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Archive for the ‘Rankings’ Category

Yesterday, I wrote about the newest edition of Economic Freedom of the World, which is my favorite annual publication.

Not far behind is the Tax Foundation’s State Business Tax Climate Index, which is sort of the domestic version of their equally fascinating (to a wonk) International Tax Competitiveness Index.

And what can we learn from this year’s review of state tax policy? Plenty.

…the specifics of a state’s tax structure matter greatly. The measure of total taxes paid is relevant, but other elements of a state tax system can also enhance or harm the competitiveness of a state’s business environment. The State Business Tax Climate Index distills many complex considerations to an easy-to-understand ranking.

That’s the theory, but what about the results?

Here are the best and worst states.

If you pay close attention, there’s a common thread for the best states.

The absence of a major tax is a common factor among many of the top 10 states. …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. Wyoming, Nevada, and South Dakota have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire, Montana, and Oregon have no sales tax.

By the way, both Utah and Indiana are among the nine states with flat tax systems, so every top-10 state has at least one attractive feature.

But if you peruse the bottom-10 states, you’ll find that every one of them has an income tax with “progressive” rates that punish people for contributing more to the economy.

Indeed, half of the states on that unfortunate list are part of the “Class-Warfare Graduated Tax” club.

Not a desirable group, assuming the goal is faster growth and more jobs.

The Tax Foundation’s report also is worth reading because it reviews some of the academic evidence about the superiority of pro-growth tax systems.

Helms (1985) and Bartik (1985) put forth forceful arguments based on empirical research that taxes guide business decisions. Helms concluded that a state’s ability to attract, retain, and encourage business activity is significantly affected by its pattern of taxation. Furthermore, tax increases significantly retard economic growth when the revenue is used to fund transfer payments. Bartik concluded that the conventional view that state and local taxes have little effect on business is false. Papke and Papke (1986) found that tax differentials among locations may be an important business location factor, concluding that consistently high business taxes can represent a hindrance to the location of industry. …Agostini and Tulayasathien (2001) examined the effects of corporate income taxes on the location of foreign direct investment in U.S. states. They determined that for “foreign investors, the corporate tax rate is the most relevant tax in their investment decision.” Therefore, they found that foreign direct investment was quite sensitive to states’ corporate tax rates. Mark, McGuire, and Papke (2000) found that taxes are a statistically significant factor in private-sector job growth. Specifically, they found that personal property taxes and sales taxes have economically large negative effects on the annual growth of private employment. …Gupta and Hofmann (2003) regressed capital expenditures against a variety of factors… Their model covered 14 years of data and determined that firms tend to locate property in states where they are subject to lower income tax burdens.

None of this research should come as a surprise.

Businesses aren’t moving from California to Texas because business executives prefer heat and humidity over ocean and mountains.

The bottom line is that tax rates matter, whether we’re looking at state data, national data, or international data.

Let’s close by sharing a map from the report. Simply stated, red is bad and teal (or whatever that color is) is good.

P.S. My one complaint about this report from the Tax Foundation is that it doesn’t include the overall fiscal burden. Alaska and Wyoming score well because they have small populations and easily fund much of their (extravagant) state budgets with energy-related taxes. If data on the burden of state government spending was included, South Dakota would be the best state.

P.P.S. Unsurprisingly, Americans are moving from high-tax states to low-tax states.

P.P.P.S. It’s also no surprise to find New Jersey in last place.

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Over the years, I’ve shared some rankings that are utterly preposterous.

Needless to say, none of these ranking pass the laugh test. You know the people involved are either deluded or dishonest.

Well, we have a new addition to this disreputable collection, as reported by CBS.

The United States has been ranked for the first time among the 10 nations deemed to be the most dangerous for women by experts in the field. A survey by the Thomson Reuters Foundation of about 550 experts in women’s issues around the globe labeled the U.S. the 10th most dangerous nation in terms of the risk of sexual violence, harassment and being coerced into sex. …According to the survey, which was last carried out in 2011 and did not then rank the U.S. among the top 10 most dangerous nations, India is the most perilous country for women… Most of the other countries in the top-10 determined by the foundation’s survey are countries with ongoing military conflicts or insurgencies, or where long-held religious and political views have kept women on an unequal footing in terms of law enforcement and treatment in society generally. …The foundation asked the experts which five of the 193 United Nations member states they felt were “most dangerous for women and which country was worst in terms of health care, economic resources, cultural or traditional practices, sexual violence and harassment, non-sexual violence and human trafficking,” according to the foundation.

