities, has dropped to 71.4 percent for NYCERS and 58.6 percent for TRS—thanks to accumulated debt. …for every dollar spent on NYCERS payroll, 34 cents goes toward pensions, and that number is 10 cents higher for TRS. …Pension contributions make up 11 percent of the city’s total budget and consume 17 percent of the city’s tax revenues. And it’s worth remembering that in the city ranked number one in local tax burden in the United States.

As you might suspect, Mayor de Blasio certainly isn’t doing anything to address this problem.

I’m simply noting that the problem existed before he took office and presumably would still exist with any other mayor.

And there are other officials in New York City who deserve scorn.

Manhattan District Attorney Cy Vance is a traveling man with some high-end tastes. The prosecutor spent $249,716 on meals and work trips to everywhere from the City of Angels to the City of Lights over the past five years, according to records obtained via a Freedom of Information Law request. Vance paid for it all – including a $4,780 roundtrip flight to London and a $2,800 stay at a five-star Paris hotel – with money his office obtained from state-asset forfeiture funds largely tied to big-sum legal settlements with banks, records show. He controls more than $600 million stemming from forfeitures. …the other city district attorneys say they did not use asset forfeiture money to cover their work travel expenses. …Vance also does not skimp when it comes to eating out… He spent $645 at Patroon on East 46th Street to cover dinner… Vance also has expensed five meals at Tribeca’s Odeon for a total of $897… During his Paris visit, he spent $94 at Le Nemrod, $124 at Marco Polo, $72 at Le Saint Regis and $169 at Le Christine, according to the expense reports. …DAs have wide-ranging flexibility on how asset forfeiture money is used. Expenditures must cover “law enforcement” issues — but few other rules exist.

Here’s a map showing Vance’s travel.

By the way, the most outrageous part of this story isn’t the luxury travel or the expensive meals.

What really irks me is that his high-flying lifestyle is made possible by asset forfeiture, which is what happens when the government steals someone’s property – oftentimes without any finding of guilt!

The bottom line is that New York City has a terrible mayor, but the problem goes way beyond one person.

Which is why this final story, from Bloomberg, should be the canary in the coal mine when contemplating the future of the city.

New York leads all U.S. metro areas as the largest net loser with 277 people moving every day — more than double the exodus of 132 just one year ago. Los Angeles and Chicago were next with triple digit daily losses of 201 and 161 residents, respectively. This is according to 2018 Census data on migration flows to the 100 largest U.S. metropolitan areas compiled by Bloomberg News. …While New York is experiencing the biggest net exodus, the blow is being softened by international migrant inflows. From July 2017 to July 2018, a net of close to 200,000 New Yorkers sought a new life outside the Big Apple while the area welcomed almost 100,000 net international migrants. …Some areas are affected by high home prices and local taxes, which are pushing residents out and deterring potential movers from other parts of the country. About 200,000 residents left New York last year. Los Angeles had a decline of nearly 120,000 and Chicago fell by 84,000.

Here’s the map showing the cities losing the most people and gaining the most people.

By the way, it’s no coincidence that most of the fast-growth cities are in states with no income taxes.

P.S. Mayor de Blasio wants to “tax the hell out of the wealthy” in New York City, but fortunately he’s been somewhat frustrated in that goal because of limits on his power.

P.P.S. Because taxpayers in NYC no longer have unlimited ability to deduct their state and local taxes on their federal returns, the 2017 tax law almost certainly is contributing to the exodus from New York City. And every time one of those taxpayers escape, NYC gets closer to fiscal crisis.

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I used to think Texas vs. California was the most interesting and revealing rivalry among states. It was even the source of some clever jokes and cartoons.

But the growing battle between Florida vs. New York may now be even more newsworthy.

I wrote last month about how many entrepreneurs, investors and business owners are escaping bad tax policy by moving from the Empire State to the Sunshine State.

Not that we should be surprised.

Florida ranks #1 for economic freedom while New York languishes in last place.

A big reason for the difference is that Florida has no state income tax, which compares very favorably to the punitive system in New York.

And because the federal tax code no longer provides an unlimited deduction for state and local taxes, I expect the exodus from New York to Florida to accelerate.

What’s especially amusing is that Alexandria Ocasio-Cortez’s mother is one of the tax refugees.

Here are some excerpts from a report in the New York Post.

The mother of soak-the-rich Congresswoman Alexandria Ocasio-Cortez said she was forced to flee the Big Apple and move to Florida because the property taxes were so high. “I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida. It’s stress-free down here,” Blanca Ocasio-Cortez told the Daily Mail… Her daughter raised eyebrows with her pitch to hike the top marginal tax rate on income earned above $10 million to 70 percent. She has also gotten behind the so-called Green New Deal, which would see a massive and costly government effort.

The former Governor of Florida (and new Senator from the state) obviously is enjoying the fact that New York politicians are upset.

Here’s some of what Rick Scott wrote in today’s Wall Street Journal.

America is a marketplace where states are competing with each other, and New York is losing. Their loss is Florida’s gain… I would like to tell New Yorkers on behalf of the rest of America that our hearts go out to you for your sagging luxury real-estate market. But you did this to yourself, and you can fix it yourself. If you cut taxes and make state and local government efficient, maybe you can compete… I made more than 20 trips to high-tax states like California, Connecticut, Illinois, New York and Pennsylvania to lure businesses to Florida. The tax-happy leaders of those states were furious, which made the visits all the more enjoyable for me. They called me every name in the book. But they were the ones who raised taxes, and bad decisions have consequences. The elites in New York and Washington should commission a study of Florida to see what happens when conservative ideas are put into practice. …Florida’s economy is thriving, expanding at a record pace. …There’s a reason Rep. Alexandria Ocasio-Cortez’s mom left New York for Florida. And there’s a reason companies are fleeing high-tax states, bringing jobs with them to Florida.

