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Posts Tagged ‘States’

If you’re a curmudgeonly libertarian like me, you don’t like big government because it impinges on individual liberty.

Most people, however, get irked with government for the practical reason that it costs so much and fails to provide decent services.

California is a good example. Or perhaps we should say bad example.

The Tax Foundation recently shared data on the relative cost of living in various metropolitan areas. Looking at the 12-most expensive places to live, 75 percent of them are in California.

So what do people get in exchange for living in such expensive areas?

They get great weather and scenery, but they also get lousy government.

Victor Davis Hanson wrote for National Review about his state’s decline.

Might it also have been smarter not to raise income taxes on top tiers to over 13 percent? After 2017, when high earners could no longer write off their property taxes and state income taxes, the real state-income-tax bite doubled. So still more of the most productive residents left the state. Yet if the state gets its way, raising rates to over 16 percent and inaugurating a wealth tax, there will be a stampede. It is not just that the upper middle class can no longer afford coastal living at $1,000 a square foot and $15,000–$20,000 a year in “low” property taxes. The rub is more about what they get in return: terrible roads, crumbling bridges, human-enhanced droughts, power blackouts, dismal schools that rank near the nation’s bottom, half the nation’s homeless, a third of its welfare recipients, one-fifth of the residents living below the poverty level — and more lectures from the likes of privileged Gavin Newsom on the progressive possibilities of manipulating the chaos. California enshrined the idea that the higher taxes become, the worse state services will be.

Even regular journalists have noticed something is wrong.

In an article in the San Francisco Chronicle, Heather Kelly, Reed Albergotti, Brady Dennis and Scott Wilson discuss the growing dissatisfaction with California life.

California has become a warming, burning, epidemic-challenged and expensive state, with many who live in sophisticated cities, idyllic oceanfront towns and windblown mountain communities thinking hard about the viability of a place many have called home forever. For the first time in a decade, more people left California last year for other states than arrived. …for many of California’s 40 million residents, the California Dream has become the California Compromise, one increasingly challenging to justify, with…a thumb-on-the-scales economy, high taxes… California is increasingly a service economy that pays a far larger share of its income in taxes and on housing and food. …Three years ago, state lawmakers approved the nation’s second-highest gasoline tax, adding more than 47 cents to the price of a gallon. …service workers in particular are…paying far more as a share of their income on fuel just to stay employed. …A poll conducted late last year by the University of California at Berkeley found that more than half of California voters had given “serious” or “some” consideration to leaving the state because of the high cost of housing, heavy taxation or its political culture. …Business is booming for Scott Fuller, who runs a real estate relocation business. Called Leaving the Bay Area and Leaving SoCal, the company helps people ready to move away from the state’s two largest metro areas sell their homes and find others.

Niall Ferguson opines for Bloomberg about the Golden State’s outlook.

As my Hoover Institution colleague Victor Davis Hanson put it last month, California is “the progressive model of the future: a once-innovative, rich state that is now a civilization in near ruins.”… It’s not that California politicians don’t know how to spend money. Back in 2007, total state spending was $146 billion. Last year it was $215 billion. …the tax system is one of the most progressive, with a 13.3% top tax rate on incomes above $1 million — and that’s no longer deductible from the federal tax bill as it used to be. …And there’s worse to come. The latest brilliant ideas in Sacramento are to raise the top income rate up to 16.8% and to levy a wealth tax (0.4% on personal fortunes over $30 million) that you couldn’t even avoid paying if you left the state. (The proposal envisages payment for up to 10 years after departure to a lower-tax state.) It is a strange place that seeks to repel the rich while making itself a magnet for illegal immigrants… And the results of all this progressive policy? A poverty boom. California now has 12% of the nation’s population, but over 30% of its welfare recipients. …according to a new Census Bureau report, which takes housing and other costs into account, the real poverty rate in California is 17.2%, the highest of any state. …But that’s not all. The state’s public schools rank 37th in the country… Health care and pension costs are unsustainable. …people eventually vote with their feet. From 2007 until 2016, about five million people moved to California but six million moved out to other states. For years before that, the newcomers were poorer than the leavers. This net exodus is surging in 2020. …Now we know the true meaning of Calexit. It’s not secession. It’s exodus.

It’s not just high taxes and poor services.

George Will indicts California’s politicians for fomenting racial discord in his Washington Post column.

California…progressives…have placed on November ballots Proposition 16 to repeal the state constitution’s provision…forbidding racial preferences in public education, employment and contracting. Repeal, which would repudiate individual rights in favor of group entitlements, is part of a comprehensive California agenda to make everything about race, ethnicity and gender. …Proposition 16 should be seen primarily as an act of ideological aggression, a bold assertion that racial and gender quotas — identity politics translated into a spoils system — should be forthrightly proclaimed and permanently practiced… California already requires that by the end of 2021 some publicly traded companies based in the state must have at least three women on their boards of directors… And by 2022, boards with nine or more directors must include at least three government-favored minorities. …Gov. Gavin Newsom (D) signed legislation requiring all 430,000 undergraduates in the California State University system to take an “ethnic studies” course, and there may soon be a similar mandate for all high school students. “Ethnic studies” is an anodyne description for what surely will be, in the hands of woke “educators,” grievance studies.

Several years ago, I crunched some numbers to show California’s gradual decline.

But there was probably no need for those calculations. All we really need to understand is that people are “voting with their feet” against the Golden State.

Simply stated, productive people are paying too much of a burden thanks to excessive spending, excessive taxes, and excessive regulation.

So they’re leaving.

P.S. Many Californians are moving to the Lone Star State, and if you want data comparing Texas and California, click here, here, herehere, and here.

P.P.S. Some folks in California started talking about secession after Trump’s election. Now that the state’s politicians are seeking a bailout, I expect that talk has disappeared.

P.P.S. My favorite California-themed jokes can be found here, here, and here.

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New York is ranked dead last for fiscal policy according to Freedom in the 50 States.

But it’s not the worst state, at least according to the Tax Foundation, which calculates that the Empire State is ranked #49 in the latest edition of the State Business Tax Climate Index.

Some politicians from New York must be upset that New Jersey edged them out for last place (and the Garden State does have some wretched tax laws).

So in a perverse form of competition, New York lawmakers are pushing a plan to tax unrealized capital gains, which would be a form of economic suicide for the Empire State and definitely cement its status as the place with the worst tax policy.

Here are some excerpts from a CNBC report.

The tax, part of a new “Make Billionaires Pay” campaign by progressive lawmakers and activists, would impose a new form of capital gains tax on New Yorkers with $1 billion or more in assets. …“It’s time to stop protecting billionaires, and it’s time to start working for working families,” Rep. Alexandria Ocasio-Cortez, D-N.Y., said… Currently, taxpayers pay capital gains tax on assets only when they sell. The new policy would tax any gain in value for an asset during the calendar year, regardless of whether it’s sold. Capital gains are taxed in New York at the same rate as ordinary income, so the rate would be 8.8%.

Given her track record, I’m not surprised that Ocasio-Cortez has embraced this punitive idea.

That being said, the proposal is so radical that even New York’s governor understands that it would be suicidal.

Gov. Andrew Cuomo said raising taxes on billionaires and other rich New Yorkers will only cause them to move to lower-tax states. …“If they want a tax increase, don’t make New York alone do a tax increase — then they just have the people move… Because if you take people who are highly mobile, and you tax them, well then they’ll just move next door where the tax treatment is simpler.”

Actually, they won’t move next door. After all, politicians from New Jersey and Connecticut also abuse and mistreat taxpayers.

Instead, they’ll be more likely to escape to Florida and other states with no income taxes.

In a column for the New York Post, E.J. McMahon points out that residents already have been fleeing.

…there were clear signs of erosion at the high end of New York’s state tax base even before the pandemic. Between 2010 and 2017, according to the Internal Revenue Service, the number of tax filers with incomes above $1 million rose 75 percent ­nationwide, but just 49 percent in New York. …Migration data from the IRS point to a broader leakage. From 2011-12 through 2017-18, roughly 205,220 New Yorkers moved to Florida. …their average incomes nearly doubled to $120,023 in 2017-18, from $63,951 at the start of the period. Focusing on wealthy Manhattan, the incomes of Florida-bound New Yorkers rose at the same rate from a higher starting point— to $244,936 for 3,144 out-migrants in 2017-18, from $124,113 for 3,712 out-migrants in 2011-12.

