Posts Tagged ‘States’

In 2016, here’s some of what I wrote about the economic outlook in Illinois.

There’s a somewhat famous quote from Adam Smith (“there is a great deal of ruin in a nation“) about the ability of a country to survive and withstand lots of bad public policy. I’ve tried to get across the same point by explaining that you don’t need perfect policy, or even good policy. A nation can enjoy a bit of growth so long as policy is merely adequate. Just give the private sector some “breathing room,” I’ve argued.

I subsequently pointed out that politicians in Illinois were doing their best to suffocate the private sector, and also warned that a tax hike would push the state even closer to a day of reckoning.

Let’s apply this same analysis to California.

So here are some excerpts from a column I wrote about the Golden State in 2016

Something doesn’t add up. People like me have been explaining that California is an example of policies to avoid. Depending on my mood, I’ll refer to the state as the France, Italy, or Greece of the United States. But folks on the left are making the opposite argument. … statists…do have a semi-accurate point. There are some statistics showing that California has out-performed many other states over the past couple of years. … California may have enjoyed some decent growth in recent years as it got a bit of a bounce from its deep recession, but it appears that the benefits of that growth have mostly gone to the Hollywood crowd and the Silicon Valley folks. I guess this is the left-wing version of “trickle down” economics.

So what’s happened in California since I wrote that article?

Well, lots of California-type policies.

And where does that leave the state? Is California heading in the wrong direction faster or slower than Illinois?

Victor Davis Hanson’s column in Investor’s Business Daily has a grim assessment. He explains that California residents pay a lot for lousy government.

Some 62% of state roads have been rated poor or mediocre. There were more predictions of huge cost overruns and yearly losses on high-speed rail — before the first mile of track has been laid. One-third of Bay Area residents were polled as hoping to leave the area soon. Such pessimism is daily fare, and for good reason. The basket of California state taxes — sales, income and gasoline — rates among the highest in the U.S. Yet California roads and K-12 education rank near the bottom. …One in three American welfare recipients resides in California. Almost a quarter of the state population lives below or near the poverty line. Yet the state’s gas and electricity prices are among the nation’s highest. One in four state residents was not born in the U.S. Current state-funded pension programs are not sustainable. California depends on a tiny elite class for about half of its income tax revenue. Yet many of these wealthy taxpayers are fleeing the 40-million-person state, angry over paying 12% of their income for lousy public services.

In effect, statist policies have created two states, one for the rich and the other for the poor.

…two antithetical Californias. One is an elite, out-of-touch caste along the fashionable Pacific Ocean corridor that runs the state and has the money to escape the real-life consequences of its own unworkable agendas. The other is a huge underclass in central, rural and foothill California that cannot flee to the coast and suffers the bulk of the fallout from Byzantine state regulations, poor schools and the failure to assimilate recent immigrants from some of the poorest areas in the world. The result is Connecticut and Alabama combined in one state.

Jonah Goldberg is not quite as pessimistic. He opines that the state has certain natural advantages that help it survive bad policy.

California attracts an enormous number of rich people who think it’s worth the high taxes, awful traffic, and even the threat of tectonic annihilation to live there — for reasons that literally have nothing to do with the state’s liberal policies. Indeed, most of the Californians I know live there despite those policies, not because of them. No offense to South Dakota, but if it adopted the California model of heavy regulation, high taxes, and politically correct social engineering, there’d be a caravan of refugees heading to states such as Wyoming and Minnesota. …Wealthy liberal Californians can be quite smug about how they can afford their strict land-use policies, draconian environmental regulations, and high taxes. And wealthy Californians can afford them — but poor Californians are paying the price.

Regarding the state’s outlook, I’m probably in the middle. Goldberg is right that California is a wonderful place to live, at least if you have plenty of money. But Hanson is right about the deteriorating quality of life for the non-rich.

Which may explain why a lot of ordinary people are packing up and leaving.

A columnist from the northern part of the state writes about the exodus of the middle class.

The number of people packing up and moving out of the Bay Area just hit its highest level in more than a decade. …Operators of a San Jose U-Haul business say one of their biggest problems is getting its rental moving vans back because so many are on a one-way ticket out of town. …Nationwide, the cities with the highest inflows, according to Redfin are Phoenix, Las Vegas, Atlanta, and Nashville.

And a columnist from the southern part of the state also is concerned about the middle-class exodus.

All around you, young and old alike are saying goodbye to California. …2016 census figures showed an uptick in the number of people who fled…the state altogether. …Las Vegas is one of the most popular destinations for those who leave California. It’s close, it’s a job center, and the cost of living is much cheaper, with plenty of brand-new houses going for between $200,000 and $300,000. …”There’s no corporate income tax, no personal income tax…and the regulatory environment is much easier to work with,” said Peterson. …Nevada’s gain, our loss.

What could immediately cripple state finances, though, is out-migration by the state’s sliver of rich taxpayers. Especially now that there’s a limit on how much the federal tax system subsidizes California’s profligacy.

Here are some worrisome numbers, as reported by the Sacramento Bee.

