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Archive for the ‘Taxation’ Category

I almost feel guilty when I criticize the garbled economic thoughts of Pope Francis. After all, he was influenced by Peronist ideology as a youngster, so he was probably a lost cause from the beginning.

Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.

But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.

The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.

He even embraced global regulation, not understanding that this increases systemic risk.

“The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.”

And he said that governments should have more money to spend.

A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.

Wow, it’s like the Pope is applying for a job at the IMF or OECD. Or even with the scam charity Oxfam.

In any event, he’s definitely wrong on how to generate more prosperity. Maybe he should watch this video.

Or read Marian Tupy.

Or see what Nobel Prize winners have to say.

P.S. And if the all that doesn’t work, methinks Pope Francis should have a conversation with Libertarian Jesus. He could start here, here, and here.

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I wanted California to decriminalize marijuana because I believe in freedom. Smoking pot may not be a wise choice in many cases, but it’s not the role of government to dictate private behavior so long as people aren’t violating the rights of others.

Politicians, by contrast, are interested in legalization because they see dollar signs. They want to tax marijuana consumption to they can have more money to spend (I half-joked that this was a reason to keep it illegal, but that’s a separate issue).

Lawmakers need to realize, though, that the Laffer Curve is very real. They may not like it, but there’s very strong evidence that imposing lots of taxes does not necessarily mean collecting lots of revenue. Especially when tax rates are onerous.

Here’s some of what the AP recently reported about California’s experiment with taxing pot.

So far, the sale of legal marijuana in California isn’t bringing in the green stuff. Broad legal sales kicked off on Jan. 1. State officials had estimated California would bank $175 million from excise and cultivation taxes by the end of June. But estimates released Tuesday by the state Legislative Analyst’s Office show just $34 million came in between January and March. …it’s unlikely California will reap $175 million by midyear.

And here are some excerpts from a KHTS story.

Governor Jerry Brown’s January budget proposal predicted that $175 million would pour into the state’s coffers from excise and cultivation taxes…analysts believe revenue will be significantly lower… Some politicians argue high taxes are to blame for the revenue shortfalls preventing that prediction from becoming reality, saying the black market is “undercutting” the legal one. …The current taxes on legal marijuana businesses include a 15 percent excise tax on purchases of all cannabis and cannabis products, including medicinal marijuana. The law also added a $9.25 tax for every ounce of bud grown and a $2.75-an-ounce tax on dried cannabis leaves for cultivators.

These results should not have been a surprise.

I’ve been warning – over and over again – that politicians need to pay attention to the Laffer Curve. Simply stated, high tax rates don’t necessarily produce high revenues if taxpayers have the ability to alter their behavior.

That happens with income taxes. It happens with consumption taxes.

And it happens with taxes on marijuana.

Moreover, it’s not just cranky libertarians who make this point. Vox isn’t a site know for rabid support of supply-side economics, so it’s worth noting some of the findings from a recent article on pt taxes.

After accounting for substitution between products by consumers, we find that the tax-inclusive price faced by consumers for identical products increased by 2.3%. We find that the quantity purchased decreased by 0.95%…, implying a short-term price elasticity of -0.43. However, over time, the magnitude of the quantity response significantly increases, and our estimates suggest that the price elasticity of demand is about negative one within two weeks of the reform. We conclude that Washington, the state with the highest marijuana taxes in the country, is near the peak of the Laffer curve – further increases in tax rates may not increase revenue. …tax revenue has historically been one of the many arguments in favour of legalising marijuana…the optimal taxation of marijuana should be designed to take into account responses…excessive taxation might prop up the very black markets that legal marijuana is intended to supplant. As additional jurisdictions consider legalising marijuana and debate over optimal policy design, these trade-offs should be explored and taken into account.

Let’s close by reviewing some interesting passages from a McClatchey report, starting with some observations about the harmful impact of excessive taxes.