What should worry New York politicians is that higher-income residents are disproportionately represented among the escapees.

And the author also makes the all-important observation that these numbers doubtlessly will grow, not only because of additional bad policies from state lawmakers, but also because the federal tax code no longer includes a big preference for people living in high-tax states.

These figures are from the ­period ending just before the new federal tax law temporarily virtually eliminated state and local tax deductions for high earners, raising New York’s effective tax rates higher than ever. …soak-the-rich tax sloganeering is hardly a welcome-home signal for high earners now on the fence about their futures in New York.

The bottom line is that it’s a very bad idea for a country to tax unrealized capital gains.

And it’s a downright suicidal idea for a state to choose that perverse form of double taxation. After all, it’s very easy for rich people to move to Florida and other states with better tax laws.

And since the richest residents of New York pay such a large share of the tax burden (Investor’s Business Daily points out that the top 1 percent pay 46 percent of state income taxes), even a small increase in out-migration because of the new tax could result in receipts falling rather than rising.

Another example of “Revenge of the Laffer Curve.”

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Two days ago, I looked at top income tax rates for the various states.

Yesterday, I shared the data for the states on sales tax rates.

The big takeaway from those two sources of data is that California politicians are very greedy.

But are they the greediest politicians in the country? What if we also measure other sources of tax revenue (property taxes, excise taxes, severance taxes, etc)?

And what about the various fees and charges that also are imposed by state and local governments?

To account for all these factors, we obviously need a comprehensive measure. And since the real cost of government is how much it is spending (regardless of whether the outlays are financed by taxes or borrowing), the most accurate approach is to calculate the relative spending burdens imposed by state and local governments.

The Census Bureau actually collects that data (albeit with a lag, so the most-recent data is for 2017).

But you don’t simply want to look at total spending by state and local governments. You also want to adjust for population (specifically, the population data for 2017) so we can calculate the per-capita burden of state spending.

Moreover, it’s also important to understand that some states have varying levels of income (for historic reasons, policy reasons, and difference in the cost of living). So if you want to calculate the economic burden of state and local spending, you also need data on state personal income for 2017.

So I put all these numbers into an excel file and crunched the numbers to see how the 50 states (plus Washington, DC) compare based on these two ways of showing fiscal burdens.

The following table shows the good states, at least relatively speaking. I’m amazed to see Connecticut and New Jersey in the top 10 for spending as a share of personal income. This merits further investigation, but one obvious takeaway is that it’s good to be a high-income state.

The goal, of course, should be to appear on both lists. On that basis, Idaho, Florida, and Nevada deserve praise.

But this three-part series isn’t designed to highlight the good states.

We want to know which states have the greediest politicians. And greed is being measured by their propensity to buy votes by spending other people’s money.

Once again, we’ll show the spending data both as a share of personal income and as a per-capita calculation. On this basis, Alaska is terrible (the politicians spend oil money with reckless abandon), as is the District of Columbia.

Wyoming also is a state with profligate politicians. It has no income tax and a modest sales tax, but lawmakers (just like in Alaska) can’t resist buying votes with all the money generated by energy taxes (which is why I penalized the state when writing about good state tax systems back in 2015).

This explains why North Dakota is on both lists as well.

If we focus on states that don’t get lots of money from energy taxes, than New York and Oregon deserve special scorn for appearing in both columns.

P.S. One area that requires further exploration (partially explained by the Third Theorem of Government) is the impact of 1,386 federal transfer programs that subsidize/encourage more spending by state and local governments.

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Yesterday, in Part I of our series about greedy state politicians, we looked at top income tax rates.

The worst state, not surprisingly, was California with a top tax rate of 13.3 percent.

This onerous tax rate, combined with low-quality government and absurd levels of red tape, helps to explain why so many people have fled the Golden State.

(And because California’s problems are self-inflicted, that’s the biggest reason why the state should not get a bailout from Uncle Sam.)

Today, we’re going to look at another major source of tax revenue for state politicians.

Here are some excerpts from the Tax Foundation’s report on sales tax rates.

While graduated income tax rates and brackets are complex and confusing to many taxpayers, sales taxes are easier to understand; consumers can see their tax burden printed directly on their receipts. In addition to state-level sales taxes, consumers also face local sales taxes in 38 states. These rates can be substantial, so a state with a moderate statewide sales tax rate could actually have a very high combined state and local rate compared to other states. This report provides a population-weighted average of local sales taxes… Five states do not have statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska allows localities to charge local sales taxes. The five states with the highest average combined state and local sales tax rates are Tennessee (9.55 percent), Arkansas (9.53 percent), Louisiana (9.52 percent), Washington (9.23 percent), and Alabama (9.22 percent). The five states with the lowest average combined rates are Alaska (1.76 percent), Hawaii (4.44 percent), Wyoming (5.34 percent), Wisconsin (5.43 percent), and Maine (5.50 percent). California has the highest state-level sales tax rate, at 7.25 percent.

Here’s the map that accompanied the report.

It’s good to be gray. By contrast the states with the darkest colors have the most onerous rates.

As noted in the excerpt above, Tennessee, Arkansas, Louisiana, and Washington have the greediest politicians, at least measured by sales tax rates.

But this is the point where it makes sense to merge today’s map with yesterday’s map. Because Tennessee and Washington don’t impose income taxes, while Louisiana and Arkansas both make that mistake.

And if you combine the tax rates from both maps, you’ll find that Tennessee and Washington are relatively low-tax states while Louisiana and Arkansas are relatively high-tax states.

So one of the lessons to be learned is that it’s never a good idea to give politicians multiple sources of revenue (something to remember every time greedy officials in D.C. broach the idea of a value-added tax).

But let’s keep our focus on the main topic, which is identifying the state with the greediest politicians?

If we continue with the methodology of combining the numbers from both maps, California easily ranks as the worst state, with a combined rate of 21.98 percent.

Indeed, it has a huge lead compared to the next-worst states (New York, New Jersey, and Minnesota), all of which have combined rates of between 17-18 percent.

What’s the best state?

Depends on the approach. If you count only wages and salaries, then New Hampshire wins with a combined rate of 0.0 percent. But if you include New Hampshire’s unfortunate policy of imposing income tax on interest and dividends, then Alaska wins with a combined rate of 1.76 percent.

Wyoming, South Dakota, and Florida also deserve applause. Those states are ranked #3, #4, and #5 because they have no income taxes and also manage to keep sales taxes at semi-reasonable levels.

P.S. Alaska and Wyoming both collect large amounts of energy taxes, so their good scores don’t necessarily reflect a commitment to low overall tax burdens.

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When considering which state has the greediest politicians, the flippant (but understandable) answer is to say “all of them.”

A more serious way of dealing with that question, though, is to look at overall rankings of economic policy.

According to the Fraser Institute, we can assume that Delaware apparently has the worst politicians and New Hampshire has the best ones.

According to comprehensive calculations in Freedom in the 50 States, New York’s politicians seem to be the worst and Florida’s are the best.

But what if we just want to know the state where politicians squeeze the most money from taxpayers? In other words, which state has the worst tax system?

The Tax Foundation gives us part of the answer in their review of state income tax burdens.

Individual income taxes are a major source of state government revenue, accounting for 37 percent of state tax collections. …Forty-one tax wage and salary income… Of those states taxing wages, nine have single-rate tax structures… Conversely, 32 states levy graduated-rate income taxes… Top marginal rates range from North Dakota’s 2.9 percent to California’s 13.3 percent.

Here’s the accompanying map.

It’s very good to live in a gray state (no income tax!) and you definitely don’t want to live in a red or maroon state.

Unsurprisingly, California is the worst of the worst, with a top tax rate of 13.3 percent. No wonder productive people have been escaping the not-so-Golden State.

Hawaii and New Jersey are the next worst states, followed by Oregon and Minnesota. Though it’s definitely worth noting that there’s a local income tax in New York City, which would put the residents of that unfortunate community (if NYC was a state) in second place after California.

P.S. The disadvantage of living in a high-tax jurisdiction is especially significant now that there’s no longer a loophole in the federal tax code that subsidizes state profligacy.

P.P.S. The maroon and red states are obviously among the worst places to be an entrepreneur, investor, or business owner, though people with lots of unrealized capital gains fortunately don’t have to worry (yet!) about punitive tax laws.

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As indicated by one of my columns last week, I’m a big believer in federalism.

