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Archive for the ‘Texas’ Category

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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While there are many things I admire about Scandinavian nations, I’ve never understood why leftists such as Bernie Sanders think they are great role models.

Not only are income levels and living standards higher in the United States, but the data show that Americans of Swedish origin in America have much higher incomes than the Swedes who still live in Sweden. And the same is true for other Nordic nations.

The Nordics-to-Nordics comparisons seem especially persuasive because they’re based on apples-to-apples data. What other explanation can there be, after all, if the same people earn more and produce more when government is smaller?

The same point seems appropriate when examining how people of Chinese origin earn very high incomes in Hong Kong, Singapore, Taiwan, and the United States (all places with reasonably high levels of economic liberty), but are relatively poor in China (where there is still far too much government control over economic affairs).

Again, what possible explanation is there other than the degree of economic freedom?

Let’s now look at two other examples of how leftist arguments fall apart when using apples-to-apples comparisons.

A few years ago, there was a major political fight in Wisconsin over the power of unionized government bureaucracies. State policy makers eventually succeeded in curtailing union privileges.

Some commentators groused that this would make Wisconsin more like non-union Texas. And the Lone Star States was not a good role model for educating children, according to Paul Krugman.

This led David Burge (a.k.a., Iowahawk) to take a close look at the numbers to see which state actually did a better job of educating students. And when you compare apples to apples, it turns out that Longhorns rule and Badgers drool.

…white students in Texas perform better than white students in Wisconsin, black students in Texas perform better than black students in Wisconsin, Hispanic students in Texas perform better than Hispanic students in Wisconsin. In 18 separate ethnicity-controlled comparisons, the only one where Wisconsin students performed better than their peers in Texas was 4th grade science for Hispanic students (statistically insignificant), and this was reversed by 8th grade. Further, Texas students exceeded the national average for their ethnic cohort in all 18 comparisons; Wisconsinites were below the national average in 8… Not only did white Texas students outperform white Wisconsin students, the gap between white students and minority students in Texas was much less than the gap between white and minority students in Wisconsin. In other words, students are better off in Texas schools than in Wisconsin schools – especially minority students.

This is what I call a devastating debunking.

Though Krugman routinely invites mockery, and I’ve enjoyed exposing his disingenuous, sloppy, and dishonest use of data on issues such as Obamanomics, California jobs, American fiscal policy, Greek economics, U.S. and U.K. austerity, German fiscal policy, Estonian economics, British fiscal policy, inflation, European austerity, the financial crisis, and the Heritage Foundation.

Gee, with all these examples, I wonder if there’s a pattern?

Our second example showing the value of apples-to-apples comparisons deals with gun control.

Writing for PJ Media, Clayton Cramer compares murder rates in adjoining American states and Canadian provinces. he starts by acknowledging that a generic US-v.-Canada comparison might lead people to think gun rights are somehow a factor in more deaths.

…for Canada as a whole, murder rates are still considerably lower than for the United States as a whole. For 2011, Canada had 1.73 homicides per 100,000 people; the United States had 4.8 murders and non-negligent homicides per 100,000 people.

But he then makes comparisons that suggest guns are not a relevant factor.

…look at murder rates for Canadian provinces and compare them to their immediate American state neighbors. When you do that, you discover some very curious differences that show gun availability must be either a very minor factor in determining murder rates, or if it is a major factor, it is overwhelmed by factors that are vastly more important.

Gun ownership is easy and widespread in Idaho, for instance, but murder rates are lower than in many otherwise similar Canadian provinces.

I live in Idaho.  In 2011, our murder rate was 2.3 per 100,000 people.  We have almost no gun-control laws here. You need a permit to carry concealed in cities, but nearly anyone who may legally own a firearm and is over 21 can get that permit.  We are subject to the federal background check on firearms, but otherwise there are no restrictions. Do you want a machine gun? And yes, I mean a real machine gun, not a semiautomatic AR-15. There is the federal paperwork required, but the state imposes no licensing of its own.  I have friends with completely legal full-automatic Thompson submachine guns. Surely with such lax gun-control laws, our murder rate must be much higher than our Canadian counterparts’ rate. But this is not the case: I was surprised to find that not only Nunavut (21.01) and the Northwest Territories (6.87) in Canada had much higher murder rates than Idaho, but even Nova Scotia (2.33), Manitoba (4.24), Saskatchewan (3.59), and Alberta (2.88) had higher murder rates.