Will high taxes lead the state’s wealthiest residents to flee the Golden State for the comparable tax havens of Florida, Nevada and Texas? Republicans reliably raise that alarm when Democrats advocate for tax increases, like the 2012 and 2016 ballot initiatives that levied a new income tax on very high-earning residents. But now, with the federal tax bill cutting off deductions that benefited well-off Californians, the state’s Democrats suddenly are singing the GOP song about a potential millionaire exodus. …Democratic state lawmakers are worried because California relies so heavily on the income taxes it collects from high earners to fund government services. The state’s wealthiest 1 percent, for instance, pay 48 percent of its income tax, and the departure of just a few families could lead to a noticeable hit to state general fund revenue. …Among high-income brackets, about 38 percent of Californians who earn more than $877,560 – the top 1 percent – would see a tax hike. About 25 percent of Californians earning between $130,820 and $304,630, also would see a tax increase… “The new tax law is kind of like icing on the cake for some who were thinking about moving out of the state,” said Fiona Ma, a Democrat on the tax-collecting Board of Equalization who is running for state treasurer. …Joseph Vranich, who leads an Orange County business that advises people on where to locate their businesses, called the tax law “one more nail in the coffin” that would cause small- and middle-size entrepreneurs to leave California.

Politicians and tax collectors get resentful when the sheep move away so they no longer can be fleeced.

This powerful video from Reason should be widely shared. Thankfully it has a (mostly) happy ending.

One of the reasons the state has awful tax policy is that interest groups have stranglehold on the political system. And that leads to ever-higher levels of spending.

Writing for Forbes, for example, Josh Archambault examines the surge of Medicaid spending in the state.

Over the past ten years, Medicaid spending in California has almost tripled, growing from $37 billion per year to a whopping $103 billion per year—including both state and federal funding. And things have only accelerated since the state expanded Medicaid to a new group of able-bodied adults. …nearly 4 million able-bodied adults are now collecting Medicaid, which was once considered a last-resort safety net for poor children, seniors, and individuals with disabilities. …California initially predicted that its ObamaCare expansion would cost roughly $11.6 billion in the first three fiscal years of the program. The actual cost during that time? An astounding $43.7 billion. …Though California represents only 12 percent of the total U.S. population, it receives more than 30 percent of all Medicaid expansion spending.

And the Orange County Register recently opined about the ever-escalating expenses for a gilded class of state bureaucrats.

California’s annual state payroll grew by 6 percent in 2017, an increase of $1 billion and twice the rate of growth of the previous year. …Employee compensation is one of the largest components of the General Fund budget. In 2015-16, salaries and benefits accounted for about 12 percent of expenditures from the General Fund, a total of over $13 billion. …pay increases drive up pension costs. …The administration estimated that the annual cost to the state for the pay raises would be $2 billion by 2020-21, but the LAO said that didn’t take into account the higher overtime costs that would result from higher base pay, or the extra pension costs from that overtime. …if an economic downturn caused state revenues to decline, taxpayers would still have to pay the high and rising salaries for the full length of the contract.

The last sentence is key. I’ve previously pointed out that California has a very unstable boom-bust fiscal cycle. The state looks like it’s in good shape right now, but it’s going to blow up when the next recession hits.

Let’s close by acknowledging that poor residents also pay a harsh price.

Kerry Jackson’s article in National Review is rather depressing.

California — not Mississippi, New Mexico, or West Virginia — has the highest poverty rate in the United States. According to the Census Bureau’s Supplemental Poverty Measure — which accounts for the cost of housing, food, utilities, and clothing, and which includes non-cash government assistance as a form of income — nearly one out of four Californians is poor. …the question arises as to why California has so many poor people… It’s not as if California policymakers have neglected to wage war on poverty. Sacramento and local governments have spent massive amounts in the cause, for decades now. Myriad state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200 percent above the poverty line receive benefits, according to the California Policy Center. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs.

That’s probably a partial answer to the question. There’s a lot of poverty in the state because politicians subsidize idleness. In effect, poor people get trapped.

The author agrees.

…welfare reform passed California by, leaving a dependency trap in place. Immigrants are falling into it: Fifty-five percent of immigrant families in the state get some kind of means-tested benefits… Self-interest in the social-services community may be at work here. If California’s poverty rate should ever be substantially reduced by getting the typical welfare client back into the work force, many bureaucrats could lose their jobs. …With 883,000 full-time-equivalent state and local employees in 2014, according to Governing, California has an enormous bureaucracy — a unionized, public-sector work force that exercises tremendous power through voting and lobbying. Many work in social services. …With a permanent majority in the state senate and the assembly, a prolonged dominance in the executive branch, and a weak opposition, California Democrats have long been free to indulge blue-state ideology.

And one consequences of California’s anti-market ideology is that poor people are falling further and further behind.

P.S. If Golden State leftists really do convince their neighbors to secede, I suspect the country would benefit and the state would suffer.

P.P.S. And if California actually chooses to move forward with secession, the good news is that we already have a template (albeit satirical) for a national divorce in the United States.

P.P.P.S. Closing with some California-specific humor, this Chuck Asay cartoon speculates on how future archaeologists will view the state. This Michael Ramirez cartoon looks at the impact of the state’s class-warfare tax policy. And this joke about Texas, California, and a coyote is among my most-viewed blog posts.

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States such as Illinois, California, New York, Connecticut, and New Jersey have very serious structural problems because of high tax burdens and unsustainable spending levels (often associated with excessive pay and benefits for bureaucrats).

I frequently write about those big issues, but I also like to periodically share examples of other bone-headed policies at the state level. These are not the types of policies that threaten bankruptcy, but they illustrate why it’s not a good idea to give power to politicians and bureaucrats.

Here are some new examples.

We have a column in Forbes about the dangerous plague of unlicensed and unregulated (gasp!) cakes in New Jersey.