Indeed, I’ve even proposed that Washington shouldn’t operate any social programs. No food stamps. No Medicaid. No redistribution programs of any kind.

Such programs, to the extent they should exist, should be handled by state and local governments.

The welfare reform legislation under Bill Clinton is an example of how to move in the right direction. A top-down program from Washington was turned into a block grant, and then state and local governments got the freedom to choose policies that might actually help the poor become self-sufficient instead of being trapped in dependency.

Not pure libertarianism, of course, but still an example of progress. And we got good results.

Given this track record, I was very interested to see a column in today’s New York Times by Ezekial Emanuel and Rahm Emanuel on the topic of federal-state fiscal relations.

Medicaid and unemployment insurance…need permanent institutional reform and modernization. …the next stimulus package…should then be…a…federal-state Grand Bargain would solve festering problems in health care and unemployment assistance Years of political experience show that no matter how imperative and sensible, a policy’s chances of success are diminished unless it delivers political benefits. This bargain would create a victory for both parties.

This sounds intriguing. And potentially even desirable.

There’s no question, after all, that the current Medicaid system desperately needs reform. And the unemployment program also is a mess, luring people into joblessness.

So what exactly are the Emanuel brothers proposing? What is the “Grand Bargain” that offers benefits for both sides?

Sadly, it turns out that their bipartisan rhetoric is just an excuse for bigger government.

The bargain, which we call American Modernization Initiative…the federal government to assume the costs and administration of Medicaid and unemployment insurance, the states would have to agree to use freed up resources — a quarter of a trillion dollars per year — to invest in education and infrastructure. …The Grand Bargain is not only good policy, but good politics. …Governors would no longer be responsible for large programs… With the American Modernization Initiative, the constant, bitter battles over cutting state programs to fund growing Medicaid costs will disappear.

Yes, you read correctly. Their idea of a “bargain” is that the federal government agrees to spend more money so that that state governments will then have the ability to spend more money.

Even Republicans aren’t stupid enough to go along with that kind of deal.

So I’ll propose an alternative.

According to Chris Edwards, there are now nearly 1,400 programs involving some sort of link or overlap between the federal government and state governments.

The biggest of these programs is Medicaid, accounting for 56 percent of the overall spending.

So why not give the states a choice: They either take full responsibility for Medicaid – including the financing after some transition period. Or they take responsibility for the other 1,385 programs (probably more by now) programs – assuming, again, they are responsible for the financing after a transition period.

Regardless of their choice, the end result would be a system where there’s a reasonably significant shift toward federalism. And perhaps we would add a bit of clarity to the blurry line that currently sets the boundary between what’s Washington’s job and what’s the role of state governments.

And maybe, just maybe, there wouldn’t be as much wasteful leakage as we have now.

P.S. For what it’s worth, there’s strong academic evidence that decentralized governments produce better outcomes.

P.P.S. Federalism doesn’t only apply to income-redistribution programs. We also should eliminate any role for Washington in areas like education and transportation.

P.P.P.S. Here’s the data on the history of redistribution spending in developed nations.

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Should high-tax states such as California and New York get a bailout?

I explained last month why that would be a mistake, in large part because bailouts would reward states for irresponsible fiscal policy (similar to my argument that countries like Austria and the Netherlands shouldn’t be bullied into providing bailouts for Italy and Spain).

And I’ve shared two videos (here and here) for those who want more information about how bailouts encourage “moral hazard.” And this is true for banks (think TARP) as well as governments.

Today, though, I want to focus on some numbers that show what’s really causing fiscal problems in some states.

Adam Michel and David Ditch of the Heritage Foundation have generated some startling data on state government finances.

Instead of waiting on a handout from Washington, states should clear the way for a more robust economic recovery by addressing their unsustainable finances. States and local government spending has increased over the recent past… After adjusting for inflation and increases in population, state and local spending (in constant 2019 dollars) has grown from $5,596 per person in 2000 to $7,268 per person in 2019. That amounts to a 30% increase in the real cost of state and local government over just two decades, even without the thousands of dollars per person the federal government sends to states and localities through a wide variety of programs. …not all states spend equally. As of 2017, Florida, Georgia, and Arizona spent about $5,800 per person on state and local governments, but New York spent more than $11,700 per person.

The most important number is the above excerpt is that there’s been a 30 percent increase in per-capita state spending after adjusting for inflation.

That’s a very worrisome trend.

But not all states are created equal. Or, to be more precise, they’re not all equally profligate. Here’s the chart that starkly illustrates why some states are in trouble.

At the risk of understatement, California and New York have not complied with the Golden Rule for fiscal policy.

Needless to say, there’s no justification for the notion that taxpayers in well-run states such as Texas and Florida should be coerced into providing bailouts for politicians in poorly run states.

And now we have a compelling visual that settles the argument.

P.S. Over the past several years, I’ve done multiple columns comparing Texas and California and also several columns comparing New York and Florida, all of which underscore that blue states have created their own problems by taxing too much and spending too much.

P.P.S. Thankfully, people can vote with their feet by moving from high-tax states to low-tax states. Let’s hope that Congress doesn’t enact a bailout so they’re forced to subsidize the states that drove them away.

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Politicians from New York want states to get a big bailout from Uncle Sam. I explained earlier this month that this would be a bad idea.

Simply stated, the Empire State is in big trouble because it has a bloated government, not because of the coronavirus.

Probably the strongest piece of evidence is that New York is ranked #50 for fiscal policy according to Freedom in the 50 States.

If you want to understand how New York’s politicians have created a fiscal disaster, let’s compare the Empire State to Florida, which is ranked #1.

I’ve already done that three times (Round #1, Round #2, and Round #3), so this will be Round #4.

The Wall Street Journal compared the two states in an editorial two days ago.

…let’s do the math to consider which state has managed its economy and finances better over the last decade. …Democrats in Albany are claiming to be victims of events that are out of their control. But they have increased spending by $43 billion since 2010—about $570,000 for each additional person. Florida’s budget has increased by $28 billion while its population has grown 2.7 million—a $10,400 increase per new resident. New York has a top state-and-local tax rate of 12.7%, while Florida has no income tax. Yet New York has a growing budget deficit, while Mr. Scott inherited a large deficit but built a surplus and paid down state debt. The difference is spending. …Blame New York’s cocktail of generous benefits, loose eligibility standards and waste. New York spends about twice as much per Medicaid beneficiary and six times more on nursing homes as Florida though its elderly population is 20% smaller. …The rate of private job growth in Florida has been about 60% higher than in New York from January 2010 to January 2020. Finance jobs expanded by 25% in Florida compared to 9.7% in New York. …The policy question is why taxpayers in Florida and other well-managed states should pay higher taxes to rescue an Albany political class that refuses to restrain its tax-and-spend governance. Public unions soak up an ever-larger share of tax dollars, but Albany refuses to change.

If you want further details on the difference between the two states, Chris Edwards takes a close look at the burden of government spending.

New York and Florida have similar populations of 20 million and 21 million, respectively. But governments in New York spent twice as much as governments in Florida, $348 billion compared to $177 billion. On some activities, spending in the two states is broadly similar… But in other budget areas, New York’s excess spending is striking. New York spent $69 billion on K-12 schools in 2017 compared to Florida’s $28 billion. Yet the states have about the same number of kids enrolled—2.7 million in New York and 2.8 million in Florida. New York spent $71 billion on public welfare compared to Florida’s $28 billion. Liberals say that governments provide needed resources to people truly in need. Conservatives say that generous handouts induce high demand whether people need it or not. Given that New York’s welfare costs are 2.5 times higher than Florida’s, the latter effect probably dominates. …New York governments employed 1,196,632 workers in 2017 compared to Florida’s 889,950 (measured in FTEs). …Most New York residents do not benefit from bloat in government payrolls, inefficient transit, excessive welfare, and deficit spending. To them, the high taxes are disproportionate to the government services received. That is why they are moving to better‐​managed states with lower taxes.

Here’s the accompanying chart.

And he also compares the level of bureaucracy in both states.

New York’s excess includes spending more on handouts such as welfare. Another cause of New York’s high spending is employment of more government workers and paying them more than in Florida. …New York governments employ 34 percent more workers than Florida governments. …The two states have similar K-12 school enrollments of 2.7 million in New York and 2.8 million in Florida. But New York employs 31 percent more teachers and administrators than Florida. Do the 111,000 extra staff in New York generate better school outcomes? Apparently not…study puts Florida near the top and New York in the middle on school quality. Does New York really need two times more highway workers than Florida and three times more welfare workers? …Government workers in New York make 42 percent more in wages than government workers in Florida, on average.