The same is true for other states (all with laws that favor gun ownership) that border Canada.

What about Minnesota? It had 1.4 murders per 100,000 in 2011, lower than not only all those prairie provinces, but even lower than Canada as a whole.  Montana had 2.8 murders per 100,000, still better than four Canadian provinces and one Canadian territory.  When you get to North Dakota, another one of these American states with far less gun control than Canada, the murder rate is 3.5 per 100,000, still lower than Manitoba, Saskatchewan, the Northwest Territories, and Nunavut.  And let me emphasize that Minnesota, Montana, and North Dakota, like Idaho, are all shall-issue concealed-weapon permit states: nearly any adult without a felony conviction or a domestic violence misdemeanor conviction can obtain a concealed weapon permit with little or no effort.

The takeaway from this evidence (as well as other evidence I have shared) is that availability of guns doesn’t cause murders.

Other factors dominate.

P.S. Regarding the gun control data shared above, some leftists might be tempted to somehow argue that American states with cold weather somehow are less prone to violence. That doesn’t make sense since the Canadian provinces presumably are even colder. Moreover, that argument conflicts with this bit of satire comparing murder rates in chilly Chicago and steamy Houston.

P.P.S. In his role as Iowahawk, David Burge has produced some great political satire, including extortion by Obama’s teleprompter, the bible according to Obama, mockery of the Obama campaign’s life-of-Julia moocher, and (my favorite) the video about a government-designed car.

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Much of my writing is focused on the real-world impact of government policy, and this is why I repeatedly look at the relative economic performance of big government jurisdictions and small government jurisdictions.

But I don’t just highlight differences between nations. Yes, it’s educational to look at North Korea vs. South Korea or Chile vs. Venezuela vs. Argentina, but I also think you can learn a lot by looking at what’s happening with different states in America.

So we’ve looked at high-tax states that are languishing, such as California and Illinois, and compared them to zero-income-tax states such as Texas.

With this in mind, you can understand that I was intrigued to see that even the establishment media is noticing that Texas is out-pacing the rest of the nation.

Here are some excerpts from a report by CNN Money on rapid population growth in Texas.

More Americans moved to Texas in recent years than any other state: A net gain of more than 387,000 in the latest Census for 2013. …Five Texas cities — Austin, Houston, San Antonio, Dallas and Fort Worth — were among the top 20 fastest growing large metro areas. Some smaller Texas metro areas grew even faster. In oil-rich Odessa, the population grew 3.3% and nearby Midland recorded a 3% gain.

But why is the population growing?

Well, CNN Money points out that low housing prices and jobs are big reasons.

And on the issue of housing, the article does acknowledge the role of “easy regulations” that enable new home construction.

But on the topic of jobs, the piece contains some good data on employment growth, but no mention of policy.

Jobs is the No. 1 reason for population moves, with affordable housing a close second. …Jobs are plentiful in Austin, where the unemployment rate is just 4.6%. Moody’s Analytics projects job growth to average 4% a year through 2015. Just as important, many jobs there are well paid: The median income of more than $75,000 is nearly 20% higher than the national median.

That’s it. Read the entire article if you don’t believe me, but the reporter was able to write a complete article about the booming economy in Texas without mentioning – not even once – that there’s no state income tax.

But that wasn’t the only omission.

The article doesn’t mention that Texas is the 4th-best state in the Tax Foundation’s ranking of state and local tax burdens.

The article doesn’t mention that Texas was the least oppressive state in the Texas Public Policy Foundation’s Soft Tyranny Index.

The article doesn’t mention that Texas was ranked #20 in a study of the overall fiscal condition of the 50 states.

The article doesn’t mention that Texas is in 4th place in a combined ranking of economic freedom in U.S. state and Canadian provinces.

The article doesn’t mention that Texas was ranked #11 in the Tax Foundation’s State Business Tax Climate Index.

The article doesn’t mention that Texas is in 14th place in the Mercatus ranking of overall freedom for the 50 states (and in 10th place for fiscal freedom).

By the way, I’m not trying to argue that Texas is the best state.

Indeed, it only got the top ranking in one of the measures cited above.

My point, instead, is simply to note that it takes willful blindness to write about the strong population growth and job performance of Texas without making at least a passing reference to the fact that it is a low-tax, pro-market state.

At least compared to other states. And especially compared to the high-tax states that are stagnating.