At first, she sold her baked goods to support her son’s school fundraisers. …Soon Heather started receiving requests from family, friends, sports fundraisers, and even a wedding venue. …With this business, Heather hoped she could pay for her son’s college education and one day open her own brick-and-mortar cake pop shop. Unfortunately, her dreams were dashed thanks to a law that exists only in New Jersey. Unlike 49 other states, selling baked goods made at home is illegal in the Garden State. Baking and selling just one cake, cookie or muffin risks fines as high as $1,000. When Heather learned she had to shut down her cake pop sideline, the news was “crushing,” she said.

As is so often the case when governments are suppressing liberty, “health and safety” is the excuse.

New Jersey’s main justification for the ban is to protect the public’s health and safety—a claim that’s belied by the fact that nearly every other state has a “cottage food” law on the books, which legalizes the sale of homemade cakes, cookies, jams and other food deemed “not potentially hazardous.” …In order to sell cake pops, cookies or other shelf-stable treats in New Jersey, Heather must either build a licensed “retail food establishment” separate from her home kitchen or she can rent a commercial kitchen, which can easily cost $35 an hour.

Fortunately, the Institute for Justice is fighting to overturn the law.

Heather and two other home bakers joined with the Institute for Justice and filed a lawsuit against the state earlier this month. …A similar IJ lawsuit has already defeated a pastry prohibition in Wisconsin. Over the summer, a Wisconsin judge struck down the state’s ban on selling home-baked goods because there was “no real or substantial connection” between the law and public safety. …In his ruling, Lafayette Circuit Court Judge Duane Jorgenson noted that the ban protected established businesses from greater competition, which is why groups like the Wisconsin Bakers Association heavily backed the law. …Those rulings followed a 2015 IJ court victory on behalf of home bakers in Minnesota, which galvanized the state to expand its cottage food laws. Now the state boasts over 3,000 cottage food producers.

Notice, by the way, that protecting an established interest group was the real purpose of the law. In other words, the law was basically similar to schemes for occupational licensing.

This next item is so strange that I wonder whether it is somehow fake. But I also suspect it’s too bizarre to be fake. In any event, I wonder about the reason for this government-mandated notice?!? And if you find a (gasp!) vending machine without the notice, what purpose is served by calling the number? And do the bureaucrats expect people to memorize the number in case they stumble upon a rogue vending machine?!?

Oh, and how long before some people figure out how to remove the notice and then call the government in hopes of getting the “cash reward”?

If anybody knows the answer to any of these questions, feel free to share your thoughts. In the meantime, I’ll simply assume that the notice presumably isn’t as pointless and stupid at this pedestrian sign and definitely not as creepy and malevolent as this “public service” notice.

Next, we have a story from ABC News about taxpayer-funded generosity to pets in Michigan.

A dog in western Michigan has been approved for unemployment benefits — and he’d be bringing in a cool $360 a week. Michael Haddock, of Saugatuck, Michigan, says he received a letter on Saturday from the State of Michigan Unemployment Insurance Agency (UIA) addressed to Michael Ryder, according to Grand Rapids ABC affiliate WZZM. Michael is his name. Ryder is his dog’s name. …Haddock says the employer listed on the letter was a restaurant chain in Metro Detroit. After receiving the letter, Haddock contacted the restaurant chain and the state unemployment office. …The Michigan UIA announced Tuesday it was creating a special investigative unit to handle the recent increase in fake unemployment claims. The agency attributes many of the claims to recent data breaches. Haddock isn’t sure how scammers got his dog’s name.

I’m clearly behind the times. I have some cats that need to sign up for handouts!

On a more serious note, I confess that I’m not aware of the degree to which unemployment benefits are fraudulent. Hopefully it’s not as bad as the EITC, though I’m confident that problem is bigger than politicians and bureaucrats would ever admit.

And why would folks in the government even care? After all, it’s our money they’re squandering rather than their own. And Milton Friedman educated us on what that means.

From the perspective of good public policy, though, the real problem with such benefits (as personalized here and here) is that they lure people into extended periods of joblessness.

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I explained back in 2013 that there is a big difference between being pro-market and being pro-business.

Pro-market is a belief in genuine free enterprise, which means companies succeed of fail solely on the basis of whether they produce goods and services that consumers like.

Pro-business, by contrast, is a concept that opens the door to inefficient and corrupt cronyism, such as bailouts and subsidies.

It basically means big business and big government get in bed together. And that’s going to mean bad news for taxpayers and consumers.

Washington specializes in this kind of cronyism. The Export-Import Bank, ethanol handouts, TARP, and Obamacare bailouts for big insurance firms are a few of my least-favorite examples.

But state politicians also like giving money to rich insiders.

A report in the Washington Post reveals how states are engaged in a bidding war to attract Amazon’s big new facility, dubbed HQ2.

Maryland Gov. Larry Hogan (R) will offer more than $3 billion in tax breaks and grants and about $2 billion in transportation upgrades to persuade Amazon.com to bring its second headquarters and up to 50,000 jobs to Montgomery County. …It appears to be the second-most generous set of inducements among the 20 locations on Amazon’s shortlist. Of the offerings whose details have become public, either through government or local media accounts, only New Jersey’s is larger, at $7 billion.

Richard Florida, a professor at the University of Toronto, explains to CNN why this approach is troubling.

…there’s one part of Amazon’s HQ2 competition that is deeply disturbing — pitting city against city in a wasteful and economically unproductive bidding war for tax and other incentives. As one of the world’s most valuable companies, Amazon does not need — and should not be going after — taxpayer dollars… While Amazon may have the deck stacked in picking its HQ2 location, the mayors and elected leaders of these cities owe it to their tax payers and citizens to ensure they are not on the hook for hundreds of millions and in some cases as much as $7 billion in incentives to one of the world’s most valuable companies and richest men. …The truly progressive thing to do is to forge a pact to not give Amazon a penny in tax incentives or other handouts, thereby forcing the company to make its decision based on merit.