I mentioned above that having no state income tax gives Florida a big advantage over New York.

Courtesy of Mark Perry, here a comprehensive comparison of the two states.

Wow. If this was a tennis tournament, the announcers would be saying “game, set, and match.” And if it was a boxing contest, it would be a knock-out.

The bottom line is that we should expect more rich people to escape New York and move to Florida because they’ll get to keep more of their money.

And we should expect more lower-income and middle-class people to also make the same move because Florida’s better policy means more jobs and more opportunity (sadly, Rep. Ocasio-Cortez has learned nothing from her mother’s move).

P.S. New York actually doesn’t do terribly in nationwide rankings for pension debt, though it is still below Florida.

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I shared data a couple of weeks ago showing that Florida is the freest state in America (for both overall freedom and economic freedom) while New York is in last place (in both categories).

Well, it seems that freedom has consequences when people can “vote with their feet.”

We’ll start with an op-ed in the Miami Herald by Ed Pozzuoli.

In a recent press conference, New York Gov. Andrew Cuomo…mentioned Florida as an attractive option for New Yorkers who are unhappy… a Census Bureau report late last year detailing the states that lost residents because of high taxes, overregulation and dwindling opportunities. Leading the list? New York. …what jurisdiction did the Census folks say benefits the most from domestic “in-migration? You guessed it — Florida… our low-tax, business-friendly welcome to asylum seekers from Big Government states like New York… It’s Florida’s low taxes and reasonable regulatory environment that attract businesses here. Florida ranks sixth among states for new business creation. …Unlike the federal government, Florida balances its budget and does so without an income tax. New York can keep its big progressive government.

And that “big progressive government” means onerous and punitive taxes, as the Wall Street Journal opined.

New York City’s combined state and local top rate of 12.7% hits taxpayers earning more than $1 million and is the second highest in the country after California. The deduction limit raised New York’s top rate by an effective 5%, though this was partially offset by the tax reform’s 2.6 percentage-point reduction in the federal top rate. …According to IRS data we’ve examined, New York state lost $8.4 billion in income to other states in 2016 (the latest available data), up from $4.6 billion annually on average during the prior four years. Florida raked in the most New York wealth. Mr. Cuomo says that “a taxpayer in Florida would see no increase, or a decrease” under the GOP tax reform and “Florida also has no estate tax.” New York’s 16% estate tax hits assets over $10.1 million. …Mr. Cuomo promised to let New York’s tax surcharge on millionaires expire. But he has extended it again and again and now wants to renew it through 2024 because he says the state needs the money. Meantime, he warns that a wealth exodus could force spending cuts for education and higher taxes on middle-income earners. All of this was inevitable, as we and others warned. Yet rather than propose to make the state’s tax burden more competitive, Mr. Cuomo rages against a tax reform that has helped the overall U.S. economy, even in New York.

I especially enjoy how Governor Cuomo is irked because his state’s profligacy is no longer subsidized by an unlimited federal deduction for state and local taxes.

Investor’s Business Daily shares a similar perspective.

New York Gov. Andrew Cuomo…we appreciate his recent frankness on taxes. …”I don’t believe raising taxes on the rich,” Cuomo said. “That would be the worst thing to do. You would just expand the shortfall. God forbid if the rich leave.” …In support of his comments, Cuomo cited “anecdotal” evidence that showed high-income earners are leaving the high-tax Empire State for other low-tax states. But the evidence isn’t merely anecdotal. It’s a fact. …From 2010 to mid-2017, New York had a net outmigration of over 1 million people, more than any other state. No, they’re not all rich. But many are. …the wealthy have choices that others don’t. One of those choices is to move if taxes become not merely burdensome, but punitive. That’s what’s happening in New York. …Many high-income taxpayers are leaving New York for low-tax states, tired of paying the state’s bills and then being demonized leftist activists for being “rich” and told they must give more.

Let’s close with some excerpts from a column in the Washington Times by Richard Rahn. He compares New York, Virginia, and Florida.

…many high-income New Yorkers have been moving their tax homes to Florida, undermining the New York tax base. …Florida imposes no state and local income taxes… Florida is booming, with a budget surplus, while New York is mired in debt. Only 50 years ago, New York had four times the population of Florida, and now Florida is larger than New York. …the state of Florida…created an environment where businesses could flourish without undue tax burdens and government interference. It went from being a poor state to a prosperous one. …citizens of New York should be asking: Why they are required to pay such high state and local income tax rates while the citizens of Florida get by perfectly well without any state income tax; Why they have three times more per capita debt than Floridians, and infrastructure that is in far worse shape; …Why it takes a third more of their citizens’ personal income to run the government than in Virginia or Florida; Why their state takes twice the percentage of per capita income in taxes than Virginia and Florida; …When it comes to taxes and government services, people’s feet tell more about how they feel than their mouths.

And if you want to know why so many people are traveling down I-95 from New York to Florida, this table from Richard’s column tells you everything you need to know.

For what it’s worth, there are people who are willing to pay extra tax to live in certain high-tax states. New York City has an allure for some people, as does California’s climate and scenery.

But are those factors enough to compensate for awful tax systems? Will they save those states from economic decay?

At best, they’ll delay the day of reckoning. For what it’s worth, I actually think New Jersey or Illinois will be the first state to fiscally self-destruct.

You can cast your vote by clicking here.

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In 2011, I wrote about how taxpayers were getting pillaged to finance a new metro line in Fairfax County, Virginia.

But you won’t be surprised to learn that California taxpayers are getting screwed even worse.

I’ve since learned, however, that the real experts at wasting money are in the Big Apple. Earlier this year, as part of a column on why the federal government shouldn’t be involved with infrastructure, I shared some depressing details about a far more expensive subway project in New York City.