Here’s the accompanying chart.

The bottom line is that New York is a great place to be an over-paid bureaucrat in an over-staffed bureaucracy.

But if you’re a taxpayer, Florida is the easy winner – which may explain why so many productive people are leaving the Empire State and permanently migrating to the Sunshine State.

P.S. The same pattern exists all across the United States. Taxpayers are escaping the poorly managed states and fleeing to low-tax states. Especially ones with no income taxes.

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A Supreme Court Justice pointed out in 1932 that “a state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Well, we’ve had several experiments in higher taxes and higher spending, and they don’t work.

States with heavier fiscal burdens are accumulating ever-higher levels of debt (especially unfunded liabilities) while also causing an ever-greater exodus of taxpayers to other states.

In the long run, this is a recipe for fiscal crisis since it’s hard to give away lots of money if there aren’t enough taxpayers to finance that profligacy (as illustrated by this set of cartoons).

Well, with the help of the coronavirus, the long run may have arrived.

But the pandemic only exposed a problem that already existed.

Mitch Daniels, the former governor of Indiana, wrote two years ago in the Washington Post that poorly manged states like Connecticut shouldn’t be bailed out by taxpayers in better-run states.

…several of today’s 50 states have descended into unmanageable public indebtedness. …in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen. Each profligate state is facing its own budgetary perdition for different reasons, but most share common factors. The explosion of Medicaid spending, even before Obamacare, has devoured state funds… In parallel, public pensions of sometimes grotesque levels guarantee that the fiscal strangulation will soon get much worse. In California, some retired lifeguards are receiving more than $90,000 per year. A retired university president in Oregon received $76,000 per month — and no, that’s not a typo. These are the modern-day welfare queens… More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them.

In a remarkably prescient passage, Daniels speculates about a future emergency that will lead to pressure for a federal bailout.

Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece and maybe a larger, “too big to fail” partner such as Illinois as Italy. Adding up the number of federal legislators from the 15 or 20 fiscally weakest states, one can count something close to half the votes in the House.

Which brings us to the current situation.

The crowd in Washington has already funneled several hundred billion dollars to state and local governments.

But politicians like Governor Cuomo in New York and Governor Pritzker in Illinois view all that money as an appetizer and now they want the fiscal equivalent of an all-you-can-eat buffet.

The editors of the Wall Street Journal are not sympathetic to these fiscal pyromaniacs.

The question to ask is why taxpayers in Appleton and Sarasota should rescue politicians and unions in Albany and Springfield? …states like New York were already in trouble from their own mismanagement. …take Illinois, where Gov. J.B. Pritzker…raised taxes in 2019 and wants to make the state’s current flat tax progressive… Yet he and the unions who own the state house have blocked pension or spending reforms. They’ve long bet on a federal bailout, and they see Covid-19 as their main chance. …President Trump has signaled he’s open to a state bailout because, well, he’s open to anything these days. But Senate Majority Leader Mitch McConnell caused a stir…when he said states should consider bankruptcy rather than get a bailout. …Mr. McConnell’s larger point is that states shouldn’t get more no-strings cash. Private companies that borrow from the Fed and Treasury have to meet stiff conditions, including limits on compensation, and the same should apply to state governments. Bailout conditions should include cuts in nonessential spending, immediate and permanent reductions in public pension benefits.

Kevin Williamson explains in National Review that the problem is a pre-existing penchant for over-spending and vote-buying.

Bailing out the Illinois state pension system is the worst idea from a week in which we were discussing the health benefits of mainlining Lysol. Irresponsible state and local governments are attempting to exploit the fear and disruption of the coronavirus epidemic to push off the consequences of their decades of reckless and culpably dishonest policies onto the federal government. … One of the largest problems facing state and local governments, from Illinois to Oklahoma and from Los Angeles to Dallas, is “unfunded liabilities,” meaning the differences between the promises governments have made to their employees and the money they have set aside to pay for those things. …Government workers are a powerful political constituency — they run California — and they want the same thing everybody else does: more. …If Washington were to dump a few billion dollars into the lap of the feckless cartwheeling goobers who run Illinois, the underlying problem of chronic underfunding of future pension liabilities would remain, and Illinois would be right back where it is today in a year or two. A bailout would not solve the problem — it would keep the problem from being solved.

Adam Michel of the Heritage Foundation explains how bailouts create the wrong incentives.

The prospect of federal tax dollars creates an incentive for state legislatures to both expand existing programs beyond sustainable levels, and to simultaneously underfund those programs in hopes of further federal support. …One example is how states often delay needed infrastructure projects (for which funds are locally available) in hopes of one day receiving federal funds to cover the project costs. …An unrestricted bailout of the states could be highly unequal, forcing taxpayers in well-run states to subsidize those who have systematically underfunded their pensions and rainy day funds, or those states who have particularly volatile revenue systems. …Federal aid tends to expand state budgets and make them less resilient during future crises. Simply moving state funding to the federal government does little more than redistribute local costs to federal taxpayers across all 50 states.

Senator Rick Scott of Florida opines for the Wall Street Journal that taxpayers in his state shouldn’t pick up the tab for New York’s profligate politicians.

…one thing we absolutely shouldn’t do is shield states from the consequences of their own bad budgetary decisions over the past few decades. …Democrats’ true aim: using federal taxpayer dollars to bail out poorly run states—typically, states controlled by Democrats. …Florida is well-positioned to address the coming shortfall in revenue without a bailout. The state may need to make some choices, which is what grown-ups do in tough economic times. And if we need to borrow a small amount in the short term to get us through this economic crisis, that borrowing will be cheaper thanks to our AAA bond rating and the reduction in state debt. New York Gov. Andrew Cuomo said it was “irresponsible” and “reckless” not to bail out states like his, a state with two million fewer people than Florida and a budget almost double the size of ours.

Well stated. Any comparison of Florida and New York shows the benefit of limited government.

Jonathan Williams and Lee Schalk of the American Legislative Exchange Council, opining for the Hill, argue against a bailout.

A growing chorus of governors is calling on Congress to “bail out” state governments. …Their plea comes on the heels of the $2 trillion CARES Act, which included a general $150 billion COVID-19 relief fund, a $30 billion education costs fund, a $45 billion disaster relief fund and more for state and local governments. …History suggests that federal bailouts…incentivize future fiscal irresponsibility and create a moral hazard problem. Bailouts reward fiscally reckless states at the expense of fiscally responsible ones. Academic research from the Mercatus Center at George Mason University shows that federal bailouts could even lead to higher state level taxes. According to their research, every dollar of federal aid to states drives state taxes higher by 33 to 42 cents. …State and local governments do not lack revenue. They lack spending restraint. Over the past 40 years, after fully accounting for increases in population and inflation, state and local direct general spending has grown by 88 percent.

The last sentence in the excerpt is key. State politicians have been violating fiscal policy’s Golden Rule by letting spending grow too fast.

What’s needed is TABOR-style spending restraint, as Williams pointed out in a 2015 speech.

So if a bailout is the wrong solution, what’s the right solution? There are three potential options.

Ramesh Ponnuru writes that states should have a process for declaring bankruptcy.

Some states have made exorbitant promises to their employees over the years without providing adequate funding. They made up the difference, on paper, by projecting unrealistically high returns on pension investments. The Federal Reserve, applying a better projection of returns, estimates that pensions are underfunded by $4 trillion. McConnell is right to think that it would be unfair to make Florida’s teachers and firefighters pay for benefits for their counterparts in Illinois, and unwise to create an incentive for further irresponsibility by state officials. …Federal law currently makes no provision for states to re-organize their commitments through bankruptcy proceedings. Creating one would not keep the coronavirus from crushing state budgets. It could, however, prevent, or at least limit, future federal bailouts for state mismanagement of pensions.

His colleague at National Review, Kevin Williamson, has a different perspective. His article argues that default is better than a Washington-dictated process for bankruptcy.