It’s not just a problem with Amazon.

Here’s are excerpts from a column in the L.A. Times on crony capitalism for Apple and other large firms.

State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple, one of the world’s richest companies, for a data facility that will host 50 permanent jobs. …the Apple deal shows the shortcomings of all such corporate handouts, nationwide. State and local governments seldom perform cost-benefit studies to determine their value — except in retrospect, when the money already has been paid out. They seldom explain why some industries should be favored over others — think about the film production incentives offered by Michigan, Louisiana, Georgia and, yes, Iowa, which never panned out as profit-makers for the states. …the handouts allow big companies to pit state against state and city against city in a competition that benefits corporate shareholders almost exclusively. Bizarrely, this process has been explicitly endorsed by Donald Trump. …politicians continue to shovel out the benefits, hoping to steer their economies in new directions and perhaps acquire a reputation for vision. Nevada was so eager to land a big battery factory from Tesla Motors’ Elon Musk that it offered him twice what Musk was seeking from the five states competing for the project. (In Las Vegas, this is known as “leaving money on the table.”) Wisconsin Gov. Scott Walker gave a big incentive deal to a furniture factory even though it was laying off half its workforce. He followed up last month with an astronomical $3-billion handout to electronics manufacturer Foxconn for a factory likely to employ a fraction of the workforce it forecasts.

And here’s an editorial from Wisconsin about a bit of cronyism from the land of cheese.

The Foxconn deal…should be opposed by Democrats and Republicans, liberals and conservatives. There are no partisan nor ideological “sides” in this debate. The division is between those who want to create jobs in a smart and responsible way that yields long-term benefits and those who propose to throw money at corporations that play states and nations against one another. The Foxconn deal represents the worst form of crony capitalism — an agreement to transfer billions of dollars in taxpayer funds to a foreign corporation. …Walker offered the company a massive giveaway — discussions included a commitment to hand the Taiwanese corporation nearly $3 billion in taxpayer funds (if it meets hazy investment and employment goals), at least $150 million in sales tax exemptions…the Legislative Fiscal Bureau, which analyzes bills with budget implications…pointed out that Foxconn would receive at least $1.35 billion and possibly as much as $2.9 billion in tax incentive payments even if it didn’t owe any Wisconsin tax… This is a horrible deal.

Let’s now circle back to Amazon and consider how it gets preferential treatment from the Post Office.

I don’t feel guilty ordering most of my family’s household goods on Amazon. …But when a mail truck pulls up filled to the top with Amazon boxes for my neighbors and me, I do feel some guilt. Like many close observers of the shipping business, I know a secret about the federal government’s relationship with Amazon: The U.S. Postal Service delivers the company’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon. …First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam. Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. …around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.

In this last example, the real problem is that we’ve fallen behind other nations and still have a government-run postal system.

The way to avoid perverse subsidies is privatization. That way Amazon deliveries will be based on market prices and we won’t have to worry about a tilted playing field.

And that last point is critical.

Yes, cronyism and corporate welfare is an economic issue. It is bad for long-run growth when political favors distort the allocation of capital.

But an unlevel playing field is also a moral issue. It’s simply not fair or not right for politicians to give their buddies special advantages.

And it’s both economically harmful and morally harmful to create a system where the business community views Washington as a handy source of unearned wealth.

For what it’s worth, I also think it should be a legal issue. For those of us who believe in the rule of law, a key principle is that everyone should be treated equally. Heck, that principle is enshrined in the Constitution.

So I’ve always wondered why courts haven’t rejected special deals for specific companies because of the equal-protection clause?

Then again, maybe I shouldn’t wonder. After all, the Supreme Court twisted itself into a pretzel to miraculously rationalize Obamacare.

But none of this changes the fact that it’s time to wean big business off corporate welfare.

P.S. Just in case you harbor unwarranted sympathy for big companies, remember that these are the folks who are often keen to undermine support for the entire capitalist system.

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When I write an everything-you-need-to-know column, it’s not because I’m under any illusions that I’ve actually amassed all the information one could need on a topic. Instead, it’s just a meme.

Today’s column belongs in the latter category. Could there possibly be something that more perfectly captures the essence of California than a story about the over-taxation of legal marijuana?

Marijuana dispensaries across California experienced long lines on the first day of legal recreational pot sales. But advocates warned the legal industry won’t survive without big changes…said Steve DeAngelo, co-founder and CEO of Harborside in Oakland. “At the same time, I’m terrified about what’s going to happen with these taxes.” Harborside has been a medical marijuana dispensary for more than a decade, and is now selling recreational marijuana… “In our shop here, the tax rate has gone from 15 percent all the way up to almost 35 percent for adult consumers,” DeAngelo said. …There is the regular state sales tax of 6 percent, and the regular Alameda County sales tax of 3.25 percent. Then there is a 15 percent state tax on marijuana, and a 10 percent Oakland tax on recreational marijuana. Total taxes: 34.25 percent. …In addition to taxes, marijuana regulations drive up the cost.

Excessive government and lifestyle liberalism. A perfect summation of California.

By the way, even though I’m a social conservative-style teetotaler, I agree with the pot legalization. But I have mixed feelings because I don’t want politicians to get more money to waste.

Though I am happy that people have the option to still use the underground economy.

…”a significant number of people, less affluent consumers, are going to turn to the lower prices of the underground market,” DeAngelo said. …People who are disabled or on fixed incomes may turn to the black market. “They can barely afford cannabis now, much less with a 35 or 40 percent tax increase,” DeAngelo said. When people aren’t buying from a regulated business, the state is getting zero taxes.

