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Posts Tagged ‘Massachusetts’

In recent years, I’ve argued that America’s corporate tax system must be very bad if companies are not only redomiciling in places like Cayman and Bermuda, but also inverting to countries such as Canada and the United Kingdom.

Well, the same thing happens at the state level. Yes, companies (as well as entrepreneurs and investors) usually move from high-tax states to low-tax states, with zero-income tax jurisdictions like Texas reaping a windfall of new jobs.

But when a big company like General Electric announces that it will move its headquarters from Connecticut to a state like Massachusetts, that’s a damning indictment of Connecticut. After all, Massachusetts doesn’t exactly have a reputation as a low-tax refuge.

The always-superb editorial page of the Wall Street Journal looks at the big-picture implications.

Hard to believe, but Connecticut was once a low-tax haven in the Northeast. Its business climate has grown so hostile in recent years, however, that General Electric on Wednesday announced that it will move its headquarters to Boston. When Taxachusetts becomes a reprieve, Governor Dan Malloy ought to know Connecticut has a problem.

Exactly.

And what’s really amazing is that Connecticut didn’t even have an income tax as recently as 1990.

But once politicians got the power to impose that levy, the state has been in a downward spiral.

And it doesn’t appear that the decline will end anytime soon.

… last summer…Connecticut’s legislature grabbed an additional $1.3 billion in tax hikes, the fifth increase since 2011. …The state’s $40.3 billion two-year budget boosted the top marginal tax rate on individuals earning more than $500,000 to 6.99% from 6.7% and 6.5% in 2010. Mr. Malloy also extended for the second time a 20% corporate surtax that his Republican predecessor Jodi Rell had imposed in 2009. …The tax hikes have failed to cure Connecticut’s chronic budget woes.

Of course they haven’t. Raising taxes to cure an over-spending problem is like trying to douse a fire with gasoline.

But the tax-happy politicians have one achievement. They’ve managed to drive the economy into the dumps.

Since 2010 the…State has recorded zero real GDP growth, the lowest in the nation save Louisiana (-0.7%) and Maine (-0.6%). Connecticut is one of only four states (Illinois, Vermont, West Virginia) whose populations have declined since 2012.

Notwithstanding all this bad economic news, politicians in Hartford continue to spend like there’s no tomorrow.

Over the next two years spending is set to rise by $1.5 billion, including $700 million in higher personnel costs. Pension payments are soaring. Connecticut’s pension system is 48% funded, third worst in the country after Illinois and Kentucky.

Good grief, as Charlie Brown might say. The bottom line is that the productive people who are left in Connecticut should make plans to leave before it’s too late.

By the way, there are two other noteworthy observations in the WSJ‘s editorial.

First, I like the fact that General Electric has escaped the fiscal hell-hole of Connecticut, but I’m not a fan of the company because it likes to feed at the public trough.

And, indeed, it will be getting special privileges from Massachusetts.

Mr. Immelt says GE, which has been headquartered in Fairfield since 1974, selected Boston after considering…a “package of incentives” valued at as much as $145 million.

Huh, whatever happened to the quaint notion that the laws should apply equally to everyone? Why should GE enjoy one set of rules while other companies labor under a different set of rules?

I imagine Voltaire is spinning in his grave.

Second, even though Massachusetts was foolish enough to engage in favoritism for GE, the state actually isn’t as bad as its reputation.

As the WSJ explains, it has a flat tax for households and it also has been cutting its corporate rate.

Massachusetts has the lowest taxes in the Northeast outside of New Hampshire… The Tax Foundation ranks Massachusetts’s business tax climate 25th in the country, ahead of Georgia (39), Connecticut (44), Rhode Island (45) and New York (49). Massachusetts has worked to shake its high-tax image by cutting its corporate rate to 8% from 9.5% and flat income tax to 5.15% from 5.3% in 2008. In the same period, Connecticut has raised its corporate rate to 9% from 7.5% and its top income tax rate to 6.99% from 5%.

Wow, I’m embarrassed that I used to live in Connecticut.

Though, in my defense, I was a kid when my family escaped from New York and Connecticut was a zero-income tax state when that happened.

Now, though, Connecticut merely serves as a bad example.

There are two broad lessons from this episode.

  1. A state that doesn’t have an income tax should never allow the adoption of that awful levy. I’m thinking specifically of the folks in the Pacific Northwest since some of the big spenders in the state of Washington are advocating for that levy. And add Wyoming and Alaska to that list since politicians in those states over-spent when energy prices were high and some of them are now pushing to impose an income tax since tax receipts from energy are no longer climbing.
  2. A state with a flat tax should never allow the introduction of multiple rates. It’s remarkable that Massachusetts has a flat tax (thanks to an old provision in the state’s Constitution), but the key lesson is that the flat tax has made it difficult for leftist politicians to raise the rate since all taxpayers would be adversely impacted (this is also why it’s been difficult for big spenders in Illinois to raise tax rates). In a system with graduated rates, by contrast, it’s much easier for politicians to play the divide-and-conquer game and selectively raise some tax rate.