The several states are not administrative subdivisions of the federal government. They are powers in their own right, superseded by the U.S. government only in certain matters that involve more than one state: Washington can declare war or write immigration law, but it cannot tell Austin how to run the Texas Rangers or Sacramento how to prioritize its finances. Because bankruptcy law is federal law, putting states into bankruptcy reorganization would upend our basic constitutional arrangement, making state governments answerable to federal bankruptcy judges and, behind them, to Congress. …Sovereigns don’t go bankrupt. Sovereigns default. And that is what is likely to happen with the pension crisis, at least as far as states’ creditors are concerned. It is what should happen. …we should not use the coronavirus as an excuse to federalize the consequences of culpably irresponsible and fundamentally dishonest governance at the state and local level. …If we want debt markets to work, then investors have to pay the price for bad investments. (Lending money to an organization run by Bill de Blasio is a bad decision.) Making creditors take a painful haircut creates incentives to discourage such willy-nilly lending and profligate spending in the future. …Government debt should in this respect be treated like any other debt — and we should change the law to strip municipal bonds of their tax-free status, which creates a subsidy for debt.

And Andrew Biggs of the American Enterprise Institute argues in the Wall Street Journal that – if a bailout is offered – it should be accompanied by strict conditions.

Congress may want to offer assistance, but it should come with strict conditions: Any state looking for a pension handout must either live by the stricter accounting rules federal law imposes on private pension plans or freeze its pension and shift all employees to defined-contribution retirement plans. Private-sector plans must assume more-conservative investment returns than public-sector plans and address unfunded liabilities more rapidly. As a result, private pensions today have set aside more than twice as much funding per dollar of promised future benefits than have state and local pensions. …Freezing a pension doesn’t make its unfunded liabilities go away. But it caps existing liabilities while shifting employees to plans in which the government’s funding obligation is clearly defined and can’t be evaded using actuarial or accounting tricks.

Of these options, a conditional bailout is not a good idea, even though it is the best way of doing the wrong thing.

Either bankruptcy or default would be a much better choice, and I lean in the direction of default (the same view I have when contemplating Europe’s failing welfare states).

But the right option is to avoid getting in trouble in the first place.

And that means low taxes, spending restraint, and other market-friendly policies.

I’ll simply note that the states most anxious for bailouts are near the bottom in rankings of small government and economic liberty.

If Washington provides a bailout, that’s a reward for statism and irresponsibility (sort of like foreign aid subsidizing bad policy overseas).

P.S. One month ago, I wrote that the worst coronavirus-related proposal would be restoring the federal tax deduction for state and local tax payments.

I still think that is a terrible idea, of course, but a big bailout from Washington would be even worse.

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I’ve written that policy makers need to consider both the human toll of the coronavirus and the human toll of a depressed economy.

I also discussed this tradeoff with Brian Nichols, beginning about seven minutes into this podcast.

And, as you can see from this tweet, even the United Nations has acknowledged that a weak economy leads to needless death.

Since I don’t have any expertise on epidemiology, I’m not arguing that the economy should be opened immediately. I’m simply stating that the people who do make such decisions should be guided by the unavoidable tradeoff that exists between lives lost from disease and lives lost from foregone prosperity.

Which then raises the question of who should make such decisions.

As reported by the New York Post, President Trump claims he has all the authority.

President Trump on Monday said the decision to reopen the country’s ailing economy ultimately rests with him, not state leaders, as he feuds with governors over when to allow Americans to return to work. …Trump is now looking at reopening the economy by May 1, putting him on a collision course with state leaders who are pushing back, saying it would be dangerous to “take our foot off of the accelerator” in the war against the virus. …Rebuffing the president’s claims Monday, constitutional experts say it is state leaders who have the power to police their citizens under the 10th Amendment.

Trump is wrong.

He’s wrong in part because the Constitution limits the powers of the central government.

But he’s also wrong because – as explained by scholars from the Austrian School of Economics – we’re far more likely to get better choices when they’re decentralized.

In some cases, that means allowing individuals to make informed choices about how much risk to take.

But, to the extent government must be involved, it makes more sense to have state and local officials make choices rather than the crowd in Washington.

Opining for the Wall Street Journal, Walter Olson explains why federalism is the right approach.

Public-health merits aside, the president can’t legally order the nation back to work. The lockdown and closure orders were issued by state governments, and the president doesn’t have the power to order them to reverse their policies. In America’s constitutional design, …the national government is confined to enumerated powers. It has no general authority to dictate to state governments. Many of the powers government holds, in particular the “police power” invoked to counter epidemics, are exercised by state governments and the cities to which states delegate power. …Modernizers have long scoffed at America’s federalist structure as inefficient and outdated, especially in handling emergencies. …Today you won’t find these critics scoffing at the states or overglamorizing Washington. One federal institution after another, including the Food and Drug Administration and Centers for Disease Control and Prevention, has been caught flat-footed by Covid-19. …State governments, by contrast, with some exceptions here and there, have responded to the emergency more skillfully and in a way that has won more public confidence. …The record of federal systems—some of the best known are in Canada, Germany and Switzerland—suggests there’s a lot of resilience packed into the model.

Michael Brendan Dougherty elaborates in an article for National Review.

Writer Molly Jong-Fast complains, “So the states are basically governing themselves because our president doesn’t know how to president at all?” Well, no. It’s simple: Our president doesn’t have dictatorial powers, even in a national emergency. The president doesn’t have authority to shut down your local gin joint. Your state governor does have this power, in extraordinary circumstances. That so many governors have done so, often responding to popular demand for shutdowns, demonstrates America’s genuine practice of federalism — a system that is allowing us to respond to this crisis even faster than the states of Europe… One of the reasons federalism can act faster is that it allows decentralization. It is less politically risky to impose measures in one state than on an entire nation. You can respond where the hotspots are, rather than imposing costs evenly across an undifferentiated mass of the nation where the overall average risk may be low.

Professor Ilya Somin wrote on this same topic for Reason. He noted limitations on federalism in a pandemic, but also pointed out the benefits of decentralization.

The US is a large and diverse nation, and it is unlikely that a single “one-size-fits-all” set of social distancing rules can work equally well everywhere. In addition, state-by-state experimentation with different approaches can increase our still dangerously limited knowledge of which policies are the most effective. Moreover, if one policymaker screws up, his or her errors are less likely to have a catastrophic effect on the whole nation. …There is, in fact, a long history of state and local governments taking the lead in battling the spread of contagious disease. During the 1918-19 flu pandemic, state and local restrictions were the primary means of inhibiting the spread of the virus, while the federal government did very little.

John Daniel Davidson of the Federalist echoes the benefits of having choices made at the state and local level.

The founders wisely chose a federal republic for our form of government, which means sovereignty is divided between states and the federal government. The powers of the federal government are limited and enumerated, while all powers not granted to the feds are reserved for the states, including emergency police powers of the kind we’re seeing states and localities use now. …Much of the media seems wholly unaware of this basic feature of our system of government. …Trump explained that many governors might have a more direct line on this equipment and if so they should go ahead and acquire it themselves, no need to wait on Washington, D.C. This is of course exactly the way federalism is supposed to work. …We should expect the government power that’s closest to affected communities to be the most active, while Washington, D.C., concern itself with larger problems.

And those “larger problems” are the ones enumerated in Article 1, Section 8.

The bottom line is that we should always remember the Third Theorem of Government, which helps to explain one of the reasons why it’s generally a bad idea to give the folks in Washington more power and authority.

Instead, we should try to be more like Switzerland, which is one of the world’s best-governed nations in large part because of a very decentralized approach.

Which may be why economists at the (normally statist) International Monetary Fund found a clear link between federalism and quality governance.

Let’s hope Donald Trump realizes that federalism is the right approach.

P.S. My favorite example of federalism came from Vermont.

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I’m a big fan of federalism. After all, compared to what happens when Washington screws up, there’s a lot less damage if a state or city imposes a bad law.

Moreover, it’s relatively easy to move across a border if a state or city is doing something foolish. Leaving the country, by contrast, is a much bigger step (and a lot harder if you have some money).

That being said, politicians outside of Washington deserve plenty of scorn (to show that Washington has no monopoly on venality and incompetence, I periodically share columns that highlight “Great Moments in State Government” and “Great Moments in Local Government“).

And the coronavirus crisis is giving us plenty of new evidence.

Writing for the Federalist, John Daniel Davidson takes aim at control-freak politicians.