And here’s their list of the supposed 10-worst countries for women.

I’m assuming that the top-9 countries are not good places for women, but think about what sort of person would put the United States at #10.

  • Do they really think the United States is worse for women than Egypt, where about 90 percent of females are subject to the horrifying practice of female genital mutilation?
  • Do they really think the United States is worse for women than South Africa, where the rape rate is five times higher?
  • Do they really think the United States is worse for women than Nepal, where per-capita income is just 1.3 percent of American levels?
  • Do they really think the United States is worse for women than Angola, where the average woman dies nearly three decades sooner?
  • Do they really think the United States is worse for women than China, where girl children are much more likely to be aborted or subject to infanticide?

In other words, the list is a joke. And the 550 supposed “experts” in women’s issues beclowned themselves.

By the way, my criticisms have nothing to do with ideology. There are many lists from left-wing groups that are intellectually rigorous. I strongly disagree with the folks at the Tax Justice Network, for instance, but their Financial Secrecy Index is methodologically honest and sound.

I also should point out that my objections have nothing to do with the USA looking bad. I don’t like it when the United States doesn’t crack the top-10 in measures of rule of law, tax competitiveness, or economic liberty, yet I share such data with no hesitation.

Shame on the Thomson Reuters Foundation is a joke for publishing such a list.

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Last September, Economic Freedom of the World was released, which was sort of like Christmas for wonks who follow international economic policy.

I eagerly combed through that report, which (predictably) had Hong Kong and Singapore as the top two jurisdictions. I was glad to see that the United States climbed to #11.

The good news is that America had dropped as low as #18, so we’ve been improving the past few years.

The bad news is that the U.S. used to be a top-5 country in the 1980s and 1990s.

But let’s set aside America’s economic ranking and deal with a different question. I’m frequently asked why European nations with big welfare states still seem like nice places.

My answer is that they are nice places. Yes, they get terrible scores on fiscal policy, but they tend to be very pro-market in areas like trade, monetary policy, regulation, and rule of law. So they almost always rank in the top-third for economic freedom.

To be sure, many European nations face demographic challenges and that may mean Greek-style crisis at some point. But that’s true of many developing nations as well.

Moreover, there’s more to life than economics. Most European nations also are nice places because they are civilized and tolerant. For instance, check out the newly released Human Freedom Index, which measures both economic liberty and personal liberty. As you can see, Switzerland is ranked #1 and Europe is home to 12 of the top 16 nations.

And when you check out nations at the bottom, you won’t find a single European country.

Instead, you find nations like Venezuela and Zimbabwe. Indeed, the lowest-ranked Western European country is Greece, which is ranked #60 and just missed being in the top-third of countries.

Having now engaged in the unusual experience of defending Europe, let’s take a quick look at the score for the United States.

As you can see, America’s #17 ranking is a function of our position for economic freedom (#11) and our position for personal freedom (#24).

For what it’s worth, America’s worst score is for “civil justice,” which basically measures rule of law. It’s embarrassing that we’re weak in that category, but not overly surprising.

Anyhow, here’s how the U.S. score has changed over time.

Let’s close with a few random observations.

Other nations also improved, not just the United States. Among advanced nations, Singapore jumped 16 spots and is now tied for #18. There were also double-digit increases for Suriname (up 14 spots, to #56), Cambodia (up 16 spots, to #58), and Botswana (up 22 spots, to #63). The biggest increase was Swaziland, which jumped 25 spots to #91, though it’s worth pointing out that it’s easier to make big jumps for nations with lower initial rankings.