I’ll close with one additional observation that this story is yet another example of why federalism is good.

We get to learn the damaging impact of high taxes and excessive spending thanks to the fact that we still have some government taking place at the state and local level.

And this explains why our statist friends want centralization. If there’s a one-size-fits-all policy of high taxes and wasteful spending, it’s much harder to move across national borders than it is to move across state borders. That insulates politicians (though not fully since there are varying amounts of tax competition between nations, both for investment and people) from the consequences of their reckless behavior.

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It sounds strange, but my two favorite columns on gun control were authored by self-identified leftists. But they didn’t let ideology trump common sense.

Justin Cronin, for instance, explained that restrictions on gun ownership undermined his ability to protect his family. And Jeffrey Goldberg looked at the evidence and concluded that guns make people safer.

This doesn’t mean I don’t appreciate gun control columns by non-leftists. This Larry Correia piece, for instance, is must reading if you want to understand about magazine limits and so-called assault weapons.

And if you like real-world evidence, Jeff Jacoby of the Boston Globe examines what happened after Massachusetts adopted onerous gun control legislation. He starts by explaining the law and what supporters promised.

In 1998, Massachusetts passed what was hailed as the toughest gun-control legislation in the country. Among other stringencies, it banned semiautomatic “assault” weapons, imposed strict new licensing rules, prohibited anyone convicted of a violent crime or drug trafficking from ever carrying or owning a gun, and enacted severe penalties for storing guns unlocked. …One of the state’s leading anti-gun activists, John Rosenthal of Stop Handgun Violence, joined the applause. “The new gun law,” he predicted, “will certainly prevent future gun violence and countless grief.” It didn’t.

Legal gun ownership plummeted.

The 1998 legislation did cut down, quite sharply, on the legal use of guns in Massachusetts. Within four years, the number of active gun licenses in the state had plummeted. “There were nearly 1.5 million active gun licenses in Massachusetts in 1998,” the AP reported. “In June [2002], that number was down to just 200,000.”

Jacoby then explains, however, that the advocates of gun control were not very successful in restraining the behavior of criminals.

But the law that was so tough on law-abiding gun owners had quite a different impact on criminals. Since 1998, gun crime in Massachusetts has gotten worse, not better. In 2011, Massachusetts recorded 122 murders committed with firearms, the Globe reported this month — “a striking increase from the 65 in 1998.” Other crimes rose too. Between 1998 and 2011, robbery with firearms climbed 20.7 percent. Aggravated assaults jumped 26.7 percent.

Gee, what a surprise. The bad guys responded to incentives and committed more crimes once they knew that victims were less likely to be in a position to defend themselves.

To be fair, the statists do have a response.

Don’t hold your breath waiting for gun-control activists to admit they were wrong. …“Massachusetts probably has the toughest laws on the books, but what happens is people go across borders and buy guns and bring them into our state,” rationalizes Boston Mayor Tom Menino. “Guns have no borders.”

But here’s where Jacoby administers a knock-out punch. He looks at evidence from other states and shows that there’s no plausible alternative explanation to the proposition that more gun control is correlated with more crime.

…why didn’t the gun-control lobby warn legislators in 1998 that adopting the toughest gun law in America would do Massachusetts no good unless every surrounding state did the same thing? Far from explaining why the new law would do nothing to curb violent crime, they were positive it would make Massachusetts even safer.  …But crime in Massachusetts didn’t just continue, it began climbing. As in the rest of the country, violent crime had been declining in Massachusetts since the early 1990s. Beginning in 1998, that decline reversed — unlike in the rest of the country. …Guns-across-borders might have explained homicide levels in Massachusetts continuing unchanged. But how can other states’ policies be responsible for an increase in Massachusetts homicides? Relative to the rest of the country, or to just the states on its borders, Massachusetts since 1998 has become a more dangerous state. …In 1998, Massachusetts’s murder rate equaled about 70 percent of the rate for Vermont, New Hampshire, Maine, Connecticut, Rhode Island, and New York. Now it equals 125 percent of that rate. Clearly something bad happened to Massachusetts 15 years ago. Blaming the neighbors may be ideologically comforting. But those aren’t the states whose crime rates are up.

Game. Set. Match.

But just in case you’re still not convinced, check out some of the empirical work generated by John Lott.