Owners of legalized cannabis operations face a range of challenges… But taxes – local, state, federal – present a particular headache. They are a big reason why, in California and other states, only a small percentage of cannabis growers and retailers have chosen to get licensed and come out of the shadows. …In a March report, Fitch Ratings suggested that California may not realize the tax revenue – $1 billion a year – the state projected when Proposition 64, a legalization initiative, was put before voters in 2016. “While it is still too early to assess California’s revenue performance, comparatively high taxes on legal cannabis will likely continue to divert sales to illegal markets, reducing potential tax collections,” Fitch said in its report. …Add it all up, and state-legal cannabis in some parts of California could be taxed at an effective rate of 45 percent, Fitch said in a report last year.

Interestingly, even politicians realize they need to adapt to the harsh reality of the Laffer Curve.

Some state lawmakers blame the taxation for creating a price gap between legal and illegal pot that could doom California’s regulated market. Last month, Assembly members Tom Lackey, R-Palmdale, and Rob Bonta, D-Oakland, introduced legislation, AB 3157, that would reduce the state marijuana sales tax rate from 15 percent to 11 percent, and suspend all cultivation taxes until June 2021.

And I can’t resist including one final passage that has nothing to do with taxes. Instead, it’s a reference to the lingering effect of Obama’s dreadful Operation Choke Point.

Davies owns Canna Care, a medical marijuana dispensary in Sacramento. Like other state-legal cannabis businesses nationwide, her pot shop operates largely with cash. Most banks won’t transact with enterprises deemed illegal by the U.S. government. That forces Davies to stuff $10,000 in bills into her purse each month… even lawyers who represent state-legal marijuana businesses face financial risks. Sacramento lawyer Khurshid Khoja recently lost his two bank accounts with Umpqua Bank, after Umpqua started asking him about his state-legal cannabis clients.

The good news is that Trump has partially eased this awful policy. The bad news is that he only took a small step in the right direction.

But let’s get back to our main topic. I’ve written several times on whether our friends on the left are capable of learning about the Laffer Curve. Especially in cases when they imposed a tax in hopes of changing behavior!

What’s happening in California with pot taxes is simply the latest example.

And I’m hoping leftists will apply the lesson to taxes on things that we don’t want to discourage – such as work, saving, investment, and entrepreneurship.

P.S. I’ve pointed out that some leftists want high tax rates on income even if no money is collected. That’s because their real goal is punishing success. I wonder if there are some conservatives who are pushing punitive marijuana taxes because they want to discourage “sin” rather than collect revenue.

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Even though I wrote about proposed tax increases in Illinois just 10 days ago, it’s time to revisit the issue because the Tax Foundation just published a very informative article about the state’s self-destructive fiscal policy.

It starts by noting that the aggregate tax burden is higher in Illinois than it is in adjoining states.

Just what are Illinois’ neighbors doing on taxes? They’re taxing less, for starters. In Illinois, state and local taxes account for 9.3 percent of state income. The state and local taxes in Illinois’ six neighboring states account, in aggregate, for 8.0 percent of the income of those states.

Here’s the table showing the gap between Illinois and its neighbors. And it’s probably worth noting that the tax gap is the largest with the two states – Indiana and Missouri – that have the longest borders with Illinois.

While the aggregate tax burden is an important measure, I’ve explained before that it’s also important to focus on marginal tax rates. After all, that’s the variable that determines incentives for productive behavior since it measures how much the government confiscates when investors and entrepreneurs generate additional wealth.

And this brings us to the most important point in the article. Illinois politicians want to move in the wrong direction on marginal tax rates while neighboring jurisdictions are moving in the right direction.

Except for Iowa, all of Illinois’ neighbors have cut their income taxes since Illinois adopted its “temporary” income tax increases in 2011—and Iowa is on the verge of adopting a tax reform package that cuts individual income tax rates… Over the same period, Illinois’ single-rate income tax was temporarily raised from 3 to 5 percent, then allowed to partially sunset to 3.75 percent before being raised to the current 4.95 percent rate. A 1.5 percent surtax on pass-through business income brings the rate on many small businesses to 6.45 percent. Now there are calls to amend the state constitution to allow graduated-rate income taxes, with proposals circulating to create a top marginal rate as high as 9.85 percent (11.35 percent on pass-through businesses).