…some mayors and governors…think they have unlimited and arbitrary power over their fellow citizens, that they can order them to do or not do just about anything under the guise of protecting public health. We’ve now witnessed local and state governments issue decrees about what people can and cannot buy in stores, arrest parents playing with their children in public parks, yank people off public buses at random, remove basketball rims along with private property, ticket churchgoers… The most egregious example of this outpouring of authoritarianism was an attempt by Louisville, Kentucky, Mayor Greg Fischer to ban drive-in church services on Easter. …he also threatened arrest and criminal penalties for anyone who dared violate his order, and in an Orwellian twist, invited people to snitch on their fellow citizens. …this didn’t just happen in Louisville. Two churches in Greenville, Mississippi, that were holding drive-in services for Holy Week said police showed up and ordered churchgoers to leave or face a $500 fine. …the targeting of churches, while undoubtedly the most offensive overreach by state and local governments, is hardly the only instance of government gone wild. In Michigan, Gov. Gretchen Whitmer has taken it upon herself to declare what items are and are not “essential,” dictating to grocery stores what they can and cannot sell… Among the nonessential, and therefore banned, items are fruit and vegetable plants and seeds. …(Lottery tickets, on the other hand, are still permitted.)

There’s so much outrageous material in this article that it’s almost impossible to focus on one item.

I’ll simply note that it is entirely predictable – but totally disgusting – that Governor Whitmer in Michigan has exempted sales of lottery tickets from her lockdown order. I guess risk is okay if it’s for the purpose of getting more revenue by screwing poor people.

Since we’re on the topic of Governor Whitmer and Michigan, this tweet indicates that it’s okay to put infants in danger. After all, they don’t line the pockets of government by purchasing lottery tickets.

Let’s look at more examples of nanny-state authoritarianism.

David Harsanyi’s column in National Review is appropriately scathing.

Free people act out of self-preservation, but they shouldn’t be coerced to act through the authoritarian whims of the state. Yet this is exactly what’s happening. …politicians act as if a health crisis gives them license to lord over the most private activities of America people in ways that are wholly inconsistent with the spirit and letter of the Constitution. …What business is it of Vermont or Howard County, Ind., to dictate that Walmart, Costco, or Target stop selling “non-essential” items, such as electronics or clothing? …it is an astonishing abuse of power to issue stay-at-home orders, enforced by criminal law, empowering police to harass and fine individuals for nothing more than taking a walk. …The criminalization of movement ends with…three Massachusetts men being arrested, and facing the possibility of 90 days in jail, for crossing state lines and golfing — a sport built for social distancing — in Rhode Island. …In California, surfers, who stay far away from each other, are banned from going in the water. Elsewhere, hikers are banned from roaming the millions of acres in national parks. …Would-be petty tyrants, such as Dallas judge Clay Jenkins, who implores residences to rat out neighbors who sell cigarettes.

So many awful examples, but I’m especially nauseated by Judge Jenkins and his call for snitching. Makes me wonder if he’s related to Andrew Cuomo, Richard Daley, or David Cameron.

I’ll close with two amusing items.

First, every red-blooded American should cheer for this jogger (and you should cheer for him if you’re a red-blooded person from abroad as well).

Second, here’s some satire that is both seasonal and accurate (though, to be fair, the disciples weren’t practicing social distancing).

P.S. Maybe this is the kind of harassment that led to “Libertarian Jesus“?

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The crowd in Washington has responded to the coronavirus crisis with an orgy of borrowing and spending.

The good news is that the legislation isn’t based on the failed notion of Keynesian economics (i.e., the belief that you get more prosperity when the government borrows money from the economy’s left pocket and then puts it in the economy’s right pocket).

Instead, it is vaguely based on the idea of government acting as an insurer for unforeseen loss of income.

Not ideal from a libertarian perspective, of course, but we can at least hope it might be somewhat successful in easing temporary hardship and averting bankruptcies of otherwise viable businesses.

The bad news is that the legislation is filled with corrupt handouts and favors for the friends and cronies of politicians. Simply stated, they have not “let a crisis go to waste.”

The worst news, however, is that politicians have plenty of additional ideas for how to exploit the crisis.

An especially awful idea for so-called stimulus comes from House Speaker Nancy Pelosi, who wants to restore (retroactively!) the full federal deduction for state and local tax payments.

Pelosi suggested that reversing the tax law’s $10,000 cap on the state and local tax (SALT) deduction… The cap on the SALT deduction has been strongly disliked by politicians in high-tax, Democratic-leaning states such as New York, New Jersey and California… But most Republicans support the SALT deduction cap, arguing that it helps to prevent the tax code from subsidizing higher state taxes.

I’ve written many times on this issue and explained why curtailing that deduction (which basically existed to subsidize the profligacy of high-tax states) was one of the best features of the 2017 tax reform.

Needless to say, it would be a horrible mistake to reverse that much-needed change.

The Wall Street Journal agrees, opining on Pelosi’s proposal to subsidize high tax states.

Democrats are far from finished using the crisis to try to force through partisan priorities they couldn’t pass in normal times. Mrs. Pelosi is now hinting the price for further economic relief may include expanding a regressive tax deduction for high-earners in states run by Democrats. …In the 2017 tax reform, Republicans limited the state and local tax deduction to $10,000. …Democrats have been trying to repeal the SALT cap since tax reform passed. …Blowing up the state and local tax deduction would…also make it easier for poorly governed states to rely on soaking their high earners through capital-gains and income taxes, because the federal deduction would ease the burden. …Mrs. Pelosi’s remarks underscore the potential for further political mischief and long-term damage as the government intervenes… When Democrats next complain that Republicans want to cut taxes “for the rich,” remember that Mrs. Pelosi wants to cut them too—but mainly for the progressive rich in Democratic states.

Maya MacGuineas of the Committee for a Responsible Federal Budget also denounced the idea.

This is not the time to load up emergency packages with giveaways that waste billions of taxpayer dollars… Weakening or eliminating the SALT cap would be regressive, expensive, poorly targeted, and precisely the kind of political giveaway that compromises the credibility of emergency spending. …Retroactively repealing the SALT caps for the last two years would mean sending a check of $100,000 to the household making over $1 million per year, and less than $100 for the average household making less than $100,000 per year. …During this crisis, the Committee implores special interest lobbyists to stand down and lawmakers to put self-serving politics aside.

By the way, I care about whether a change in tax policy will make the country more prosperous in the long run and don’t fixate on whether the change helps or hurts any particular income group. So Maya’s point about the rich getting almost all the benefits is not what motivates me to oppose Pelosi’s proposal.

That being said, it is remarkable that she is pushing a change that overwhelmingly benefits the very richest people in the nation.

The obvious message is that it’s okay to help the rich when a) those rich people live in places such as California, and b) helping the rich also makes it easier for states to impose bad fiscal policy.

Which is why she was pushing her bad idea before the coronavirus ever became an issue. Indeed, House Democrats even passed legislation in 2019 to restore the loophole.

Professor John McGinnis of Northwestern University Law School wrote early last year why the deduction was misguided and why the provision to restrict the deduction was the best provision of the 2017 tax law.

…the best feature of the Trump tax cuts was the $10,000 cap on the deductibility of state and local taxes. It advanced one of the Constitution’s most important structures for good government—competitive federalism. Deductibility of state taxes deadens that competition, because it allows states to slough off some of the costs of taxation to citizens in other states. Moreover, it allows states to avoid accountability for the taxes they impose. Given high federal tax rates in some brackets, high income tax payers end up paying only about sixty percent of the actual tax imposed. The federal government and thereby other tax payers effectively pick up the rest of the tab. …the ceiling makes some taxpayers pay more, but its dynamic effect is to make it less likely that state and local taxes, particularly highly visible state income taxes, will be raised and more likely that they will be cut.

For what it’s worth, I think the lower corporate tax rate was the best provision of the 2017 reform, but McGinnis makes a strong case.

Perhaps the best evidence for this change comes from the behavior of politicians from high-tax states.

Here are some excerpts from a Wall Street Journal editorial from early last year.

New York Gov. Andrew Cuomo…is blaming the state’s $2.3 billion budget shortfall on a political party that doesn’t run the place. He says the state is suffering from declining tax receipts because the GOP Congress as part of tax reform in 2017 limited the state-and-local tax deduction to $10,000. …the once unlimited deduction allowed those in high tax climes to mitigate the pain of state taxes. It amounted to a subsidy for progressive policies. …The real problem is New York’s punitive tax rates, which Mr. Cuomo and his party could fix. “People are mobile,” Mr. Cuomo said this week. “And they will go to a better tax environment. That is not a hypothesis. That is a fact.” Maybe Mr. Cuomo should stay in Albany and do something about that reality.