Such as California, as illustrated by this data and this data, as well as this Lisa Benson cartoon.

Such as Illinois, as illustrated by this data and this Eric Allie cartoon.

And I can’t resist adding this Steve Breen cartoon, if for no other reason that it reminds me of another one of his cartoons that I shared last year.

Speaking of humor, this Chuck Asay cartoon speculates on how future archaeologists will view California. And this joke about Texas, California, and a coyote is among my most-viewed blog posts.

All jokes aside, I want to reiterate what I wrote above. Texas is far from perfect. There’s too much government in the Lone Star state. It’s only a success story when compared to California.

P.S. Paul Krugman has tried to defend California, which has made him an easy target. I debunked him earlier this year, and I also linked to a superb Kevin Williamson takedown of Krugman at the bottom of this post.

P.P.S. Once again, I repeat the two-part challenge I’ve issued to the left. I’ll be happy if any statists can successfully respond to just one of the two questions I posed.

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When people in other nations ask me for evidence in favor of low taxes, I often will ask them to compare the economic performance of a high-tax nation like France with the performance of a nation such as Switzerland with less onerous taxes.

If I’m asked by Americans, I generally suggest that they compare different states. For instance, I show them evidence that California has a much more punitive tax system than Texas. And when you look at all the available state rankings, it’s clear that there’s a big difference.

*Tax burdens as a share of state income.

*The State Tyranny Index.

*Mercatus State Fiscal Ranking.

*State Business Tax Climate Index.

*Tax Foundation’s Tax Freedom Day.

*State Freedom Index.

*Death Spiral states.

And I then ask folks to compare economic performance. There’s lots of evidence that Texas is growing much faster and creating far more jobs than California.

Heck, it’s almost as if California politicians want to drive successful people out of the Golden State (fortunately, the state’s politicians didn’t read Walter Williams’ satirical column about putting a barbed-wire fence at the border). And when upper-income taxpayers leave the state, that means taxable income and tax revenue also escape.

Though it’s worth pointing out that the case for low taxes isn’t based solely on comparisons of Texas and California. We know, for instance, that states with no income taxes generally outperform other states.

Moreover, we don’t need to rely on casual empiricism. Here are some of the results from a new study published by the Mercatus Center.

…this study uses the average tax rate as a practical approximation of the overall state tax burden. …The coefficient of average tax rate is negative and statistically significant in both models, suggesting that a higher tax burden as a share of income reduces state economic growth. …Elasticity of −2.6, for example, implies that a 1 percent increase in the tax rate decreases economic growth by 2.6 percent, not percentage points. …While the aforementioned income growth results are insightful, the impact of taxation on the level of income is also important. …income tax progressivity has a significant negative relationship with real GSP per capita. …An alternative way to measure economic activity is to look at the number of private firms that operate in each state. …The main conclusion from the two regression models is that only personal income tax progressivity seems to have a significant negative effect on the growth in the number of firms. … By voting with their feet, people send a clear signal about where they prefer to live and work. …an empirical analysis of migration may show, indirectly, how taxes affect the flow of economic activity across states. …state net immigration rate is negatively related to the personal income tax rate … The net immigration rate also seems to have a significantly negative correlation with the average tax rate and income tax progressivity.

These findings should not be a surprise.

It’s common sense that economic activity – and taxpayers – will flow to states that don’t punish people for creating wealth.

Let’s now circle back to the Texas-vs-California comparisons. Take a look at this remarkable chart put together by Mark Perry of the American Enterprise Institute.

As you can see, total employment in Texas has jumped almost 10 percent since 2008. In California, by contrast, total employment has increased by less than 2/10ths of 1 percent.

So you can see why this Lisa Benson cartoon is so appropriate.

Speaking of humor, this Chuck Asay cartoon speculates on how future archaeologists will view California. And this joke about Texas, California, and a coyote is among my most-viewed blog posts.

All jokes aside, none of this should be interpreted to suggest that Texas is perfect. There’s too much government in the Lone Star state. It’s only a success story when compared to California.

And even though California does worse than Texas in my Moocher Index, it’s worth pointing out that Californians are the least likely of all Americans to sign up for food stamps.

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One of the great things about federalism, above and beyond the fact that it both constrains the power of governments and is faithful to the Constitution, is that is turns every state into an experiment.

We can learn what works best (though the President seems incapable of learning the right lesson).