And now the New York Times has a must-read report about how another big infrastructure project in NYC is an even more absurd boondoggle. The story starts with an anecdote

The budget showed that 900 workers were being paid to dig caverns for the platforms as part of a 3.5-mile tunnel connecting the historic station to the Long Island Rail Road. But the accountant could only identify about 700 jobs that needed to be done, according to three project supervisors. Officials could not find any reason for the other 200 people to be there. …“All we knew is they were each being paid about $1,000 every day.”

Nice “work” if you can get it, as the old saying goes. A pretend job that pays $1,000 per day.

That makes the gravy train for federal bureaucrats seem miserly by comparison.

Unfortunately, that anecdote is just the tip of the iceberg. The entire project is a monument to how money gets wasted in New York City.

The estimated cost of the Long Island Rail Road project, known as “East Side Access,” has ballooned to $12 billion, or nearly $3.5 billion for each new mile of track — seven times the average elsewhere in the world. …a host of factors have contributed to the transit authority’s exorbitant capital costs. …public officials have stood by as a small group of politically connected labor unions, construction companies and consulting firms have amassed large profits.

In other words, the story’s headline is no exaggeration.

The special deals for unions are jaw-dropping.

Trade unions, which have closely aligned themselves with Gov. Andrew M. Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show. …Worker wages and labor conditions are determined through negotiations between the unions and the companies, none of whom have any incentive to control costs. The transit authority has made no attempt to intervene to contain the spending.

The featherbedding belies belief.

Mr. Roach, a California-based tunneling contractor, was…stunned by how many people were operating the machine churning through soil to create the tunnel. “I actually started counting because I was so surprised, and I counted 25 or 26 people,” he said. “That’s three times what I’m used to.” …documents reveal a dizzying maze of jobs, many of which do not exist on projects elsewhere. There are “nippers” to watch material being moved around and “hog house tenders” to supervise the break room. Each crane must have an “oiler,” a relic of a time when they needed frequent lubrication. Standby electricians and plumbers are to be on hand at all times, as is at least one “master mechanic.” Generators and elevators must have their own operators, even though they are automatic. …In New York, “underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe,” according to an internal report by Arup, a consulting firm that worked on…many similar projects around the world.

The international cost comparisons are the most persuasive part of the story.

Taxpayers in New York City are paying far more to get far less.

…transit construction is booming around the world. At least 150 projects have been initiated since 1990, according to a recent study by Yale University researcher David Schleicher. The approximate average cost of the projects — both in the U.S. and abroad — has been less than $500 million per track mile, the study concluded. “There was one glaring exception,” Mr. Schleicher said. “New York.”

If you want a partial explanation of why this staggering level of graft and corruption is allowed, this sentence is a good place to start.

The unions working on M.T.A. projects have donated more than $1 million combined to Mr. Cuomo during his administration, records show.

And I’m sure huge amounts of money have also been diverted to city politicians as well.

It’s almost as if the whole thing is a racket, with politicians and union bosses conspiring to rip off taxpayers.

“Almost”? I must be getting soft in my old age. Let me rephrase that sentence: It is a racket to rip off taxpayers.

But let’s be fair. I don’t want to imply that it’s all the fault of the unions. The contractors also buy off the politicians.

…the…main engineering firm: WSP USA, …has donated hundreds of thousands to politicians in recent years, and has hired so many transit officials that some in the system refer to it as “the M.T.A. retirement home.”

Speaking of the M.T.A., the bureaucrats also get a sweet deal, with the rest of us picking up the tab.

More than a dozen M.T.A. workers were fined for accepting gifts from contractors during that time, records show. …A Times analysis of the 25 M.T.A. agency presidents who have left over the past two decades found that at least 18 of them became consultants or went to work for authority contractors, including many who have worked on expansion projects. “Is it rigged? Yes,” said Charles G. Moerdler, who has served on the M.T.A. board since 2010.

There’s a lot more to read in the article, including details on how a big French infrastructure project is being built at far lower cost.

It’s basically a perfect example of what Milton Friedman said about what happens when you get to spend other people’s money.

For instance, the story also has grim data about cost overruns, which are a routine feature of government infrastructure scams, both in America and other nations.

But one thing that isn’t in the report is the degree to which Washington is subsidizing this wretched boondoggle.

This is the part that irks me. I wouldn’t get too upset if New York City politicians were conspiring with interest groups to rip off New York City taxpayers. Heck, I wouldn’t even care if they were ripping off taxpayers from elsewhere in the state.

But the fact that I’m also paying for this pork-barrel project is very distressing. And it helps to explain why I want to shut down the Department of Transportation in Washington. That’s the real moral of this story.

P.S. Trump’s infrastructure plan will be unveiled next year. I’m not overflowing with optimism, but hope springs eternal that maybe he’ll listen to my advice.

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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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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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If you owned a restaurant and wanted to generate more income and boost your bottom line, would you double your prices thinking that this would double your revenue?

Of course not. You would understand that a lot of your patrons would simply dine elsewhere. And if they didn’t have other restaurants available, many of them would simply eat at home.

But now imagine you’re a politicians and you want more tax revenue so you can try to buy more votes and redistribute more money to the special interests that fund your campaign.

Would you assume that doubling a tax rate would lead to twice as much revenue?

Based on the shoddy methodology of the Joint Committee on Taxation (JCT), which is in charge of the revenue-estimating process on Capitol Hill, the answer is yes.

To be fair, the bureaucrats at the JCT probably wouldn’t say that tax revenue would double, but their model basically assumes that tax policy doesn’t affect the economy’s overall performance. So even if there’s a huge increase in the tax burden, they assume overall economic output won’t be affected.

This obviously is an absurd assumption. You don’t have to be a rocket scientist to realize that taxes impact economic performance. Low-tax economies like Hong Kong and Singapore, for instance, routinely outperform medium-tax economies like the United States. Similarly, differences in tax policy are one of the reasons why the United States generally grows faster than (or doesn’t grow as slowly as) Europe’s high-tax welfare states.