Yet another example of the Laffer Curve, which is simply the common-sense notion that marginal tax rates impact incentives.

When taxes are too high, there’s either less taxable activity, or the activity moves where the government can’t tax it. In other words, higher tax rates don’t necessarily mean higher tax revenue.

And it definitely means revenues will never be as high as the pro-tax crowd would like.

Such a simple concept that even some leftists are catching on.

This may lead California to lower tax rates, as has happened in other states.

Colorado, Washington state and Oregon each legalized marijuana at one tax rate and then had to lower the rate to keep people in the legitimate market. DeAngelo believes California will have to do the same. “I don’t think that the current tax rate for cannabis in California is sustainable,” he said.

That last sentence puts me in a good mood. I very much like when greedy politicians are forced to lower tax rates.

For those that want a more detailed and serious look at the economics of taxation and drug prohibition, this column from last November is a good place to start.

And for those who want a closer look at the moral/practical issues of drug prohibition, I recommend this piece from last May.

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During the Obamacare bill-signing ceremony, Vice President Biden had a “hot mic” incident when he was overheard telling Obama that “this is a big f***ing deal.”

And he was telling the truth. It was a big deal (albeit a wrong deal) from a fiscal perspective and a health perspective. And it also was a very costly deal for Democrats, costing them the House in 2010 and the Senate in 2014. But it definitely was consequential.

Well, there’s another “big f***ing deal” in Washington, and it’s what just happened to the state and local tax deduction. It wasn’t totally repealed, as I would have preferred, but there’s now going to be a $10,000 limit on the amount of state and local taxes that can be deducted.

I’ve already explained why this is going to reverberate around the nation, putting pressure on governors and state legislators for better tax policy, and I augment that argument in this clip from a recent interview with Trish Regan.

The bottom line is that high-tax states no longer will be able to jack up taxes, using federal deductibility to spread some of the burden to low-tax states.

Let’s look at what this means, starting with a superb column in today’s Wall Street Journal by Alfredo Ortiz.

The great American migration out of high-tax states like New York and Illinois may be about to accelerate. The tax reform enacted last month caps the deduction for state and local taxes, known as SALT, at $10,000. …between July 1, 2016, and July 1, 2017, …high-tax states like New York, New Jersey, Connecticut, Illinois and Rhode Island either lost residents or stagnated. …When people move, they take their money with them. The five high-tax states listed above have lost more than $200 billion of combined adjusted gross income since 1992… In contrast, Nevada, Washington, Florida and Texas gained roughly the same amount. If politicians in high-tax states want to prevent this migration from becoming a stampede, they will have to deliver fiscal discipline.

Mr. Ortiz shows how some state politicians already seem to realize higher taxes won’t be an easy option anymore.

New Jersey’s Gov.-elect Phil Murphy campaigned on a promise to impose a “millionaires’ tax.” But the Democratic president of the state Senate, Steve Sweeney, said in November that New Jersey needs to “hit the pause button” because “we can’t afford to lose thousands of people.” His next words could have come from a Republican: “You know, 1% of the people in the state of New Jersey pay about 42% of its tax base. And you know, they can leave.” New York City Mayor Bill de Blasio may need to rethink his proposed millionaires’ tax. George Sweeting, deputy director of the city’s Independent Budget Office, told Politico in November that eliminating the SALT deduction would “make it a tougher challenge if the city or the state wanted to raise their taxes.” New York state Comptroller Thomas DiNapoli added: “If you lose that deductibility, I worry about more middle-class families leaving.” …the limit on the SALT deduction is a gift that will keep on giving. In the years to come it will spur additional tax cuts and forestall tax increases at the state and local level.

Though the politicians from high-tax states are definitely whining about the new system.

The Governor of New Jersey is even fantasizing about a lawsuit to reverse reform.

Murphy, a Democrat, said he has spoken with leadership in New York and California and with legal scholars about doing “whatever it takes”… Asked if that included a joint lawsuit with other states, Murphy said “emphatically, yes.” …Murphy said. “This is a complete and utter outrage. And I don’t know how else to say it. We ain’t gonna stand for it.”

Here’s a story from New York Times that warmed my heart last month.

…while Mr. Cuomo and his counterparts from California and New Jersey seemed dead-certain about the tax bill’s intent — Mr. Brown called it “evil in the extreme” — there were still an array of questions about how states would respond. None of the three Democrats offered concrete plans on what action their states might take.

They haven’t offered any concrete plans because the only sensible policy – lower tax rates and streamlined government – is anathema to politicians who like buying votes with other people’s money.

California will be hard-hit, but a columnist for the L.A. Times correctly observes tax reform will serve as a much-need wake-up call for state lawmakers.

…let’s be intellectually honest. There’s no credible justification for the federal government subsidizing California’s highest-in-the-nation state income tax — or, for that matter, any local levy like the property tax. Why should federal tax money from people in other states be spent on partially rebating Californians for their state and local tax payments? Some of those states don’t even have their own income tax, including Nevada and Washington. Neither do Texas and Florida. …federal subsidies just encourage the high-tax states to rake in more money and spend it. And they numb the states’ taxpayers. …Republican state Sen. Jeff Stone of Temecula put it this way after Trump unveiled his proposal last week: “For years, the Democrats who raise our taxes in California have said, ‘Don’t worry. The increase won’t matter all that much because tax increases are deductible.’” Trump’s plan, Stone continued, “seems to finally force states to be transparent about how much they actually tax their own residents.”