Here’s the chart showing the top rate in various states in 2011, the top rates today, and where top tax rates could be in the near future.

What’s especially remarkable is that Illinois politicians are poised to jack up tax rates just as federal tax reform has significantly reduced the deduction for state and local taxes.

For all intents and purposes, they’re trying to drive job creators out of the state (a shift that already has been happening, but now will accelerate).

Normally, when I write that a jurisdiction is committing fiscal suicide, I try to explain that it’s a slow-motion process. Illinois, however, could be taking the express lane. No wonder readers overwhelmingly picked the Land of Lincoln when asked which state will be the first to suffer a fiscal collapse.

P.S. Illinois politicians claim they want to bust the flat tax so they can impose higher taxes on the (supposedly) evil rich. High-income taxpayers doubtlessly will be the first on the chopping block, but I can say with 99.99 percent certainty that class-warfare tax increases will be a precursor to higher taxes on everybody.

P.P.S. Illinois residents should move to states with no income taxes. But if they only want to cross one border, Indiana would be a very good choice. And Kentucky just shifted to a flat tax, so that’s another potential option.

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A couple of months ago, I thought I did something meaningful by sharing six separate examples of the International Monetary Fund pressuring sub-Saharan African nations to impose higher tax burdens. This was evidence, I suggested, that the IMF had a disturbing agenda of bigger government for the entire region.

I didn’t imply the bureaucrats were motivated by racism. After all, the IMF has pushed for higher taxes in the United States, in China, in Latin America, in the Middle East, and in Europe. (folks who work at the IMF don’t pay taxes on their own salaries, but they clearly believe in equal opportunity when urging higher taxes for everyone else).

Nonetheless, I thought it was scandalous that the IMF was systematically agitating for taxes in a region that desperately needs more investment and entrepreneurship. And my six examples were proof of a continent-wide agenda!

But it turns out that I wasn’t exposing some sort of sinister secret. The IMF just published a new report where the bureaucrats openly argue that there should be big tax hikes in all sub-Saharan nations.

Domestic revenue mobilization is one of the most pressing policy challenges facing sub-Saharan African countries. …the region as a whole could mobilize about 3 to 5 percent of GDP, on average, in additional revenues. …domestic revenue mobilization should be a key component of any fiscal consolidation strategy. Absent adequate efforts to raise domestic revenues, fiscal consolidation tends to rely excessively on reductions in public spending.

Notice, by the way, the term “domestic revenue mobilization.” Such a charming euphemism for higher taxes.

And it’s also worth pointing out that the IMF openly urges more revenue so that governments don’t have to impose spending restraint.

Moreover, the IMF is happy that there have been “substantial gains in revenue mobilization” over the past two decades.

Over the past three decades, many sub-Saharan African countries have achieved substantial gains in revenue mobilization. For the median sub-Saharan African economy, total revenue excluding grants increased from around 14 percent of GDP in the mid-1990s, to more than 18 percent in 2016, while tax revenue increased from 11 to 15 percent. …Two-thirds of sub-Saharan African countries now have revenue ratios above 15 percent, compared with fewer than half in 1995. …the region still has the lowest revenue-to-GDP ratio compared to other regions in the world. The good news is that there are signs of convergence. Over the past three decades, the increase in sub-Saharan Africa’s revenue ratio has been double that for all emerging market and developing economies.

To the bureaucrats at the IMF, the “convergence” toward higher taxes is “good news.”

However, there is some data in the report that is genuine good news.

In most regions of the world, there has been a trend in recent years toward reducing rates for the CIT and the personal income tax (PIT). In sub-Saharan African countries, the average top PIT rate has been reduced from about 44 to 32 percent since 2000, while average top CIT rates have been reduced by more than 5 percentage points during the same period.

Here are two charts showing the decline in tax rates, not only in Africa, but in most other regions.

By the way, the IMF bureaucrats appear to be surprised that revenues went up as tax rates went down. I guess they’ve never heard of the Laffer Curve.

Despite this decline in rates, total direct taxes (PIT and CIT) as a percentage of GDP have been trending upward.