Now let’s look at nations moving in the wrong direction. Among developed nations, Canada dropped 7 spots to #11. Still a very good score, but a very bad trend. It’s also unfortunate to see Poland drop 10 spots, to #32. Looking at developing nations, Brunei Darussalam plummeted an astounding 52 spots, down to #115, followed by Tajikistan, which fell 46 spots to #118. Brazil is also worth highlighting, since it plunged 23 spots to #120.

P.S. I don’t know if Moldova, Ukraine, and Russia count as European countries or Asian nations, but they all rank in the bottom half. In any event, they’re not Western European nations.

P.P.S. I mentioned last year that Switzerland was the only nation to be in the top 10 for both economic freedom and personal freedom. In the latest rankings, New Zealand also achieves that high honor.

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The United Nations has proposed a set of “sustainable development goals.” Most of them seem unobjectionable. After all, presumably everyone wants things such as less poverty, a cleaner environment, better education, and more growth, right?

That being said, I’m instinctively skeptical about the goal of “climate action” because of the U.N.’s past support for statist policies in that area.

And I also wonder why the bureaucrats picked “reduced inequalities” when “upward mobility for the poor” is a much better goal.

While I am tempted to nit-pick about some of the other goals as well, I’m actually more worried about how the U.N. thinks the goals should be achieved.

I participated in a U.N. conference in early April and almost every bureaucrat and government representative asserted that higher tax burdens were necessary to achieve the goals. It truly was a triumph of ideology over evidence.

And some of the cheerleaders for this initiative have a very extreme view on these issues. Consider a new report, issued by Germany’s Bertelsmann Stiftung and the U.N.’s Sustainable Development Solutions Network, that ranks nations based on how successful they are at achieving the sustainable development goals. Jeffrey Sachs was the lead author, so perhaps we shouldn’t be too surprised to discover that there are some very odd results.

Bernie Sanders will be naively happy since the Nordic nations dominate the top of the rankings. The United States is #42, by contrast, sandwiched between Argentina and Armenia. Moreover, the United States is behind countries such as Hungary, Belarus, Portugal, Moldova, Greece, and Ukraine, which seems strange because Americans enjoy significantly higher levels of consumption – even when compared to other rich jurisdictions.

But the most absurd feature – at least for anyone with the slightest familiarity with international economic data – is that Cuba (circled in green) is ranked considerably above the United States (circled in red).

This is a jaw-droppingly stupid assertion. Cuba is a staggeringly impoverished nation thanks to an oppressive communist dictatorship.

So how can Sachs and his colleagues produce a report putting that country well above a rich nation like the United States?

Let’s look at some of the data. Here’s the summary of Cuba from the report. Pay particular attention to the circle on the right. If the blue bars extend to the outer edge, that means the country supposedly is doing a very good job achieving a goal, whereas a small blue bar indicates poor performance.

And here is the same information for the United States.

It appears that Cuba does much better for poverty (#1), responsible consumption (#12), climate action (#13), life on land (#15), and partnership (#17), while the United States while the United State does much better for industry, innovation, and infrastructure (#9).

But here’s an easier and more precise way of comparing the two nations. All you need to know is that green is the best, yellow is second best, followed by burnt orange, and red is the worst.

Cuba wins in nine categories and the United States is ranked higher in three categories.

Now here’s why most of these rankings are total nonsense. If you go to page 51 of the report, you’ll see the actual variables that are used to produce the scores for the 17 U.N. goals.

And what do you find? Well, here are some things that caught my eye.