He also makes a very wise point about the built-in instability of California’s class-warfare system – similar to a point I made years ago.

Our archaic system is way too volatile. The nonpartisan Legislative Analyst’s Office reported last week that income tax revenue is five times as volatile as personal income itself. The “unpredictable revenue swings complicate budgetary planning and contributed to the state’s boom-and-bust budgeting of the 2000s,” the analyst wrote. During the recession in 2008, for example, a 3.7% dip in the California economy resulted in a 23% nosedive in state revenue. The revenue stream has become unreliable because it depends too heavily on high-income earners, especially their capital gains. During an economic downturn, capital gains go bust and revenue slows to a trickle. In 2015, the top 1% of California earners paid about 48% of the total state income tax while drawing 24% of the taxable income.

Let’s close with some sage analysis from Deroy Murdock.

“Taxes should hurt,” Ronald Reagan once said. He referred to withholding taxes, which empower politicians to siphon workers’ money stealthily, before it reaches their paychecks. Writing the IRS a check each month, like covering the rent, would help taxpayers feel the public sector’s true cost. This would boost demand for tax relief and fuel scrutiny of big government. Like withholding taxes, SALT keeps high state-and-local taxes from hurting. In that sense, SALT is the opiate of the overtaxed masses. The heavy levies that liberal Democrats (and, inexcusably, some statist Republicans) impose from New York’s city hall to statehouses in Albany, Trenton, and Sacramento lack their full sting, since SALT soothes their pain. Just wait: Once social-justice warriors from Malibu to Manhattan feel the entire weight of their Democrat overlords’ yokes around their necks, they will squeal. Some will join the stampede to income-tax-free states, including Texas and Florida. …A conservative, the saying goes, is a liberal who has been mugged by reality. Dumping SALT into the Potomac should inspire a similar epiphany among the Democratic coastal elite.

He’s right. This reform could cause a political shake-up in blue states.

P.S. Since I started this column with some observations about the political consequences of Obamacare, this is a good time to mention some recent academic research about the impact of that law on the 2016 race.

We combine administrative records from the federal health care exchange with aggregate- and individual-level data on vote choice in the 2016 election. We show that personal experiences with the Affordable Care Act informed voting behavior and that these effects could have altered the election outcome in pivotal states… We also offer evidence that consumers purchasing coverage through the exchange were sensitive to premium price hikes publicized shortly before the election… Placebo tests using survey responses collected before the premium information became public suggest that these relationships are indeed causal.

Wow. Obamacare there’s a strong case that Obamacare delivered the House to the GOP, the Senate to the GOP, and also the White House to the GOP. Hopefully the Democrats will be less likely to do something really bad or really crazy the next time they hold power.

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The right kind of tax reform can help people directly and indirectly.

  • They benefit directly if reform reduces their tax burden and gives them more take-home income.
  • They benefit indirectly if reform increases growth and leads to additional pre-tax income.

For what it’s worth, I think the indirect impact is most important for family finances, and I discussed the potential benefits of faster growth in this recent interview on Fox Business.

But for today’s column, I want to focus on the final portion of the interview, when I pontificated on how limiting the state and local tax deduction is going to motivate some successful taxpayers to “vote with their  feet” and therefore put additional pressure on high-tax states.

And if we get lower tax rates at the state level, we can include that outcome as another indirect benefit of federal tax reform.

I’m leery of predictions, but I think this will happen. The bottom line is that high-income taxpayers – even before tax reform from Washington – have been escaping from states such as Illinois and California. Here are some fun facts from a recent column in National Review based on IRS data.

Last month, the Internal Revenue Service released the latest tax and migration numbers for 2015 and 2016. …the latest figures show that Florida is seeing an overwhelming influx of taxpayers from other states. In 2015 and 2016, the Sunshine State attracted a staggering net inflow of $17.4 billion in adjusted gross incomes. …the IRS is able to break down new residents by age groups. During the 2015–16 reporting period, nearly 70,000 tax filers between the ages of 26 and 35 moved into the state. That age group accounted for the biggest influx of new Florida residents, over ten thousand more than the 55-and-over category. …The states that lost the most net taxpayers in both dollar and percentage terms relative to their existing tax bases are Connecticut (–$2.7 billion) and New York (–$8.8 billion). What does this tell us? …the size of a state’s government matters. Florida’s per capita state spending is the lowest in the country… Connecticut, meanwhile, has the eighth highest per capita state spending, and New York ranks 15th. …New York has the second heaviest aggregate tax burden of any state, while Florida’s is the fourth lightest.

The Daily Caller combed through some new data from the Census Bureau.

Three Democratic-leaning states hemorrhaged hundreds of thousands of people in 2016 and 2017 as crime, high taxes and, in some cases, crummy weather had residents seeking greener pastures elsewhere. The exodus of residents was most pronounced in New York, which saw about 190,000 people leave the state between July 1, 2016 and July 1, 2017, according to U.S. Census Bureau data released last week. …Illinois lost so many residents that it dropped from the fifth to the sixth-most populous state in 2017, losing its previous spot to Pennsylvania. Just under 115,000 Illinois residents decamped for other states between July 2016 and July 2017. Since 2010, the Land of Lincoln has lost about 650,000 residents to other states on net… Illinois’ Democratic-dominated legislature has tried to ameliorate the situation with tax hikes, causing even more people to leave and throwing the state into a demographic spiral. Illinois experiences a net loss of about 33,000 residents in 2016, the fourth consecutive year of population decline. …California was the third deep blue state to experience significant domestic out-migration between July 2016 and July 2017, and it couldn’t blame the outflow on retirees searching for a more agreeable climate. About 138,000 residents left the state during that time period, second only to New York.