But the IMF obviously didn’t learn from this evidence (or from the evidence it shared last year).

Rather than proposing lower tax rates, the report urges a plethora of tax hikes.

Successful experiences in revenue mobilization have relied on efforts to implement broad-based VATs, gradually expand the base for direct taxes (CIT and PIT), and implement a system to tax small businesses and levy excises on a few key items.

Wow. I don’t know what’s worse, claiming that tax increases are good for growth, or pushing higher taxes in the world’s poorest region.

Let’s close by debunking the IMF’s absurd contention that bigger government would be good for Africa.

I suppose the simplest response would be to share my video series about the economics of government spending, especially since I cite a wealth of academic research.

But let’s take an even simpler approach. The IMF report complained that governments in sub-Saharan Africa don’t have enough money to spend.

The good news, as illustrated by this chart (based on data from the bureaucracy’s World Economic Outlook database), is that the IMF is accurate about relative fiscal burdens.

The bad news is that the IMF wants us to believe that a low fiscal burden is a bad thing. The bureaucrats at the IMF (and at other international bureaucracies) actually want people to believe that bigger government means more prosperity. Which is why the report urges big tax hikes.

But you won’t be surprised to learn that the IMF doesn’t provide any evidence for this bizarre assertion.

Though I’ve had folks on the left sometimes tell me that bigger government must be good for growth because rich nations in the western world have bigger governments while poor nations in Africa have comparatively small governments.

If you want to get in the weeds of public finance theory, the IMF bureaucrats are misinterpreting Wagner’s Law.

But there’s no need to delve into theory. When people make this assertion to me, I challenge them to identify a poor nation that ever became a rich nation with big government.

It’s true, of course, that there are rich nations that have big governments, but all of those countries became rich in the 1800s when government was very small and welfare state programs were basically nonexistent.

So let’s take the previous chart, which supposedly showed too little spending in sub-Saharan Africa, and add another column (in red) showing the level of government spending in North America and Western Europe in the 1800s.

The obvious takeaway is that African nations should cut taxes and reducing spending. The exact opposite of what the IMF recommends.

In other words, the IMF’s agenda of bigger government and higher taxes is a recipe for continued poverty.

But keep in mind that fiscal policy is just one piece of the puzzle. As explained in Economic Freedom of the World, a nation’s prosperity also is affected by regulatory policy, trade policy, monetary policy, and quality of governance.

And nations in sub-Saharan Africa generally score even lower in those areas than they do for fiscal policy. So while those countries should reduce their fiscal burdens, it’s probably even more important for them to address other policy mistakes.

To end on an upbeat note, here’s a video from Reason about how free markets can help bring prosperity to Africa.

I also recommend this video from the Center for Freedom and Prosperity since it does a great job of debunking the argument that higher taxes and bigger government are a recipe for prosperity.

And this video about Botswana is a good case study of how African nations can enjoy more prosperity with market-oriented policy.

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I was a big fan of the lower corporate tax rate in last year’s tax bill, largely because I want a better investment climate, which then will lead to higher productivity and rising wages.

Simply stated, the current tax code (as shown in the chart) has a very harsh bias against income that is saved and invested.

Anything that can be done to reduce the magnitude of this “double taxation” will lead to better economic performance.

Now that the lower corporate tax rate has been implemented, there’s a debate about whether it is having desirable affects.

In this CNBC debate, I explain that stock “buybacks” and employee bonuses are positive short-run results, but that I’m much more interested in the potential long-run benefits.

As with all brief interviews, it’s difficult to share a lot of information. My main goal was to point out that there’s nothing wrong with buybacks for shareholders or bonuses for workers, but that it’s much more important to focus on potential changes in long-run growth.

And we’ll get more long-run growth, I argue, because the lower corporate rate reduces the tax burden on capital (i.e., saving and investment). Jared dismisses this as “trickle-down economics,” but that’s simply his pejorative term for common-sense microeconomics.

But you don’t have to believe me. Many scholars have pointed out that harsh taxes on capital wind up hurting workers. Let’s look at some of the findings from an academic study by Gregory Mankiw, Matthew Weinzierl,  and Danny Yagan.