  • For the first goal of “no poverty,” the report includes a measure of income distribution rather than poverty. This is same dodgy approach that’s been used by the Obama Administration and the OECD, and because almost everyone is Cuba is equally poor, that means it scores much higher than the United States, where everyone is richer, but with varying degrees of wealth. I’m not joking.
  • For the second goal of “zero hunger,” I can’t figure out how they concocted a higher score for Cuba. After all, there’s pervasive food rationing in that hellhole of an island. My best guess is that the United States gets downgraded because the category includes an obesity variable. Having a lot of overweight people may not be a good feature of America, but is it rude for me to point out that a large number of heavy people is the opposite of hunger?
  • Jumping ahead to the fifth goal of “gender equality,” I assume the United States gets a bad score because of the variable for the gender wage gap, even though women in America earn far higher incomes than their unfortunate and impoverished counterparts in Cuba.
  • Regarding the eighth goal of “decent work and economic growth,” it’s not clear how Sachs and his colleagues gave Cuba the best possible score. But I know the final result is preposterous given that the Cuban people are suffering from crippling material deprivation.
  • For the twelfth (“responsible consumption and production”) and thirteenth (“climate action”) goals, it appears that the United States gets a lower score because rich nations consume more energy than poor nations. If this is why Cuba beats the USA (just as they “scored higher” in the so-called Happy Planet Index), then I’m glad America loses that contest.
  • Last but not least, I can’t resist commenting on Cuba getting the best score and the U.S. getting worst score for “partnerships,” which is the seventeenth goal. If you read the fine print, it turns out that nations get better grades if their tax burdens are higher. And countries like the United States get downgraded because they are tax havens and/or they respect financial privacy.

The main takeaway is that Sachs and his colleagues produced a shoddy report based on statist ideology and – in many cases – on dodgy methodology.

Anyone who ranks Cuba above the United States when trying to measure quality of life should be treated like a laughingstock.

The report also ranks the ultra-rich and very successful nation of Singapore at #61, below poor countries such as Uzbekistan and Mexico. Are these people smoking crack? That’s even more absurd than the OECD’s report on Asian taxes, which basically pretended Singapore didn’t exist.

Heck the report also has dysfunctional Venezuela ahead of Panama, even though tens of thousands of Venezuelans have fled to Panama to escape their poorly governed nation. But I guess real-world evidence doesn’t matter to people trying to promote statism.

P.S. I got to tangle with Jeffrey Sachs at a United Nations conference on the state of the world economy back in 2012. Nothing has changed.

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A few days ago, using several methodologies, I calculated how fast government spending increased during the presidencies of Lyndon Johnson, Richard Nixon, Jimmy Carter, Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush, and Barack Obama.

One of my big takeaways was that Republican presidents – with the exception of Reagan – allowed the burden of government spending to increase far too rapidly. Oftentimes faster than budgets grew under Democratic presidents.

That column generated a lot of feedback. And whether the responses were positive or negative, a common theme was that presidents shouldn’t be judged solely based on the growth of federal spending – both because Congress plays a big role and because there are many other policies that also matter when assessing economic policy.

I fully agree, and I explicitly noted that the relatively good spending numbers during the Obama years were because of policies – sequestration, shutdowns, etc – he opposed.

And I also concur that other policies matter. That’s one of the reasons I’m always highlighting Economic Freedom of the World. Yes, fiscal policy is one of the variables, but monetary policy, trade policy, regulatory policy, and the rule of law are equally important.

Indeed, I did an overall assessment of Bill Clinton a few years ago, comparing the pro-growth polices that were adopted during his tenure with the anti-growth policies that were implemented.

The bottom line is that economic liberty increased during his presidency. Significantly. Others can debate about whether he deserves full credit, partial credit, or no credit, but what matters to me is that the overall burden of government shrank. And that was good for America.

It’s time to do an overall assessment of economic policy for other presidents. And we’ll start with one of America’s worst presidents, Richard Nixon.

He’s mostly infamous for Watergate, which led to his resignation, but he also should be scorned because every single major economic policy of his presidency expanded the size, scope, and power of the federal government. Here’s the list, with a couple of the items getting larger bars because the policies were so misguided.

Is it true that there were no good economic policies under Richard Nixon? I asked Art Laffer, who worked at the Office of Management and Budget at the time, whether there were any pro-market reforms during the Nixon years.

He mentioned that the top tax rate on labor and small business income was reduced from 70 percent to 50 percent as part of the Tax Reform Act of 1969. I would have included that law in the pro-growth column, except that was the legislation that also created the alternative minimum tax (for both households and corporations). And there was an increases in the tax burden on capital gains, as well as a more onerous tax regime for new investment. My assessment is that these bad provisions basically offset the lower tax rate.