Even the establishment media is noticing.

Here are excerpts from a recent report in the Mercury News.

A growing number of Bay Area residents — besieged by home prices, worsening traffic, high taxes and a generally more expensive cost of living — believe life would be better just about anywhere else but here. During the 12 months ending June 30, the number of people leaving California for another state exceeded by 61,100 the number who moved here from elsewhere in the U.S., according to state Finance Department statistics. The so-called “net outward migration” was the largest since 2011, when 63,300 more people fled California than entered. …”They are tired of the state of California and the endless taxes here,” said Scott McElfresh, a certified moving consultant. “People are getting soaked every time they turn around.”

And now that state and local taxes will no longer be fully deductible, this out-migration is going to accelerate. Which, of course, will mean added pressure for lower tax rates in states like New York and California. And New Jersey, Illinois, and Connecticut.

Here are some excerpts from a story from Yahoo Finance.

Wall Street tax expert Robert Willens, president of Robert Willens LLC, has never heard more discussion from wealthy New Yorkers about relocating to another state with a more favorable tax environment until now because of the GOP tax plan. “Everybody I speak to brings this up. Every NYC resident I speak to asks about the feasibility involved in doing it,” Willens, who regularly advises hedge fund clients on tax matters as it relates to investing, told Yahoo Finance. “I’ve been doing this more than 40 years, and never heard more discussion about relocating than recently.” …“He believes it will devastate NY (and, to a lesser extent, CA), primarily by ending or severely limiting the deduction of the very high state and local taxes. He estimated that his tax rate (and others [similarly] situated) will go from mid-30% to 56%, which will trigger a massive exodus from NY to places like Florida, which will crush the NYC (and therefore state) economy.” …Kelly Smallridge, the president and CEO of Palm Beach County’s Business Development Board, has seen an uptick in activity from CEOs looking to explore Florida since there’s no state tax on personal income. …The move from the northeast to Florida has been somewhat of a trend in recent years. In the last five years, 60 financial services firms have relocated to the Palm Beach area, Smallridge noted.

If you want to know what states are most vulnerable, the Tax Foundation’s map of state income tax burdens is a good place to start. Also, the Tax Foundation’s State Business Tax Climate Index is another measure of which states over-tax their citizens.

And here’s a survey of small business sentiment that shows which states are viewed as having unfriendly tax codes. Green is good and orange is bad.

And it’s also worth reviewing the evidence that already exists for tax-motivated migration.

Here’s a map showing the entire country and here’s a map showing the exodus from California.

Let’s close with this amusing cartoon strip.

Very clever. Sort of reminds me of these two cartoons (here and here) on the economic rivalry between Texas and California.

P.S. The folks at Redpanels, by the way, also have produced great cartoons on Keynesian economics, communism, the minimum wagebasic income, and infrastructure.

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Experts in the field of political marketing periodically tell me that you need to have sympathetic victims when trying to change policy.

That’s probably good advice. When people have real-world examples – especially ones they can relate to – that presumably helps them understand the need for a reform.

I have to admit, however, that my approach is generally more wonky. Whether I’m meeting with a policymaker, giving a speech, or writing a column, I view my role as trying to help people understand one or more basic economic concepts (the importance of lower marginal tax rates, for example).

I think there’s value in my approach (if people grasp an underlying principle, that can impact their understanding of both current and future policy fights). But there’s no reason why I shouldn’t do both.

So I’m going to begin today’s column about occupational licensing (when state governments impose restrictions and regulations that limit who can work in a particular field) with a sympathy-eliciting example that hopefully will resonate with readers.

Consider what happened in New York City recently now that bureaucrats have decided that people couldn’t be dog sitters without going through all the red tape to become a licensed kennel.

Pet lovers are barking mad over a little-known city rule that makes dog-sitting illegal in New York. Health Department rules ban anyone from taking money to care for an animal outside a licensed kennel — and the department has warned a popular pet-sitting app that its users are breaking the law. “The laws are antiquated,” said Chad Bacon, 29, a dog sitter in Greenpoint, Brooklyn, with the app Rover. “If you’re qualified and able to provide a service, I don’t think you should be penalized.” Bacon, a former zookeeper and wildlife researcher, signed up for the app to help make ends meet while he was between jobs, but did enough business that he now makes his living from it full-time.

Now that we’ve identified Mr. Bacon as our sympathetic example, let’s look at the broader issue of the government creating barriers to employment and entrepreneurship.

The health code bans boarding, feeding and grooming animals for a fee without a kennel license — and says those licenses can’t be issued for private homes. …at least two apartment residents were slapped with violations in November and December for caring for pets without a permit. Fines start at $1,000. “If you’ve got a 14-year-old getting paid to feed your cats, that’s against the law right now,” said Rover’s general counsel John Lapham. “Most places right now continue to make it easier to watch children than animals, and that doesn’t make any sense.”

By the way, that’s not an argument for regulating babysitting (the kind of nonsense you might find in California). Instead, it’s a reason why state governments shouldn’t be going overboard with licensing rules.

The Institute for Justice just released a study on licensing rules for jobs that generally employ lower-skilled individuals.

Occupational licensing is, put simply, government permission to work in a particular field. In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice. Today, that figure stands at about one in four. Securing an occupational license may require education or experience, exams, fees, and more, and working without one can mean fines or even jail time. …Policymakers, scholars and opinion leaders left, right and center are increasingly recognizing that licensing comes with high costs—fewer job opportunities and steeper prices—and does little to improve quality or protect consumers. …Most of the 102 occupations are practiced in at least one state without state licensing and apparently without widespread harm. Only 23 of these occupations are licensed by 40 states or more.