Perhaps the most prominent result from dynamic models of optimal taxation is that the taxation of capital income ought to be avoided. …The intuition for a zero capital tax can be developed in a number of ways. …First, because capital equipment is an intermediate input to the production of future output, the Diamond and Mirrlees (1971) result suggests that it should not be taxed. Second, because a capital tax is effectively a tax on future consumption but not on current consumption, it violates the Atkinson and Stiglitz (1976) prescription for uniform taxation. In fact, a capital tax imposes an ever-increasing tax on consumption further in the future, so its violation of the principle of uniform commodity taxation is extreme. A third intuition for a zero capital tax comes from elaborations of the tax problem considered by Frank Ramsey (1928). In important papers, Chamley (1986) and Judd (1985) examine optimal capital taxation in this model. They find that…a zero tax on capital is optimal. …any tax on capital income will leave the after-tax return to capital unchanged but raise the pre-tax return to capital, reducing the size of the capital stock and aggregate output in the economy. This distortion is so large as to make any capital income taxation suboptimal compared with labor income taxation, even from the perspective of an individual with no savings.

And here’s some analysis by Garret Jones at George Mason University.

Chamley and Judd separately came to the same discovery: In the long run, capital taxes are far more distorting that most economists had thought, so distorting that the optimal tax rate on capital is zero.  If you’ve got a fixed tax bill it’s better to have the workers pay it. …let me sum up a key implication of Chamley-Judd: Under standard, pretty flexible assumptions, it’s impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers. Not, hard, not inefficient, not socially wasteful, not immoral: Impossible. If you tax capital income and hand all of the tax revenue to workers, then in the long run (or the “steady state”) you’ll wind up with a smaller capital stock. And since workers use the capital stock to earn their wages, the capital tax pushes down their wages.

Even economists on the left agree about the link between productivity and wages. Here’s a recent article from the Wall Street Journal, citing Larry Summers about why wages are still linked to productivity and why growth should still be the goal.

Wages are supposed to track worker productivity… Many on the left argue the link is now broken and redistributing income from the wealthy downward would help workers more than faster economic growth. But a new study co-authored by Harvard University economist Lawrence Summers says that’s wrong. …The problem, they conclude, is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way. …Over one- to five-year periods between 1973 and 2015, they found that a one-percentage-point increase in productivity growth generally led to a 0.5- to one-percentage-point increase in average or median pay growth, depending on the type of workers measured. …In an interview, Mr. Summers says the idea that “policy should shift from growth to inequality is badly misleading.”

Let’s close with some excerpts from an article in the Cayman Financial Review by Orphe Divounguy.

Historically, productivity growth has led to gains in compensation for workers and greater profits for firms. This has big implications for tax policy – especially the degree to which capital is taxed since capital – an essential ingredient to improvements in workers’ living standards – is highly responsive to changes in the tax climate. …The standard theory of optimal taxation argues that a tax system should maximize social welfare subject to a set of constraints. The goal should be to enact a tax system that maximizes households’ welfare… Pioneering work on optimal taxation is the work of Frank Ramsey (1927), who suggested…only commodities with inelastic demand are taxed. Another important contribution on this topic is the work of James Mirlees (1971), who posits that when a tax system aims to redistribute income from high ability to low ability individuals, the tax system should provide sufficient incentive for high-ability/high-income taxpayers to keep producing… the empirical evidence on the effects of taxation largely supports a move away from capital taxation. …higher taxes on capital income discourage investments in productive capital. This reduction in productive capital causes workers to become less productive, thus causing the real wage to decrease.

Amen. The bottom line is that you can’t punish capital without punishing labor.

Which is the point of this great cartoon, which I gather was campaign literature at some point for the British Liberal Party (with “liberal” meaning “classical liberal“). It correctly captures the key point about labor and capital being complementary factors of production.

This chart makes the same point.

P.S. I’ve debunked the argument that capital is taxed at a lower rate than labor.

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I wrote last July about how greedy politicians in Seattle, Washington, were trying to impose a local income tax.