The lesson that should be learned is that the JCT should not estimate the revenue impact of a change in tax policy simply by looking at the change in the tax rate and the current trendline for taxable income. To get a more accurate answer, the bureaucrats also should try to estimate the degree to which taxable income will change.

This is the essential insight of the Laffer Curve. You can’t calculate changes in tax revenue simply by looking at changes in tax rates. You also have to consider the resulting changes in taxable income.

So it’s an empirical question whether a shift in a tax rate will cause revenues to change a little or a lot, just as it’s an empirical issue whether revenues will go up or down.

It depends on how sensitive taxpayers are to changes in tax rates. Some types of taxpayers are very responsive, while other aren’t.

Now let’s consider two implications.

First, you presumably shouldn’t want to be at the revenue-maximizing point of the Laffer Curve. Unless, of course, you think giving politicians an extra $1 to spend is worth destroying $5 or $10 of income for households.

Second, you definitely don’t want to be on the revenue-losing side of the Laffer Curve. That means households are losing so much income that politicians actually have less money to spend, a lose-lose scenario.

Politicians, though, often can’t resist the temptation to raise tax burdens all the way to the short-run revenue-maximizing point.

Many of them simply don’t care if the private economy suffers several dollars of lost output per dollar of additional tax revenue. All that matters is that they have the ability to buy more votes with other people’s money.

But what’s really amazing is that some of them are so short-sighted and greedy that they raise the tax burden by so much that revenues actually fall.

And that’s what is happening in New York, where the tax burden on cigarettes has become so high that tax revenues are falling. Here are some excerpts from a story in the Syracuse newspaper.

The number of state-taxed cigarette packs sold in New York has plummeted by 54 percent in the past decade. …more smokers are buying cigarettes in ways that avoid New York’s $4.35 per pack tax, the highest in the nation. They cross state lines, shop from black market vendors and travel to Native American outlets to save $6 per pack or more, experts say. New York is losing big. In the past five years, the state’s cigarette tax collections have dropped by about $400 million…off-the-tax-grid shopping options add up to as much as $1.3 billion in uncollected state cigarette taxes each year, according to a study by the National Academies of Sciences, Engineering, and Medicine.

It’s not just happening in New York.

I’ve already written about massive Laffer Curve effects from excessive tobacco taxation in Michigan, Ireland, Bulgaria, and Quebec, and Washington.

And the article notes that Oklahoma’s non-compliance rate is even higher.

About 35 percent of smokers in Oklahoma buy cigarettes in ways that avoid state taxes, compared with about one-third of smokers in New York who do the same, experts said.

Needless to say, politicians hate it when the sheep don’t willingly line up to be fleeced. So they’re trying to change policy in ways that divert more money into their greedy hands.

That’s the bad news. The good news is that they’re not very successful.

a federal court in 2011 ruled in the state’s favor and paved the way for Gov. Andrew Cuomo to try to collect the state tax from Native American nations by making their wholesalers pick up the cost. Instead, many nations abandoned the wholesale route and stopped selling name-brand cigarettes. They began stocking their stores with significantly cheaper ones made by Indian-owned manufacturers, experts said, like Seneca-brand cigarettes.

And even when policy changes are “successful,” that doesn’t necessarily translate into more loot that politicians can use to buy votes.

When taxes become extortion, people will evade when they can’t avoid.

…the illegal trade of cigarettes has grown, especially in New York City where smokers are supposed to pay an extra $1.50 per pack on top of the state tax. A recent study by New York University estimated as many as 15 percent of New York City cigarettes sales avoided the state tax.

The Germans call it Schadenfreude when you take pleasure from another person’s misfortune. Normally, I would think people who feel this way have a character flaw.

But not in this case. I confess that get a certain joy from this story because politicians are being punished for their greed. I like the fact that they have less money to waste.

We can call it the revenge of the Laffer Curve!

P.S. Years ago, the JCT actually estimated that a 100 percent tax rate would generate more tax revenue. I realize it’s only a small sign of progress, but I don’t think the bureaucrats would make that assertion today.

P.P.S. Here’s my as-yet-unheeded Laffer Curve lesson for President Obama, based on the fact that rich taxpayers paid five times as much tax after Reagan reduced the top tax rate from 70 percent to 28 percent.

P.P.P.S. And here’s something that’s downright depressing. Some leftists are so resentful of successful people that they want higher tax rates even if the result is less revenue. And you’ll notice at the 4:20 mark of this video that President Obama is one of those people.

P.P.P.P.S. Speaking of leftists, here’s my response when one of them argued against the Laffer Curve.

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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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I’ve periodically cited the great 19th-century French economist, Frederic Bastiat, for his very wise words about the importance of looking at both the seen and the unseen when analyzing public policy.

Those that fail to consider secondary or indirect effects of government, such as Paul Krugman, are guilty of the “broken window” fallacy.

There are several examples we can cite.

A sloppy person, for instance, will think a higher minimum wage is good because workers will have more income. But a thoughtful analyst will think of the unintended consequence of lost jobs for low-skilled workers.

An unthinking person will conclude that government spending is good for growth because the recipients of redistribution have money to spend. But a wiser analyst will understand that such outlays divert money from the economy’s productive sector.

A careless person will applaud when government “creates” jobs. Sober-minded analysts, though, will wonder about the private jobs destroyed by such policies.

It’s time, though, to give some attention to another important contribution from Bastiat.

He also deserves credit for the pithy and accurate observation about government basically being a racket or a scam.

And what’s really amazing is that he reached that conclusion in the mid-1800s when the burden of government spending – even in France – was only about 10 percent of economic output. So Bastiat was largely limited to examples of corrupt regulatory arrangements and protectionist trade policy.