Or check out some of the fact-based research on guns and crime by David Kopel.

In other words, even if you don’t care about the Constitution, there’s no case for gun control. Jeff Jacoby’s column is simply the 100th nail in the coffin.

P.S. Since I usually try to include something at least  vaguely amusing in my posts, click here to see some of my favorite examples of gun control humor.

P.P.S. You probably won’t be surprised to learn that cops overwhelming agree that gun control  is ineffective.

P.P.P.S. Jacoby does very good work and deserves more attention. Here are links to some of his columns that caught my eye.

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Running for the U.S. Senate in Massachusetts, Harvard professor and former Obama appointee Elizabeth Warren got her fellow leftists excited when she said, “There is nobody in this country who got rich on his own. Nobody” and added that “…part of the underlying social contract is you take a hunk of that and pay it forward for the next kid who comes along.”

She specifically pointed out that successful people depend on government-provided “public goods” such as roads, police, and education.

Given that the government is doing a terrible job with education, spending huge amounts of money for rather mediocre results, that was probably a foolish addition to her list. Regardless, she’s basically making a point that public goods benefit everybody. And she would like us to think that the “rich” benefit more than the rest of us, so they should pay more.

I had a couple of reactions when this story broke.

1. The rich already do pay a lot more, with the top 10 percent shouldering about 70 percent of the income tax burden. At what point would Ms. Warren be satisfied?

2. If you want a system where people pay proportionately more for public goods, isn’t that an argument for a simple and fair flat tax?

3. People get rich by providing value to the rest of us. Is it wise to subject those people to disproportionate tax penalties when that may discourage them from utilizing their talents?

4. If some people get rich illegitimately because of special handouts and subsidies from politicians, isn’t the solution to get rid of the bad programs rather than indiscriminately penalize all high-income households?

But I didn’t do a blog post, at least back when the story broke, because it seemed those points were rather obvious.

But Professor Russ Roberts of George Mason University wrote a column for yesterday’s Wall Street Journal that is so excellent that it must be shared. Here are some key passages from his WSJ column.

There’s much truth in Ms. Warren’s statement. But if government stuck to what it does fairly well—roads, police, fire and the courts; enforcing contracts that help businesses interact with their customers and other businesses—the federal government wouldn’t need to spend over $3.5 trillion a year, as it now does. And of course it’s state and local governments—and not Washington—that primarily fund police, fire and education, so it’s a bit strange to ask the rich to pay their fair share of federal income taxes because they enjoy police protection.

I especially like how Russ identified the federalism angle, noting that core public goods largely are provided by state and local governments, which makes Ms. Warren’s demand for higher tax rates from Washington even more absurd.

Unfortunately, as Russ notes, most federal spending goes for other purposes.

Much government spending supports activities that are ineffective or even harmful to the economy, often helping the politically powerful at the expense of the rest of us. Wouldn’t it be great for the federal government to stop federal export subsidies, propping up financial institutions, meddling in the education system, and trying to engineer the entire health system from the top down?

And a big part of the problem is that big chunks of the federal budget actually are handouts that benefit the rich.

If the feds stopped all that, Ms. Warren would have a stronger point. We could all feel some gratitude for government’s role in helping us live better lives. All of us, rich and poor, would look at government differently. …Ms. Warren is certainly correct that some rich people aren’t carrying their weight—those who live off the rest of us by twisting the rules of the game in their direction: the sugar farmers who benefit from sugar quotas, the corn farmers who benefit from ethanol subsidies and those sugar quotas, and especially the Wall Street executives who have managed to convince both parties that the survival of their firms, even when they make disastrous loans to each other, benefits the rest of us. …The symbiotic relationship between politicians and the super-rich is destructive of democracy and our economy. Let’s not make it worse. To close our deficit, let’s spend less rather than tax anyone more.

What a good idea: “…spend less rather than tax anyone more.” That’s what this fight is really all about.