The last section of that excerpt is critically important. Special interests argue that occupational licensing somehow protects people, yet we have real-world examples for all 102 professions of states that have zero licensing restrictions and we don’t have examples of people dying or being harmed because of unregulated florists or rogue cosmetologists.

And shouldn’t there be some evidence of societal benefit before government restricts economic freedom (the same argument I’ve used when analyzing OSHA)?

As you might imagine, some states are worse than others. Here’s a map showing the degree to which state politicians conspire with special interests to create cartels in various fields. Louisiana and Washington are the worst (based on number of licensed professions) and Wyoming and Vermont (yes, that Vermont) are the least onerous.

Having written about a horrible example of occupational licensing in DC, I’m surprised that the District of Columbia isn’t at the bottom of the rankings. Or Alabama.

Though I’m not surprised to see that Oregon is green.

Here’s the report’s accompany video.

If you liked that video, you can click here for another video on occupational licensing.

A column by Conor Friedersdorf in the Atlantic highlights some of the findings in the IJ study.

…in Connecticut, a home-entertainment installer is required to obtain a license from the state before serving customers. It costs applicants $185. To qualify, they must have a 12th-grade education, complete a test, and accumulate one year of apprenticeship experience in the field. A typical aspirant can expect the licensing process to delay them 575 days. …Occupational-licensing obstacles are much more common than they once were. “In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice,” the report states. “Today, that figure stands at about one in four.”

And he points out that consumers and workers (those outside the cartel) are the victims.

These requirements…are at their most pernicious when they are both needless and most burdensome to the middle class, the working class, and recent immigrants to a society. The IJ report focuses its attention on these cases, surveying 102 lower-income occupations across all 50 states and the District of Columbia. It concludes that “most of the 102 occupations are practiced in at least one state without state licensing and apparently without widespread harm.” In other words, dropping many of those requirements likely wouldn’t do any harm. …Too often, occupational-licensing laws are less about protecting workers or consumers as a class than they are about protecting the interests of incumbents. Want to compete with me? Good luck, now that I’ve lobbied for a law that requires you to shell out cash and work toward a certificate before you can begin.

The Wall Street Journal also opined about IJ’s new report.

More than ever, the government requires Americans to get permission to earn a living. In the 1950s one in 20 workers needed a license to work; now about one in four do. The rules hurt the working poor in particular, but everyone suffers in states with the most licensing requirements… Hawaii’s prerequisites are the most grueling while Louisiana and Washington regulate the most professions, with both states requiring a license for 77 lower-income fields. …California has the most dysfunctional regime. Across professions, it has established “a nearly impenetrable thicket of bureaucracy” where “no one could” provide a “list of all the licensed occupations,” as one state oversight agency admitted last year. …The cost and time to obtain a license is no accident, as professional guild members sit on state licensing boards and reinforce the racket. They want to limit competition to keep prices high. …Stiff licensing requirements are often prohibitive for America’s working poor, keeping them trapped in low-wage, low-skill jobs. …Nationwide, licensing drives up prices by as much as $203 billion annually. The requirements also hurt consumers by restricting access to goods and services.

The WSJ editorial points out that both political parties are guilty of supporting these insidious cartels.

Here’s an example, from Reason, of Democrats behaving badly.

California Democrats prattle endlessly about helping the working poor, but their latest vote against a bill that would tangibly help financially struggling people shows that Democratic leaders are more interested in serving their real constituencies: state bureaucracies, unions and other interest groups that want to keep out the competition. …California has the nation’s highest poverty rates, according to a new U.S. Census Bureau standard that includes cost-of-living factors. A good starting place to address that problem is to chip away at unnecessary barriers to work. Trade groups, however, recognize that the best way to inflate their members’ pay is to raise the cost of entry for others—and the more fields regulated this way, the more it keeps poor people in the welfare lines. …Such concerns prompted even the Democratic Obama administration to call for far-reaching licensing reforms, yet California’s Democrats don’t even seem to understand the point of such efforts. Or maybe they just won’t let themselves understand the argument, given their political alliances.

And Reason also identifies a Republican behaving badly.

Otter is bending to the wishes of other special interests. In vetoing the licensing reform bill—a bill that would have done little more than reduce the number of hours of training before someone could be licensed to cut hair or apply makeup from 800 to 600—Otter said objections voiced by the state Board of Cosmetology and the State Board of Barber Examiners should overrule the majority of the state legislature. …”For years, Butch Otter has given great speeches about the need for a free economy and limited, constitutionally-based government,” said Wayne Hoffman, president of the Idaho Freedom Foundation, a free market think tank, in a statement about the two vetoes. “Yet once again, Gov. Otter has rejected sensible, conservative, bipartisan liberty-based legislation that would have put Idaho entrepreneurs back to work and would have protected constitutional rights of Idahoans.”

Let’s close with an image that is both amusing and sad. Amusing because it mocks government and sad because it’s true. It’s basically the cartoon version of something I shared last year.

P.S. Returning to the issue of political marketing, I actually do use real-world examples for some purposes. My Bureaucrat Hall of Fame is nothing but horror stories about specific government employees pillaging taxpayers. and my collection of honest leftists also is based on specific stories of statists inadvertently revealing something important.

P.P.S. Business permits at the local level also are akin to occupational licenses. Governments are making people pay to become entrepreneurs. Which oftentimes translates into painful lessons for young people about government greed.

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