One can only imagine what he would think if he could see today’s bloated welfare states and the various ingenious ways politicians and interest groups have concocted to line their pockets with other people’s money!

Which brings us to today’s topic. We’re going to look at venal, corrupt, wasteful, incompetent, and bullying government at the federal, state, and local level in America.

We’ll start with the clowns in Washington, DC.

Remember when the unveiling of the Obamacare turned into a cluster-you-know-what of historic proportions?

Well, the Daily Caller reports that the IRS has just signed an Obamacare-related contract with an insider company that recently became famous for completely botching its previous Obamacare-related contract.

Seven months after federal officials fired CGI Federal for its botched work on Obamacare website Healthcare.gov, the IRS awarded the same company a $4.5 million IT contract for its new Obamacare tax program. …IRS officials signed a new contract with CGI to provide “critical functions” and “management support” for its Obamacare tax program, according to the Federal Procurement Data System, a federal government procurement database. The IRS contract is worth $4.46 million, according to the FPDS data.

Just one more piece of evidence that Washington is a town where failure gets rewarded.

And CGI is an expert on failure.

A joint Senate Finance and Judiciary Committee staff report in June 2014 found that Turning Point Global Solutions, hired by HHS to review CGI’s performance on Healthcare.gov, reported they found 21,000 lines of defective software code inserted by CGI. Scott Amey, the general counsel for the non-profit Project on Government Oversight, which reviews government contracting, examined the IRS contract with CGI. “CGI was the poster child for government failure,” he told The Daily Caller. “I am shocked that the IRS has turned around and is using them for Obamacare IT work.” Washington was not the only city that has been fed up with CGI on healthcare. Last year, CGI was fired by the liberal states of Vermont and Massachusetts for failing to deliver on their Obamacare websites. The Obamacare health website in Massachusetts never worked, despite the state paying $170 million to CGI.

For a company like this to stay in business, you have to wonder how many bribes, pay-offs, and campaign contributions are involved.

Now let’s look at an example of state government in action.

Kim Strassel of the Wall Street Journal has a column about a blatantly corrupt deal between slip-and-fall lawyers and the second most powerful Democrat in the Empire State.

New York Assembly Speaker Sheldon Silver was last week arrested and accused by the feds of an elaborate kickback scheme. …Mr. Silver is alleged to have pocketed more than $5 million in a set-up in which he directed state funds to the clinic of an asbestos doctor, who in turn provided him with patients who could be turned into jackpot plaintiffs. Weitz & Luxenberg, a class-action titan, paid Mr. Silver huge referral fees for these names, off which the firm stands to make many millions. …when the Silver headlines broke, Weitz & Luxenberg founder Perry Weitz said he was “shocked”… The firm quickly put the Albany politician on “leave.”

A logical person might ask “on leave” from what? After all, he didn’t do anything.

But he did do something, even if it was corrupt and sleazy.

…here’s the revealing bit. Queried by prosecutors as to what exactly the firm did hire Mr. Silver to do—since he performed no legal work—Weitz & Luxenberg admitted that he was brought on “because of his official position and stature.” In other words, this was transactional. Weitz & Luxenberg gave Mr. Silver a plum job, and Mr. Silver looked out for the firm—namely by blocking any Albany bills that might interfere with its business model.

So workers, consumers, and businesses get screwed by a malfunctioning tort system, while insider lawyers and politicians get rich. Isn’t government wonderful!

Just one example among many of how state governments are a scam. Perhaps now folks will understand why I’m not very sympathetic to the notion of letting them take more of our money.

Last but not least, let’s look at a great moment in local government.

As we see from a report in USA Today, a village in New Jersey is dealing with the scourge of…gasp…unlicensed snow removal!

Matt Molinari and Eric Schnepf, both 18, also learned a valuable lesson about one of the costs of doing business: government regulations. The two friends were canvasing a neighborhood near this borough’s border with Bridgewater early Monday evening, handing out fliers promoting their service, when they were pulled over by police and told to stop. …Bound Brook, like many municipalities in the state and country, has a law against unlicensed solicitors and peddlers. … anyone selling goods and services door to door must apply for a license that can cost as much as $450 for permission that is valid for only 180 days. …Similar bans around the country have put the kibosh on other capitalist rites of passage, such as lemonade stands and selling Girl Scouts cookies.

Though, to be fair, it doesn’t seem like the cops were being complete jerks.

Despite the rule, however, Police Chief Michael Jannone said the two young businessmen were not arrested or issued a ticket, and that the police’s concern was about them being outside during dangerous conditions, not that they were unlicensed. “We don’t make the laws but we have to uphold them,” he said Tuesday after reading some of the online comments about the incident. “This was a state of emergency. Nobody was supposed to be out on the road.”

But the bottom line is that it says something bad about our society that we have rules that hinder teenagers from hustling for some money after a snowstorm.

Just like these other examples of local government in action also don’t reflect well on our nation.

Let’s close with my attempt to re-state Bastiat’s wise words. Here’s my “First Theorem of Government.”

And if you think what I wrote, or what Bastiat wrote, is too cynical, then I invite you to check out how politicians are bureaucrats are squandering money on Medicare, the Veterans Administration, the Agriculture Department, Medicaid, the Patent and Trademark Office, the so-called Consumer Financial Protection Bureau, the National Institutes of Health, Food Stamps, , the Government Services Administration, unemployment insurance, the Pentagon

Well, you get the idea.

Which is why this poster is a painfully accurate summary of government.

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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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I recently speculated whether Detroit’s fiscal problems should be a warning sign for the crowd in Washington.

The answer, of course, is yes, though it’s not a perfect analogy. The federal government is in deep trouble because of unsustainable entitlement programs while Detroit got in trouble because of a combination of too much compensation for bureaucrats and too many taxpayers escaping the city.

A better analogy might be to compare Detroit to other local governments. Some large cities in California already have declared bankruptcy, for instance, and you can find the same pattern of overcompensated bureaucrats and escaping taxpayers.