That effort has been stymied since there’s anti-income-tax language in the state constitution (Washington is one of nine states without that punitive levy), but that doesn’t mean the city’s tax-and-spend crowd has given up.

There’s a proposal for a new scheme to impose a “head tax” on successful companies.

The top three percent of the high grossing businesses in Seattle will carry the load of Seattle’s proposed employee head tax. Backers are calling it the “Progressive Tax on Business.” The tax will apply only to those companies with $20 million or more annually in taxable gross receipts as measured under the City’s Business and Occupation tax. The city estimates that will be 500 businesses. …the tax is based on total revenues and not net-income. …Councilmember Mike Obrien has been pushing to a head tax for two years and doesn’t believe businesses will leave Seattle because of it.

I suppose this might be a good opportunity to point out that this tax is bad for growth and that it will encourage out-migration from the city.

Or perhaps I could make a wonky point about how this tax is related to the income tax in the same way a gross receipts tax is related to a sales tax.

But I’m motivated instead to focus on the very heartening response to this tax grab by both business and labor.

Here’s how the city’s leading employer is responding.

Amazon is…making its opposition known to a proposed Seattle tax by bringing a halt to all planning on a massive project scheduled for construction in Downtown Seattle, and may tweak its plans to occupy a new downtown skyscraper. “I can confirm that pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainier Square building,” says Amazon Vice President Drew Herdener. …Jon Scholes, president of the Downtown Seattle Association, said the City Council should take heed of Amazon’s decision.

But some of the class-warfare politicians are oblivious to real-world concerns.

Two supporters of the tax, City Council members Kshama Sawant and Mike O’Brien, seemed unmoved by Amazon’s decision. “I understand Amazon doesn’t like it. I’m sure they would love to go to a city that has no taxes. And maybe they will find that place,” O’Brien said. …Added Sawant, “Amazon is perfectly capable of paying that, double, even four times that.” She also called Amazon’s tactic “extortion.”

I don’t know if Sawant is an idiot or a demagogue. What’s she’s basically arguing is that if a victim runs away from a mugger, the victim is an extortionist.

Wow, that’s a novel (and French) way of looking at the world.

That being said, there’s probably nothing surprising about the business community resisting a tax on business. So here’s the part of the story that really warms my heart.

Private-sector workers also are protesting.

Construction workers shouted down Seattle City Councilmember Kshama Sawant on Thursday as she attempted to speak in favor of Seattle ‘s proposed new “head tax” at an open-air news conference. The construction workers shouted “No head tax!” each time Sawant tried to speak in favor of the measure… The conference, held outside Amazon’s Spheres, was intended to show support for the head tax and opposition to Amazon’s announcement of a construction pause on a massive downtown construction project. But the group of about 20 construction workers showed up and drowned out Sawant’s message. …construction workers…praised Amazon for providing well-paying jobs to thousands of Seattle-area residents.

Unsurprisingly, Ms. Sawant doesn’t care about workers. She simply wants the money so she can buy votes.

Amazon would pay more than $20 million of that total under the proposal. …Sawant maintains that Amazon could easily afford to pay that amount.

Let’s close with some good news. Seattle isn’t normally considered a hotbed of free market thinking (though a disproportionate share of my readers are in the state of Washington).

So I’m guessing Ms. Sawant and her greedy colleagues probably are not very happy about this (admittedly unscientific) polling data.

This is very encouraging. Hopefully it’s a sign of the good things that can happen with private workers (unionized or not) and private employers join forces to protect themselves from politicians.

It will be interesting to see how the City Council responds. If they move forward with this tax grab, Seattle truly will be in the running to the Greece of America.

And if that trend continues, don’t be surprised if Amazon’s soon-to-be-announced second headquarters eventually morphs into its primary headquarters (hopefully without any cronyism).

P.S. It goes without saying (but I’ll say it anyhow) that the state of Washington should never, ever, allow a state income tax.

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When I did a poll earlier this year, asking which state would be the first to suffer a fiscal crisis, I wasn’t terribly surprised that Illinois wound up in first place.