Amen.

The federal tax code should not subsidize politicians from high-tax states. Nor should it subsidize rich people who live in high-tax states.

If Governor Cuomo is worried about rich people moving to Florida (and he should be), he should lower tax rates and make government more efficient.

I’ll close with the observation that the state and local tax deduction created the fiscal version of a third-party payer problem. It reduced the perceived cost of state and local government, which made it easier for politicians to increase taxes (much as government subsidies for healthcare and higher education have made it easier for hospitals and colleges to increase prices).

P.S. Speaking of fake stimulus, there’s also plenty of discussion on Capitol Hill (especially given Trump’s weakness on the issue) about squandering a couple of trillion dollars on infrastructure, even though such spending a) should not be financed at the federal level, b) would not have any immediate impact on jobs, and c) would be a vehicle for giveaways such as mass transit boondoggles.

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Last year, I said the nation’s most important referendum was the proposal to emasculate Colorado’s Taxpayer Bill of Rights (I was delighted when voters said no to the pro-spending lobbies and preserved TABOR).

This year’s most important referendum is taking place in November in Illinois, where pro-spending lobbies are very anxious to repeal the state’s flat tax.

If they succeed, the steady flow of taxpayers out of Illinois will become a torrent.

That’s because the flat tax is the only semi-decent feature of the state’s fiscal policy. If it goes, there won’t be any hope.

My buddy from the Illinois Policy Institute, Orphe Divounguy, has a column in today’s Wall Street Journal about the dismal fiscal and economic outlook in the Land of Lincoln.

Long the economic hub of the Midwest, Illinois has lost more than 850,000 residents to other states during the past decade. The state has been shrinking for six consecutive years and suffered the largest raw population decline of any state in the 2010s. …Growing government debt and a crushing tax burden are depressing economic growth. State spending is up, but personal-income growth is lagging. Since 2000, Illinois’s per capita personal income growth has been 21% lower than the national average. …ratings firms are paying attention. Illinois’s credit rating is one notch above junk. …Illinois’s public pension payments already consume nearly a third of the state budget, yet the unfunded liability—which the state currently pegs at $137 billion, though others put the figure much higher—continues to rise. …Since 2000, Illinois has increased pension spending by more than 500%.

Orphe then points out that politicians in the state have been raising taxes with depressing regularity.

Needless to say, that never seems to solve the problem (a point I recently made when looking at fiscal policy in Washington).

Illinois has a culture of trying—and failing—to tax its way out of its problems. In 2011 then-Gov. Pat Quinn approved a temporary tax hike aimed at making a dent in the state’s $8 billion in unpaid bills. By 2014, Illinois still had a $6.6 billion bill backlog, and lawmakers were calling for families and businesses to give up more money. Another permanent income-tax increase came in 2017, but again more taxes failed to solve Illinois’s problems. The problems, in fact, got worse. In his freshman year, Gov. J.B. Pritzker signed into law 20 new taxes and fees totaling nearly $4.6 billion, including a doubling of the gasoline tax. Now Mr. Pritzker wants a progressive income tax he claims will really solve the issue.

The bottom line is that politicians in Illinois want ever-increasing taxes to finance ever-increasing pensions for state and local bureaucrats.

This cartoon from Eric Allie nicely summarizes the attitude of the state’s corrupt political class.

To be sure, there are plenty of states that have big fiscal holes because politicians have showered bureaucrats with overly generous compensation packages.

What presumably makes Illinois unique, Orphe explains, is that retired government workers get annual adjustments that are much greater than inflation.

Which means that there’s a simple and fair solution.

Illinois taxpayers can save $50 billion over 25 years, and dollars can be freed to support their eroding public services. Policy makers can finally shrink Illinois’s pension liability by reducing the main driver of its growth: the cost-of-living adjustment, or COLA. Currently, the COLA doesn’t reflect any actual cost-of-living increase, since it isn’t pegged to inflation. By simply replacing the existing guaranteed 3% compounding postretirement raise with a true COLA pegged to inflation, among other modest changes, Illinois can save $2.4 billion in the first year alone. No current retiree would see a decrease in his pension check. Current workers would preserve their core benefit.

P.S. I don’t know how long this policy has existed. If it’s a long-standing policy, Illinois bureaucrats actually were net losers in the pre-Reagan era when the U.S. suffered from high inflation.

P.P.S. The ultimate solution is to shift bureaucrats to “defined contribution” retirement plans, akin to the IRAs and 401(K)s that exist in the private sector.

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I’ve written dozens of columns explaining why it would be a terrible idea for the United States to enact a value-added tax.

But that’s not because I think consumption taxes are worse than income taxes. Indeed, sales taxes and VATs are less destructive because tax rates tend to be reasonable and there’s no double taxation of saving and investment.

My opposition is solely based on the fact that we shouldn’t give politicians an extra source of revenue to finance bigger government. That would effectively guarantee that the United States would morph into a stagnant European-style welfare state.

In other words, I’d be willing to accept a trade. Politicians get a VAT, but only if they permanently abolish the income tax.

There’s no chance of that happening in Washington, but it may happen in Nebraska, as reported by the North Platte Telegraph.

If Nebraskans can’t agree on reform…, state Sen. Steve Erdman of Bayard has a sweeping answer: …Income and property taxes in Nebraska would be abolished — and the state sales tax replaced by a “consumption tax” to fund state and local governments — if a constitutional amendment spearheaded by Erdman were approved by lawmakers and voters. …It would need “yes” votes from 30 of the 49 senators on final reading to appear on November’s general election ballot. …Nebraska’s state and local governments now collect a combined $9.5 billion annually in taxes, which would require a 10% consumption tax rate to replace, Erdman said. …If income and property taxes go away, Erdman said, all the state and local departments or agencies that enforce, set and collect them wouldn’t be needed, either.

Here’s some additional coverage from KETV.

Imagine not having to pay any property or income taxes in Nebraska, but there’s a catch you’d pay a new consumption tax on just about everything you buy, such as food and medical services, things that are not taxed right now. That is the idea behind a new constitutional resolution introduced by state Sen. Steve Erdman. …He and nine other lawmakers introduced LR300CA on Thursday. The resolution would allow voters to decide whether to replace all those taxes with a consumption tax. It is like a sales tax and would be about 10.6% on everything, including services and food. …He said under this proposal, everyone would get a payment called a prebate of about $1,000, which would offset the cost for low-income families. Erdman said it would also eliminate the need for property tax relief and the state having to offer costly tax incentives to attract businesses. “This is fixing the whole issue, everything. This is eliminating all those taxes and replacing it with a fair tax,” Erdman said. “Nothing is exempt,” Erdman said.

I have no idea if this proposal has any chance of getting approval by the legislature, but Senator Erdman’s proposal for a broad-based neutral tax (i.e., no exemptions) would make Nebraska more competitive.

Which would be a good idea considering that the state is only ranked #28 according to the Tax Foundation and is way down at #44 according to Freedom in the 50 States.

In one fell swoop, Nebraska would join the list of states that have no income tax, which is even better than the states that have flat taxes.

P.S. The switch to a consumption tax would address the revenue side of the fiscal equation. Nebraska should also fix the spending side by copying its neighbors in Colorado and adopting a TABOR-style spending cap.

P.P.S. Unlike advocates of the value-added tax, proponents of a national sales tax support full repeal of the income tax. I don’t think that’s realistic since it’s so difficult to amend the Constitution, but their hearts are in the right place.

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I wrote last week about the ongoing shift of successful people from high-tax states to low-tax states.

And I’ve periodically confirmed this trend by doing comparisons of high-profile states, such as Texas vs. California and Florida vs. New York.

Today, I’m going to focus on Connecticut.

I actually grew up in the Nutmeg State and I wish there was some good news to share. But Connecticut has been drifting in the wrong direction ever since an income tax was imposed about 30 years ago.

And the downward trend may be accelerating.

A former state lawmaker has warned that the golden geese are escaping the state.

A former state representative says wealthy Connecticut residents are leaving the state at “an alarming pace.” Attorney John Shaban says when he returned to private practice in Greenwich in 2016, one of his most popular services became helping some of the state’s top earners relocate to places like Florida… “Connecticut started to thrive 20, 30 years ago because people came here. We were a tax haven, we were a relatively stable regulatory and tax environment, and we were a great place to live,” says Shaban. …Shaban says many small businesses now require little more than a laptop to operate, and that’s making it easier for small business owners to relocate out of state.