And the same thing may happen to New York City if the next Mayor is successful in pushing for more class-warfare tax policy. Here are some excerpts from an excellent New York Post column by Nicole Gelinas.

Mayoral candidate Bill de Blasio…thinks New York can hike taxes on the rich and not suffer… De Blasio’s scheme is this: Hike income taxes by 13.8 percent on New Yorkers making above half a million dollars annually. …After five years, de Blasio would let this tax surcharge lapse, and — he says — find another way to pay.

But there’s a big problem with de Blasio’s plan. Rich people are not fatted calves meekly awaiting slaughter.

In 2009, the top 1 percent of taxpayers (the 34,598 households making above $493,439 annually) paid 43.2 percent of city income taxes (they made 33.9 percent of income), according to the city’s Independent Budget Office. Each of these families paid an average $75,477. No, most people won’t up and leave (though if 20 percent did, they’d leave New York with less money than before the tax hike). But they can rearrange their incomes. Unlike most of us, folks making, say, $10 million have considerable control over how and when they get paid. That’s because much of their money comes from cashing out a partnership, or selling stock or a house or a painting. To avoid a tax hike, it’s easy enough for them to pay themselves earlier by selling their stuff earlier — before the tax hike. The city made $800 million in extra taxes last year because rich people sold their stuff before President Obama increased investment taxes in December. Or, people can pay themselves later — after the five years’ worth of higher taxes are up.

Gelinas makes some very important points. She warns that the city would have less money if just 20 percent of rich people escaped. She doesn’t think that will happen, but she does explain that rich people can stay but take some simple steps to reduce their taxable income.

This is because rich people are different from the rest of us. As I’ve previously explained with IRS data, they get the vast majority of their income from business and investment sources rather than from wages and salaries.

This means, as Gelinas notes, they have considerable control over the timing, level, and composition of their income.

So if Mr. de Blasio wins and succeeds in pushing through his tax agenda, don’t expect to see much – if any – additional revenue. This will be a tailor-made example of the Laffer Curve in action.

In this video on class warfare taxation, I explain that the Laffer Curve is one of five reasons why soak-the-rich taxes are misguided.

I’ll close by addressing a common argument from folks on the left. They assert that places such as New York City (or states such as California) can impose higher taxes because they provide more in exchange.

I sort of agree, though not with the notion that people are getting “more in exchange” from the politicians in New York City and California.

Instead, it’s clear that some people are willing to pay more because they like the non-political features of NYC and the Golden State. For those who like museums, fancy dining, and Broadway shows, there’s no easy substitute for New York City. And for people who like the ocean and a Mediterranean climate, it’s hard to compete with California.

But there are limits. Last month, I shared a very powerful map from the Tax Foundation showing there’s been a huge shift of taxable income out of New York and California between 2000 and 2010.

Governor Jerry Brown recently succeeded in pushing through a huge tax hike in California, so I expect even more people will leave that state, regardless of the climate.

And if Mr. de Blasio is elected and imposes a big tax hike in New York City, I suspect some rich people will decide enough is enough.

No, they won’t move to Connecticut or New Jersey, both of which have become high-tax nightmares in recent decades. But there are a good handful of zero-income tax states, and the rich folks in New York City will figure out that there are also good restaurants in places such as West Palm Beach, Florida, and Austin, Texas.

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Why do words like “snitch” and “narc” have distasteful connotations?

And why don’t we hold “tattle tales” and “stool pigeons” in high regard?

Is it because we think people should be able to do bad things and get away with it? Do we like misbehavior to go unpunished?

I think the answer to these last two questions is an emphatic NO. Close to 100 percent of people would want the authorities to know if any of us overheard a terrorist plot. Or somehow found out about a murder. Or knew about some dirtbag who had raped someone.

SnitchYet we still don’t like “narcs” and “stool pigeons,” probably because we know that some rules are bad, misguided, or foolish. For all intents and purposes, most Americans have libertarian sensibilities about victimless crimes.

So while we approve of “tattle tales” if it means we catch genuine criminals who violate the rights of others, we look down on the “snitch” who rats out the guy smoking a joint, the jerk who informs the IRS on a small business owner hiding income, and the weasel who tells the local planning gestapo that someone is remodeling their basement without government approval.

I’ve previously shared nauseating stories about Soviet-style tax informant programs in both Chicago and the United Kingdom (where they’re actually encouraging kids to turn in their parents!).

The state of New York is engaging in the same reprehensible tactics, only this time the target is guns rather than money.

Here are some of the nauseating details from a story in the Daily Caller.

For more than a year, New York state has maintained a tip line allowing people to report illegal gun owners and collect a $500 reward. …A February 2012 press release from Gov. Andrew M. Cuomo’s office first publicly announced the tip line, saying it was designed to “encourage citizens to report illegal firearm possession.” …On the Facebook page for The Record’s story, several users criticized the tip line for apparently encouraging New Yorkers to spy on each other.

Of course, sometimes the government actually requires us to spy on each other, as is the case with money laundering laws that criminalize innocent behaviors in a costly, intrusive, and ineffective effort to reduce crime.

Not surprisingly, the government is defending this campaign to turn people into stool pigeons for illegitimate reasons.

…a spokesperson for the New York State Division of Criminal Justice Services defended the program. “This program has been in place for more than a year and is aimed only at getting illegal crime guns off the streets: a goal that every New Yorker can agree with,” wrote Janine Kava, director of public information at NYS DCJS.

What the government should be doing, needless to say, it getting people who do bad things off the street. And that means investigating, arresting, prosecuting, and punishing those who abridge the rights of other people.

It does not mean arbitrarily criminalizing inanimate objects such as guns.

And as this young lady says, the government should only get the guns of law-abiding people under very particular circumstances.