But I was surprised by the margin. Even though there’s a good case to be made for basket-case jurisdictions such as New Jersey, California, and Connecticut, Illinois not only got a plurality of votes, it received an absolute majority.

Based on what’s happening in the Land of Lincoln, it appears that state politicians want to receive a supermajority of votes. There’s pressure for ever-higher taxes to finance an ever-more-bloated bureaucracy.

And taxpayers are voting with their feet.

The Wall Street Journal editorialized about the consequences of the state’s self-destructive fiscal policy.

Democrats in Illinois ought to be especially chastened by new IRS data showing an acceleration of out-migration. The Prairie State lost a record $4.75 billion in adjusted gross income to other states in the 2015 tax year, according to recently IRS data released. That’s up from $3.4 billion in the prior year. …Florida with zero income tax was the top destination for Illinois expatriates… What’s the matter with Illinois? Too much for us to distill in one editorial, but suffice to say that exorbitant property and business taxes have retarded economic growth. …Taxes may increase as Democrats scrounge for cash to pay for pensions. …Illinois’s unfunded pension liabilities equalled 22.8% of residents’ personal income last year, compared to a median of 3.1% across all states and 1% in Florida. …Illinois’s economy has been stagnant, growing a meager 0.9% on an inflation-adjusted annual basis since 2012—the slowest in the Great Lakes and half as fast as the U.S. overall. This year nearly 100,000 individuals have left the Illinois labor force.

Here’s a chart showing a very depressing decline in the state’s labor force.

By the way, I wonder whether the chart would look even worse if government bureaucrats weren’t included.

The Chicago Tribune has a grim editorial about what’s happening.

From millennials to retirees, …Illinois is losing its promise as a land of opportunity. Government debt and dysfunction contribute to a weak housing market and a stagnant jobs climate. State and local governments face enormous pension and other obligations. Taxes have risen sharply; many Illinois politicians say they must rise more. People are fleeing. Last year’s net loss: 33,703.

In an editorial for the Chicago Tribune, Kristen McQueary correctly worries about the trend.

It’s one thing to harbor natural skepticism toward government. It’s quite another to take the dramatic step of moving your family, your home, your livelihood to another state to escape it. But it’s happening. The naysayers and deniers blame the weather. They eye-roll the U-Haul rebellion. They downplay the dysfunction. Good riddance to those stingy taxpayers, they trumpet. But that is a shallow, ignorant and elitist viewpoint that dismisses the thoughtful and wrenching decisions thousands of once-devoted Illinoisans have made. For four years in a row, Illinois has lost population in alarming numbers. In 2017, Illinois lost a net 33,703 residents, the largest numerical population decline of any state. That’s the size of St. Charles or Woodridge or Galesburg. Wiped off the map. In one year. …Policy choices have consequences. …People are fleeing Illinois. And still, Democratic leaders in Chicago and Cook County, and their supporters, generally deny that high taxes, underfunded pensions, government debt and political dysfunction are the reasons for the exodus — or that it’s acute.

Newspapers in other states have noticed, as evinced by this editorial from the Las Vegas Review-Journal.

When the progressive political class preaches equality and prosperity, but bleeds productive citizens dry by treating them as little more than human ATMs, there should be little surprise when those same citizens take themselves (and their green) to greener pastures. Perhaps no state in the nation is seeing a bigger such exodus than Illinois. …On the flip side, all of the states surrounding Illinois saw their populations increase… Illinois is experiencing a self-inflicted storm of fiscal distress. …While state income taxes in Illinois don’t reach they level impose in states such as New York and California, that’s not for a lack of trying. The state raised its rate by 32 percent over the summer, and Democrats want to even more progressive tax rates to pay for all the goodies they’ve promised to Big Labor in order to grease their re-elections. …Illinois is a financial basket case — which is what you get when you combine political patronage with powerful public-sector unions that control leftist politicians. The state should be a case study for other jurisdictions on how not to conduct public policy. After all, who will pay the bills when the taxpayers flee?

Steve Chapman, in a column for Reason, expects more bad news for Illinois because of pressure for higher taxes.