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In the future, all dictionary publishers should get rid of their existing definitions for “hypocrisy” and replace them with a photo of Massachusetts Senator John Kerry. He’s just been caught committing the horrible sin of saving his family more than $500,000 by domiciling his new yacht in Rhode Island (which is a tax haven for such luxuries) rather than his home state. Or at least Senator Kerry says that tax planning is a horrible sin with conducted by “Benedict Arnold” companies and facilitated by those wicked tax havens. But I guess that it’s not such a bad thing when Senator Kerry is protecting his wealth. For the rest of us peasants, it’s our job to meekly get in line and submit to whatever taxes Senator Kerry graciously decides to impose.
Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multimillion-dollar yacht by mooring her in Newport, R.I. Isabel – Kerry’s luxe, 76-foot New Zealand-built Friendship sloop with an Edwardian-style, glossy varnished teak interior, two VIP main cabins and a pilothouse fitted with a wet bar and cold wine storage – was designed by Rhode Island boat designer Ted Fontaine. But instead of berthing the vessel in Nantucket, where the senator summers with the missus, Teresa Heinz, Isabel’s hailing port is listed as “Newport” on her stern. Could the reason be that the Ocean State repealed its Boat Sales and Use Tax back in 1993, making the tiny state to the south a haven – like the Cayman Islands, Bermuda and Nassau – for tax-skirting luxury yacht owners? Cash-strapped Massachusetts still collects a 6.25 percent sales tax and an annual excise tax on yachts. Sources say Isabel sold for something in the neighborhood of $7 million, meaning Kerry saved approximately $437,500 in sales tax and an annual excise tax of about $70,000. …state Department of Revenue spokesguy Bob Bliss confirmed the senator “is under no obligation to pay the commonwealth sales tax.”

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All I can say is that I wish I had done this.

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While there is always a tendency in Washington to over-analyze the meaning of elections, I think that we can draw the following conclustions from Scott Brown’s victory:

1. Obamacare is an albatross for the Democrats. The White House wants to blame Coakley for being a bad candidate, but Massachusetts is a very left-wing state. Every single member of its congressional delegation is a Democrat. It went for Obama by 26 percentage points. It has sent reflexive statists like Ted Kennedy and John Kerry to the Senate for decades. Yes, Scott Brown was a good candidate, but good GOP candidates normally lose 60-40 in the Bay State. It’s hard to draw any conclusion other than the fact that voters were registering disapproval with what is happening in Washington, and healthcare was at the top of their list.

2. Democrats should ram through government-run healthcare. I hope they don’t, of course, but smart Democrats understand that Obamacare is not (and never has been) about health care, but rather about creating more dependency on government. Yes, Democrats will lose more seats in November if they move forward, but they presumably will strengthen their long-term political status by making more people rely on politicians.

3. Obama is not a centrist. A few people were under the illusion that Barack Obama was something other than a doctrinaire statist. This always struck me as absurd, since a quick look at the NTU vote ratings reveals that he received an “F” every single year and generally was graded as being worse than even Ted Kennedy. I suppose the charitable interpretation of why people got snookered is that Obama’s rhetoric during the presidential election was very bland and he projects a thoughtful demeanor. But so what? Obama and his strategists knew the Republicans had spent their way into a ditch and that voters wanted a change. Obama simply had to appear semi-reasonable to win, and that’s exactly what he did. Ever since he took office, though, he has pushed to make government bigger and more oppressive. Voters don’t like that. They rejected Republicans for being for big government. Now they’re rejecting Democrats for the same reason.

4. The GOP succeeds when it presents a conservative alternative. Scott Brown is presumably not another Jim DeMint, but his campaign rhetoric was very conservative by Massachusetts standards: For lower taxes, against government-run healthcare, for less spending. That message has worked very well for the GOP when it is a national theme, as it was in 1980 and 1994. When Republicans try to be “compassionate” (with other people’s money, of course), by contrast, they get debacles like what happened in 1992, 2006 and 2008. This doesn’t mean Republicans will always win by being conservative and it doesn’t mean squishy Republicans never win, but it does mean that the GOP’s long-term success is tied to whether taxpayers perceive Republicans as protecting America from big government. I’m not sure the national GOP really understands this, but they’re at least pretending to be for small government again. That’s a start.

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I must confess that I didn’t think Scott Brown was going to win the election in Massachusetts, even though I predicted a 50-48 GOP victory. This is a monumental development. It doesn’t necessarily mean Obamacare can be stopped. And it may be that Brown turns out to be a big government squish, like Snowe in Maine. But his election does show that the American people do not want Obama’s statist agenda. The interesting thing to watch now is whether Democrats flee Obama’s sinking ship and scuttle the statist healthcare scheme. Here’s an AP report on Brown’s upset:

In an epic upset in liberal Massachusetts, Republican Scott Brown rode a wave of voter anger to defeat Democrat Martha Coakley in a U.S. Senate election Tuesday that left President Barack Obama’s health care overhaul in doubt and marred the end of his first year in office. The loss by the once-favored Coakley for the seat that the late Sen. Edward M. Kennedy held for nearly half a century signaled big political problems for the president’s party this fall when House, Senate and gubernatorial candidates are on the ballot nationwide. More immediately, Brown will become the 41st Republican in the 100-member Senate, which could allow the GOP to block the president’s health care legislation and the rest of Obama’s agenda. Democrats needed Coakley to win for a 60th vote to thwart Republican filibusters.

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