For what it’s worth, Nixon also proposed a value-added tax, which is yet another piece of evidence that he was a terrible statist. But I only include policies that were enacted rather than merely proposed (if I did include proposed policies, Bill Clinton would take a hit for Hillarycare).

P.S. I’m open to revising this list. I probably missed some policies, perhaps even a good one. And maybe I’m overstating the negative impact of spending increases and price controls, or understating the bad consequences of other policies. Feel free to add your two cents in the comments section.

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A new annual edition of Economic Freedom of the World has been released.

The first thing that everyone wants to know is how various nations are ranked.

Let’s start at the bottom. I can’t imagine that anybody will be surprised to learn that Venezuela is in last place, though we don’t know for sure the world’s most suffocatingly statist regime since the socialist hellholes of Cuba and North Korea weren’t included (because of a lack of acceptable data).

At the other end, Hong Kong is in first place, where it’s been ranked for decades, followed by Singapore, which also have been highly ranked for a long time. Interestingly, the gap between those two jurisdictions is shrinking, so it will be interesting to see if Singapore grabs the top spot next year.

New Zealand and Switzerland are #3 and #4, respectively, retaining their lofty rankings from last year.

The biggest news is that Canada plunged. It was #5 last year, but now is tied for #11. And I can’t help but worry what will happen in the future given the leftist orientation of the nation’s current Prime Minister.

Another notable development is that the United Kingdom jumped four spots, from #10 to #6. If that type of movement continues, the U.K. definitely will prosper in a post-Brexit world.

And if we venture outside the top 10, I can’t help but feel happy that the United States rose from #16 to #11. And America’s ranking didn’t jump merely because other nation’s adopted bad policy. The U.S. score increased from 7.75 in last year’s report to 7.94 in this year’s release.

A few other things that grabbed my attention are the relatively high scores for all the Baltic nations, the top-20 rankings for Denmark and Finland, and Chile‘s good (but declining) score.

Let’s take a look at four fascinating charts from the report.

We’ll start with a closer look at the United States. As you can see from this chart, the United States enjoyed a gradual increase in economic freedom during the 1980s and 1990s, followed by a gradual decline during most of the Bush-Obama years. But in the past couple of years (hopefully the beginning of a trend), the U.S. score has improved.

Now let’s shift to the post-communist world.

What’s remarkable about nations from the post-Soviet Bloc is that you have some big success stories and some big failures.

I already mentioned that the Baltic nations get good scores, but Georgia and Romania deserve attention as well.

But other nations – most notably Ukraine and Russia – remain economically oppressed.

Our next chart shows long-run developments in the scores of developed and developing nations.

Both sets of countries benefited from economic liberalization in the 19890s and 1990s. But the 21st century has – on average – been a period of policy stagnation.

Last but not least, let’s look at the nations that have enjoyed the biggest increases and suffered the biggest drops since 2000.

A bunch of post-communist nations are in the group that enjoyed the biggest increases in economic liberty. It’s also good to see that Rwanda’s score has jumped so much.

I’m unhappy, by contrast, so see the United States on the list of nations that experienced the largest reductions in economic liberty since the turn of the century.

Greece’s big fall, however, is not surprising. And neither are the astounding declines for Argentina and Venezuela (Argentina improved quite a bit in this year’s edition, so hopefully that’s a sign that the country is beginning to recover from the horrid statism of the Kirchner era).

Let’s close with a reminder that Economic Freedom of the World uses dozens of variables to create scores in five major categories (fiscal, regulatory, trade, monetary, and rule of law). These five scores are then combined to produce a score for each country, just as grades in five classes might get combined to produce a student’s grade point average.

This has important implications because getting a really good score in one category won’t produce strong economic results if there are bad scores in the other four categories. Likewise, a bad score in one category isn’t a death knell if a nation does really well in the other four categories.

As a fiscal policy wonk, I always try to remind myself not to have tunnel vision. There are nations that may get good scores on fiscal policy, but get a bad overall score because of poor performance in non-fiscal variables (Lebanon, for instance). Similarly, there are nations that get rotten scores on fiscal policy, yet are ranked highly because they are very market-oriented in the other four variables (Denmark and Finland, for example).