We know, for instance, that people are leaving high-tax states and migrating to low-tax states.

We also know that low-tax states grow faster and create more jobs.

I particularly enjoy comparisons between Texas and California. Michael Barone, for instance, documented how the Lone Star State is kicking the you-know-what out of the Golden State in terms of overall economic performance.

I also shared a specific example of high-quality jobs moving from San Francisco to Houston. And I was also greatly amused by this story (and accompanying cartoons) about Texas “poaching” jobs from California.

In this discussion with Stuart Varney of Fox News, we discuss how Texas is leading the nation in job creation.

But there’s another part of this discussion that is very much worth highlighting.

As illustrated by the chart, we are enduring the worst overall job performance in any business cycle since the end of World War II.

I note in the interview that Obama inherited a bad economy and that Bush got us in the ditch in the first place with all his wasteful spending and misguided intervention.

But Obama also deserves criticism for doubling down on those failed policies.

His so-called stimulus was a flop. Dodd-Frank is a regulatory nightmare. Obamacare is looking worse and worse every day.

No wonder job creation is so anemic.

The real moral of the story, though, is that the poor are the biggest victims of Obama’s statism. They’re the ones who have been most likely to lose jobs. They’ve been the ones to suffer because of stagnant incomes.

Sort of brings to mind the old joke that leftists must really like poor people because they create more of them whenever they’re in charge.

P.S. Speaking of jokes, here’s an amusing comparison of Texas and California. If you want some California-specific humor, this Chuck Asay cartoon is great. And to maintain balance, here’s a Texas-specific joke on how to respond to an attacker.

P.P.S. To close on a serious point, California would be deteriorating even faster if it wasn’t for the fact that the state and local tax deduction basically means that the rest of the country is subsidizing the high tax rates in the not-so-Golden State. Another good argument for the flat tax.

P.P.P.S. At the bottom of this post, you’ll find a great Kevin Williamson column dismantling some sloppy anti-Texas analysis by Paul Krugman.

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One of the new Tea Party senators, Ted Cruz, gained a lot of support when he was Solicitor General of Texas Texas Sovereigntyand successfully defended his state’s ability to execute a murderer over the objections of the International Court of Justice.

At the time, this fight even led me to confess one of my lurid fantasies.

Now we have another battle involving American states and an international bureaucracy.

Here are a couple of passages from a report in the Seattle Times.

A United Nations-based drug agency urged the United States government on Tuesday to challenge the legalization of marijuana for recreational use in Colorado and Washington, saying the state laws violate international drug treaties. …U.S. Attorney General Eric Holder said last week that he was in the last stages of reviewing the Colorado and Washington state laws. Holder said he was examining policy options and international implications of the issue.

Here’s a news flash for the bureaucrats at this branch of the United Nations in Vienna: American states are sovereign and don’t need to kowtow to a bunch of mandarins who get bloated (and tax free!) salaries in exchange for…well, I’m not sure what they do other than pontificate, gorge themselves at receptions, and enjoy first class travel at our expense while jetting from one conference to another.

If the people of Washington and Colorado want to legalize certain drugs, that’s their right. They haven’t signed any treaties with the United Nations.

By the way, this has nothing to do with whether drugs should be legalized.

Like John Stossel, Mona Charen, Gary Johnson, Pat Robertson, Cory Booker, and Richard Branson, I’m skeptical of the drug war.

But since I’m an abstainer, I confess I don’t really lose any sleep about the issue.

I generally do get agitated, by contrast, when international bureaucracies seek to impose one-size-fits-all policies on the world. Much of my ire is directed at the Paris-based Organization for Economic Cooperation and Development, which seeks to penalize jurisdictions that commit the horrible crime of having attractive tax regimes (or, to be more accurate, having tax regimes that are more attractive than those in places such as France and Germany).

But I also get upset with bad policies from the IMF, the World Bank, the EU mega-bureaucracy, and even the World Health Organization.

P.S. Have you ever noticed that U.N. offices are in swanky places such as New York City, Geneva, and Vienna? If these bureaucrats really want to help the world, why aren’t their offices in Havana, Lagos, and Chisinau.  That would be quite appropriate, after all, since Cuba, Nigeria, and Moldova are all members of the U.N. Human Rights Council.

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

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

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

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

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

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

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

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

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

Texas Seduction Cartoon

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

California Escape Cartoon

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

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

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

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

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