P.S. Andrew Cuomo also happens to be a former Secretary of Housing and Urban Development, where he infamously was in charge of imposing so-called affordable lending requirements that helped start the bad Fannie Mae/Freddie Mac policies that eventually led to the housing bubble and financial crisis.

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I’m periodically dumbfounded by the bizarre actions of government.

Indeed, I even put together a post comparing amazingly stupid policies in the United States and United Kingdom. And I later updated that post with new details of brainless bureaucracy.

Top U.K. entries included an effort to stop children from watching Olympic shooting events and (what must be) the most pointless sign in the history of the world, while leading American entries included preventing a girl from boarding a plane because her purse had an image of a gun and a local school calling the police because a little girl kissed a little boy in gym class.

But I don’t mean to just pick on the anglo-sphere. I’ve also noted the idiocy of the Greek government, which thinks it’s appropriate to subsidize pedophiles and collect stool samples as a condition of getting a business license to set up an online company.. And let’s not forget Italy’s new government of technocratic experts, which managed to appoint the wrong person to be Junior Agricultural Minister.

Saving NYC from the scourge of toy guns

But don’t overlook New York City, which really is in a special category.  And what are the “leaders” of the city that never sleeps doing to demonstrate their blundering incompetence? Well, read it and weep, courtesy of the New York Post.

The owner of a discount store in Brooklyn says the city is holding him up for $30,000 in fines he can’t afford — all because he stocked six toy sheriff sets that included plastic guns. And now the .44-caliber fines for the orange-tipped, obvious fakes are forcing him to close for good.

Isn’t this wonderful? These reckless politicians and bureaucrats will bankrupt an entrepreneur and destroy jobs, while achieving no legitimate public policy purpose.

But don’t be surprised. This is the same crowd that does things such as help prisoners sign up for food stamps, ban bake sales for spreading unhealthy food, and fine you $2,000 for idling your car for more than three minutes.

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I’ve had dozens of posts about overpaid bureaucrats. Indeed, I’ve largely stopped blogging about the topic because it is so depressing to constantly be reminded about how a privileged class of people is manipulating the system to coercively obtain undeserved compensation from their less-fortunate neighbors.

But every so often I see a story which cries out for attention. Bloomberg has a report about a double-dipping bureaucrat who has managed to snag a position providing more than $200K per year while simultaneously ripping off taxpayers for a pension of more than $300K per year.

In a perverse way, I admire Mr. Hunderfund. I never would have thought a bureaucrat could figure out how to scam taxpayers for more than half a million dollars in one year. And for a job that probably shouldn’t even exist.

James Hunderfund, who earns at least $225,000 a year as a school superintendent on Long Island, is also entitled to a $316,245 annual pension from a previous administrative post, according to a compilation of pension data by the Empire Center for New York State Policy. Hunderfund retired in 2006 as superintendent of the Commack school district, also on Long Island. His current contract with Malverne stipulates that he receive an annual salary of no less than $225,000 through June 30, according to Empire’s report, which used a database from the New York State Teachers Retirement System.

The story also notes that there are more than 1,000 other edu-crats who are getting six-figure retirement packages.

The only other issue to address is whether we should be more upset by Mr. Hunderfund’s bloated salary of his obscene pension.

I think the pension is more outrageous, but I’m open to other opinions. Any thoughts?

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I ran across two interesting lists showing how politicians at the state and local level are often just as bad as the ones in Washington, DC. First, Forbes has an article identifying the 10 states with the highest income tax rates. The top rate is a big deterrent to entrepreneurs and investors, but it’s also important to look at the income level where the top tax rate takes effect. Yes, Hawaii, Oregon, and California have terrible tax policy, but Iowa, Maine, and Washington, DC, deserve special scorn for raping the middle class.

Hawaii:                       11% (income over $400,000 (couple), $200,000 (single))
Oregon:                      11% (income over $500,000 (couple), $250,000 (single))
California:                   10.55% (income over $1 million)
Rhode Island:             9.9% (income over $373,650)
Iowa:                          8.98% (income over $64,261)
New Jersey                 8.97% (income over $500,000)
New York:                   8.97% (income over $500,000)
Vermont:                     8.95% (income over $373,650)
Maine:                        8.5% (income over $39,549 (couple), $19,749 (single))
Washington, D.C.:      8.5% (income over $40,000)

Looking at the other major source of revenue for state and local governments, the Tax Foundation identifies the cities with the highest total sales tax rate – a number that often includes three separate levies by state, county, and city governments. Here are the top 10. Or should I say worst 10?

Birmingham AL              10.000%
Montgomery AL             10.000%
Long Beach CA                9.750%
Los Angeles CA               9.750%
Oakland CA                    9.750%
Fremont CA                     9.750%
Chicago IL                     9.750%
Glendale AZ                    9.600%
Seattle WA                     9.500%
San Francisco CA           9.500%

One thing that stands out is that California is on both lists, which helps explain why the state is such a basket case. Seattle deserves a special mention because at least there is no state income tax in Washington.

Last but not least, it’s worth mentioning that there’s no sales tax or income tax in New Hampshire. Live Free or Die!