With the biggest public pension obligations, the slowest personal income growth, and the biggest population loss of any state, it has consistently recorded achievements that are envied by none but educational to all. The state is in the midst of a debilitating fiscal and economic crisis. …Illinois has endured two income tax increases in the past seven years. In 2011, the flat rate on individual income jumped from 3 percent to 5 percent. In 2015, under the original terms, it fell to 3.75 percent—a “cut” that left the rate 25 percent above what it was in 2010. Then last year, over Gov. Bruce Rauner’s veto, the legislature raised the rate to 4.95 percent. None of these changes has ended the state’s economic drought, and it’s reasonable to assume they actually made it drier. …well-paid people can’t generally leave the country to find lower tax rates. They can leave one state for another, and they do. …A 2016 poll by the Paul Simon Public Policy Institute at Southern Illinois University found that nearly half of residents would like to leave the state—and that “taxes are the single biggest reason people want to leave.”

The Wall Street Journal opined on the state’s slow-motion suicide.

The only…restraint…on public union governance in Illinois…the state’s flat income tax. …Democrats in Springfield have filed three constitutional amendments to establish a graduated income tax… Democrats are looking for more revenue to finance ballooning pension costs, which consume about a quarter of state spending. …Connecticut and New Jersey provide cautionary examples. Democrats in both states have soaked their rich time and again, and the predictable result is that both states have fewer rich to soak. Economic growth slowed and revenues faltered. This vicious cycle is already playing out in Illinois amid increasing property, income and business taxes. Over the last four years, Illinois GDP has risen a mere 0.9% per year, half the national average and the slowest in the Great Lakes region. Between 2012 and 2016, Illinois lost $18.35 billion in adjusted gross income to other states. …Democrats claim a progressive income tax will spare the middle-class, but sooner or later they’ll be the targets too because there won’t be enough rich to finance the inexorable demands of public unions. …Once voters approve a progressive tax, Democrats can ratchet up rates as their union lords dictate.

While a bloated and over-compensated bureaucracy (especially unfunded promises for lavish retiree benefits) is the top fiscal drain, the state also loves squandering money in other ways.

Here are some excerpts from a piece in the Belleville News-Democrat.

Illinois is the dependency capital of the Midwest. No other state in the region has more of its population dependent on food stamps… So what’s driving the state’s dependency crisis? State bureaucrats using loopholes and gimmicks to keep more people dependent on welfare. According to the Illinois Department of Human Services, nearly 175,000 able-bodied childless adults are on the program. These are adults in their prime working years — between the ages of 18 and 49 — with no dependent children and no disabilities keeping them from meaningful employment. …the state has relied upon loopholes and gimmicks to trap more and more able-bodied adults in dependency. Federal law allows states to seek temporary waivers of the work requirement in areas with unemployment rates above 10 percent or with a demonstrated lack of job opportunities in the region. …the Illinois Department of Human Services…used old data and it gerrymandered the request in whatever way was necessary to keep more able-bodied adults on welfare. …State bureaucrats have gamed the system and as a result, thousands of able-bodied adults will remain trapped in dependency, with little hope of better lives.

Let’s close with some excerpts from a very depressing column in the Chicago Tribune by Diana Sroka Rickert.

…this is a state government that has been broken for decades. It is designed to reject improvement in every form, at every level. …The Thompson Center…is a near-perfect representation of state government. It is gross, rundown, and nobody cares. …there is a disturbing sense of entitlement among some state employees. …Underperformers aren’t fired; they’re simply transferred to different positions, shuffled elsewhere on the payroll or tucked away at state agencies. …this is a state government that is ranked last by almost every objective and measurable standard. A state government that fails every single one of its residents, day after day — and has failed its residents for decades. A state government that demands more and more money each year, to deliver increasingly less value.

Keep in mind, incidentally, that all this bad news will almost certainly become worse news thanks to last year’s tax reform. Restricting the state and local tax deduction means a much smaller implicit federal subsidy for high-tax states.

P.S. If you want good news on state tax policy, South Dakota may have the nation’s best system. And North Carolina arguably has taken the biggest step in the right direction. Kentucky, meanwhile, has just switched to a flat tax.

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