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I don’t know if Dr. Seuss would appreciate my title, which borrows from his children’s classic.

But given how I enjoy comparative rankings, I couldn’t help myself after perusing a new study from WalletHub that ranks states on their independence (or lack thereof).

Being a policy wonk, what really caught my attention was the section on government dependency, which is based on four criteria.

As you can see, the four factors are not weighted equally. The “federally dependent states” variable is considered four times as important as any of the other variables.

That’s important, to be sure, but is it really more important (or that much more important) than the other categories?

Moreover, I’m not sure the “tax freedom day” variable is a measure of dependency. What’s really captured by this variable, given the way the tax code doesn’t tax low-income people and over-taxes high-income people, is the degree to which state have lots of rich people or poor people. But that’s not a measure of dependence (particularly if the rich people stole money instead of earning it).

But I’m quibbling. I might put together a different formula with some different variables, but WalletHub has done something very interesting.

And if we look at their 25 least-dependent states, you see a very interesting pattern. Of the 10-most independent states, only three of them are Trump-voting red states (Kansas, Nebraska, and Utah).

The other seven are blue states. And some of them – such as Illinois, New Jersey, and California – are dark blue states.

And the #11 and #12 states also were Hillary states as well.

Which raises an interesting question. Why are voters in those states in favor of big government when they don’t disproportionately benefit from handouts?

Are they culturally left-wing, putting social issues above economic issues?

Or are they motivated by some issue involving foreign policy and/or defense?

Or maybe masochistic?

Beats me.

By the way, the WalletHub email announcing the report included a very interesting factoid that may explain why Hillary lost Pennsylvania.

Pennsylvania has the lowest percentage of government workers (local, state and federal), at 10.8 percent. Alaska has the nation’s highest percentage, at 25.1 percent.

Though I can’t see those details in the actual report, which is disappointing. I’d like to see a ranking of the states based solely on the number-of-bureaucrats criteria (we have data comparing countries, for those interested).

Now let’s shift to the states that have the highest levels of dependency.

If you look at the bottom of the final image, you’ll notice that it’s a reverse of the top-10. Seven of the most-dependent states are red states that voted for Trump.

Only New Mexico, Oregon, and Maine supported Hillary (and Trump actually won one-fourth of Maine’s electoral votes).

So this raises a separate question. Are red state people voting against their interests? Should they be voting for politicians who will further expand the size and scope of government so they can get even more goodies from Uncle Sam?

For what it’s worth, a leftist actually wrote a book entitled What’s the Matter with Kansas, which examined why the people of the Sunflower State weren’t voting for statism.

Well, part of the answer may be that Kansas is one of the most independent states, so perhaps the author should have picked another example.

But even if he had selected Mississippi (#49), I suspected the answer is that low-income people don’t necessarily think that it’s morally right to steal money from other states, even if the loot is laundered through Washington.

In other words, people is those states still have social capital or cultural capital.

It’s also possible, of course, that voters in red states with lots of dependency (at least as measured by WalletHub) are instead motivated by cultural issues or foreign policy issues.

There’s even a very interesting study from Professor Alesina at Harvard, which finds that ethnically diverse jurisdictions can be more hostile to redistribution (and homogeneous societies like the Nordic nations are more supportive of a large welfare state).

And since many of the red states at the bottom of the rankings also happen to be states with large minority populations, perhaps that’s a partial explanation.

Though California has a very large minority population as well, yet it routinely votes for more redistribution.

The bottom line is that we probably can’t draw any sweeping conclusions from this data.

Though it leaves me even more convinced that the best approach is to eliminate all DC-based redistribution and let states decide how much to tax and how much to spend. In other words, federalism.

P.S. I put together my own ranking of state dependency, based on a formula involving welfare usage and poverty. Vermont was the worst state and Nevada was the best state.

P.P.S. I also shared calculations based solely on the share of eligible people who signed up for food stamps. Interestingly, Californians rank as the most self-reliant. Maybe my predictions of long-run doom for that state are a bit exaggerated.

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