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The Wall Street Journal opines about the latest bone-headed move by New York politicians to drive away productive activity. Connecticut is not exactly a low-tax jurisdiction, but sometimes being less worse is all that’s necessary to win a tax competition battle.
Connecticut Governor Jodi Rell, a Republican who usually doesn’t mind higher taxes…has nonetheless declared a tax-competition border war amid the New York Assembly’s bid “to vastly increase the tax liability of hedge fund professionals who work in New York.” That’s how Mrs. Rell put it in a letter last week to the New York Hedge Fund Roundtable, imploring its members to relocate to her state and offering to do “anything possible to assist you,” including the aid of state “relocation specialists.” …Arguably the hallmark of bad decision-making is whatever they cook up in Albany—which is planning to tax the carried interest income of New York-based hedge fund managers who live out of state at the top ordinary tax rate of 8.97%. …the New York Assembly…thinks it can raise $50 million by targeting bridge-and-tunnel commuters to Manhattan too. It never will, given the mobility of capital. New York City Mayor Michael Bloomberg—who knows the combined city-state top tax rate approaches 13%—told the New York Observer that “I think it’s the best thing that ever happened to Connecticut. I can’t imagine why every hedge fund wouldn’t pick up tomorrow and move.” …Last September—after years of tax-hike plans that fell through—Mrs. Rell and the Democratic legislature raised the top income tax rate to 6.5% from 5% on filers making more than $500,000. The state’s combined state-local tax burden of 11.1% is the third highest in the nation, according to the Tax Foundation, after New York (No. 2) and New Jersey (No. 1). Those sins duly noted, Mrs. Rell is nonetheless right in this case, and you can expect a further migration to the Nutmeg State from the economic nut house that is New York.

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The competition to be the Greece of America has a lot of contestants. California and Illinois certainly are strong candidates. New Jersey was an early favorite, though Gov. Christie is actually doing some good things and pulling the state back from the precipice. But let’s not forget New York. Here’s an excerpt from a Wall Street Journal column about how bureaucrats are gaming this system to get absurd salaries:

Will there be a run on New York’s debt, much like we saw in Greece this spring, causing interest rates to soar in Athens? With a $135 billion budget, New York State faces a shortfall of around $9 billion, which might be manageable if politicians had the courage to go “where the money is,” says E.J. McMahon, a state budget expert at the Manhattan Institute. “The big problem,” he adds, “is that no one will take on the unions and especially their gigantic pensions.” A new Manhattan Institute report shows that it’s been business-as-usual in the state’s dealings with Big Labor, despite the fiscal crisis. Last year, 74,000 workers at the Metropolitan Transit Authority got a 2.4% raise even as their agency was teetering on bankruptcy. Some 8,000 MTA employees now earn $100,000 or more in annual salary, and 44 earn more than $200,000 a year, putting them in the top 3% of income in America. The latest plan, Mr. McMahon says, is for Gov. Paterson and the Democrats in the legislature to “cap rising pension bills by ‘amortizing’ them, which essentially means borrowing $2.5 billion from the pension fund in the next four years alone. Of course, this won’t reduce costs — it will merely push them into the future.”

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In town for a speech tomorrow morning (will also be on Fox and Friends at 8:15). Saw this on my walk to the hotel.

Is the city government really this greedy? Or is there something so horrible about idling that it requires outlandish fines?

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I have a column in the New York Post this morning explaining that big government is a losing deal for taxpayers in the Empire State. I’m tempted to say they deserve to be over-taxed and over-regulated because they keep electing collectivists like Chuck Schumer, but I grew up in the area and still follow the Yankees, so I hope the people of New York wake up and begin fighting big government. Here’s an excerpt:

Federal spending has approximately doubled during the Bush-Obama years — great news for special-interest groups, but bad news for New Yorkers, who pay a disproportionate share of federal taxes because of higher-than-average incomes. Needless to say, the IRS code allows no compensation for New Yorkers’ higher-than-average living expenses. New Yorkers also lose on the spending side of the ledger. According to the Tax Foundation, the state gets back only about 80 cents for every $1 it sends to Washington. But the harm is actually greater — because Washington takes that dollar from the job-creating private sector and returns the 80 cents in the form of handouts, subsidies and pork of very dubious economic benefit. And things are going to get worse before they get better. President Obama wants higher tax rates on income, higher tax rates on capital gains and increased double taxation of dividends. That will tilt the overall tax burden even further against New York. The taxes on investment, in particular, will hurt Wall Street — on which the city’s economy depends.

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Politicians understand the economic impact of taxation when it serves their interests. They often brag about raising tobacco taxes to discourage smoking. It’s not their business to dictate private behavior, of course, but they are right about higher taxes leading to less smoking (they also lead to more cigarette smuggling, but that’s a separate issue). Those same politicians, however, conveniently forget about the economic effect of taxes when they impose high tax rates on work, saving, investment, and entrepreneurship. Or maybe they simply don’t care. But as is explained in the Wall Street Journal, taxes on productive behavior matter a lot. More than one million people have escaped New York this decade, and punitive taxes clearly have played a role in this brain drain to other states:

Between 2000 and 2008, the Empire State had a net domestic outflow of more than 1.5 million, the biggest exodus of any state, with most hailing from New York City. The departures also have perilous budget consequences, since they tend to include residents who are better off than those arriving. Statewide, departing families have income levels 13% higher than those moving in, while in New York County (home of Manhattan) the differential was even more severe. Those moving elsewhere had an average income of $93,264, some 28% higher than the $72,726 earned by those coming in. In 2006 alone, that swap meant the state lost $4.3 billion in taxpayer income. Add that up from 2001 through 2008, and it translates into annual net income losses somewhere near $30 billion. …no single reason can be fingered for a million migrants seeking their fortunes across state lines, but one place to start is New York’s notorious state and local tax burden. According to the Tax Foundation, between 1977 and 2008, New York has ranked first or second in the country for its state-local tax burden compared to the U.S. average. In the years considered by the Empire Center study, New York’s state and local tax burden ranged between 11% and 12% of income. The peak year for taxes, 2004, was followed by the peak year for departures—as New York lost nearly 250,000 people to other states in 2005. And that’s before another big tax hike this year. That pattern is consistent with the annual migration patterns, showing that highly taxed and economically lackluster states were most likely to end up in residents’ rear view mirrors. According to the annual study by United Van Lines, states like New York, New Jersey, Michigan and Illinois have been big losers in recent years. …Liberals continue to insist that they can raise taxes ever higher without any effect on behavior, but the New York study is one more piece of evidence that this is a destructive illusion.

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