The exodus of rich people has even caught the attention of the U.K.-based Economist.

Greenwich, Connecticut, with a population of 60,000, has long been home to titans of finance and industry. …It has one of America’s greatest concentrations of wealth. …You might think a decade in which rich Americans became richer would have been kind to Greenwich. Not so. …the state…raised taxes, triggering an exodus that has lessons for the rest of America…  Connecticut increased income taxes three times. It then discovered the truth of the adage “easy come, easy go”. …Others moved to Florida, which still has no income tax—and no estate tax. …Between 2015 and 2016 Connecticut lost more than 20,000 residents—including 2,050 earning more than $200,000 per year. The state’s taxable-income base shrank by 1.6% as a result… Its higher income taxes have bitten harder since 2018, when President Donald Trump limited state and local tax deductions from income taxable at the federal level to $10,000 a year.

For what it’s worth, the current Democratic governor seems to realize that there are limits to class-warfare policy.

Connecticut Governor Ned Lamont said he opposes higher state income tax rates and he linked anemic growth with high income taxes. …when a caller to WNPR radio on Tuesday, January 7 asked Lamont why he doesn’t support raising the marginal tax rate on the richest 1 percent of Connecticut residents, Lamont responded: “In part because I don’t think it’s gonna raise any more money. Right now, our income tax is 40 percent more than it is in neighboring Massachusetts. Massachusetts is growing, and Connecticut is not growing. We no longer have the same competitive advantage we had compared to even Rhode Island and New York, not to mention, you know, Florida and other places. So I am very conscious of how much you can keep raising that incremental rate. As you know, we’ve raised it four times in the last 15 years.” …Connecticut has seven income tax rate tiers, the highest of which for tax year 2019 is 6.99 percent on individuals earning $500,000 or more and married couples earning $1 million or more. That’s 38.4 percent higher than Massachusetts’s single flat-tax rate for calendar year 2019, which is 5.05 percent.

I suppose it’s progress that Gov. Lamont understands you can’t endlessly pillage a group of people when they can easily leave the state.

In other words, he recognizes that “stationary bandits” should be cognizant of the Laffer Curve (i.e., high tax rates don’t lead to high tax revenues if taxable income falls due to out-migration).

But recognizing a problem and curing a problem are not the same. Lamont opposes additional class-warfare tax hikes, but I see no evidence that he wants to undo any of the economy-sapping tax increases imposed in prior years.

So don’t be surprised if Connecticut stays near the bottom in rankings of state economic policy.

P.S. The last Republican governor contributed to the mess, so I’m not being partisan.

P.P.S. Though even I’m shocked by the campaign tactics of some Connecticut Democrats.

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I looked last year at how Florida was out-competing New York in the battle to attract successful taxpayers, and then followed up with another column analyzing how the Sunshine State’s low-tax policies are attracting jobs, investment, and people from the Empire State.

Time for Round #3.

A new article in the Wall Street Journal explains how successful investors, entrepreneurs, and business owners can save a massive amount of money by escaping states such as New York and moving to zero-income-tax states such as Florida.

This table has the bottom-line numbers.

As explained in the article, taxpayers are discovering that the putative benefits of living in a high-tax state such as New York simply aren’t worth the loss of so much money to state politicians (especially now that the 2017 tax reform sharply reduced the tax code’s implicit subsidy for high-tax states).

There’s a way for rich homeowners to potentially shave tens of thousands of dollars from their tax bills. They can get that same savings the next year and the following years as well. They can cut their taxes even further after they die. What’s the secret? Moving to Florida, a state with no income tax or estate tax. Plenty of millionaires and billionaires have been happy to ditch high-tax states like New York, New Jersey, Connecticut and California. …A New York couple filing jointly with $5 million in taxable income would save $394,931 in state income taxes by moving to Florida… If they had moved from Boston, they’d save $252,500; from Greenwich, Conn., they’d knock $342,700 off their tax bill. …Multimillionaires aren’t just moving their families south, they are taking their businesses with them, says Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County. “We’ve brought in well over 70 financial-services firms” in the past few years, she says. “The higher the taxes, the more our phone rings.”

An article in the Wall Street Journal late last year explained how states such as Florida are big beneficiaries of tax migration.

David Tepper, Paul Tudor Jones and Barry Sternlicht are among the prominent transplants who have pulled up roots in New York, New Jersey or Connecticut in recent years for Florida. New Yorker Carl Icahn has said he is moving his company to Miami next year. …The loss of the super-wealthy isn’t just a matter of reputation. The exodus of billionaires can crimp state budgets. …The SALT cap has widened the gap between Florida and other states with no income tax, such as Wyoming, and New York City, where residents can owe income taxes at rates that approach 13%.

In a column for National Review, Kevin Williamson analyzes the trade-offs for successful people…and the implications for state budgets.

…one of the aspects of modern political economy least appreciated by the class-war Left: Rich people have options. …living in Manhattan or the nice parts of Brooklyn comes with some financial burdens, but for the cool-rich-guy set, the tradeoff is worth it. …metaphorically less-cool guys are in Florida. They have up and left the expensive, high-tax greater New York City metropolitan coagulation entirely. …Florida has a lot going for it…: Lower taxes, better governance, superior infrastructure… The question is not only the cost, but what you get for your money. Tampa is not as culturally interesting as New York City. …the governments of New York City and New York State both are unusually vulnerable to the private decisions of very wealthy households, because a relatively small number of taxpayers pays an enormous share of New York’s city and state taxes: 1 percent of New Yorkers pay almost half the taxes in the state, and they know where Florida is. New York City has seen some population loss in recent years, and even Andrew Cuomo, one of the least insightful men in American politics, understands that his state cannot afford to lose very many millionaires and billionaires. “God forbid if the rich leave,” he has said. New York lost $8.4 billion in income to other states in 2016 because of relocating residents.

Earlier in 2019, the WSJ opined on the impact of migration on state budgets.

Democrats claim they can fund their profligate spending by taxing the rich, but affluent New Yorkers are now fleeing to other states. The state’s income-tax revenue came in $2.3 billion below forecast for December and January. Mr. Cuomo blamed the shortfall on the 2017 federal tax reform’s $10,000 limit on state-and-local tax deductions. But the rest of the country shouldn’t have to subsidize New York’s spending, and Mr. Cuomo won’t cut taxes.

To conclude, this cartoon cleverly captures the mentality of politicians in high-tax states.

Needless to say, grousing politicians in high-tax states have no legitimate argument. If they don’t provide good value to taxpayers, they should change policies rather than whining about out-migration.

By the way, this analysis also applies to analysis between nations. Why, for instance, should successful people in France pay so much money to their government when they can move to Switzerland and get equivalent services at a much-lower cost.

Heck, why move to Switzerland when you can move to places where government provides similar services at even lower cost (assuming, of course, that anti-tax competition bureaucracies such as the OECD don’t succeed in their odious campaign to thwart the migration of people, jobs, and money between high-tax nations and low-tax nations).

P.S. If you want to see how states rank for tax policy, click here, here, here, and here.

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People underestimate the importance of modest long-run trends.

  • A small boost in economic growth, if sustained, can have a major effect on long-run living standards.
  • A small shift in the growth of government spending, over time, can determine a nation’s fiscal viability.
  • A small change in birthrates, in the long run, has a huge impact on a country’s population and finances.

Another example is state-level migration.

This is occurring for many reasons, including demographics and weather.

But it’s also happening because many people are moving so they can benefit from the better opportunities that exist in lower-tax states.

The Tax Foundation has an article on interstate migration based on data from United van Lines.

States compete with each other in a variety of ways, including attracting (and retaining) residents. Sustained periods of inbound migration lead to greater economic output and growth. Prolonged periods of net outbound migration, however, can strain state coffers… While it is difficult to measure the extent to which tax considerations factor into individuals’ moving decisions, there is no doubt that taxes are important in many individuals’ personal financial deliberations. Our State Business Tax Climate Index uses over 100 variables to evaluate states on the competitiveness of their tax rates and structures. Four of the 10 worst-performing states on this year’s Index are also among the 10 states with the most outbound migration in this year’s National Movers Study (New Jersey,  New York, Connecticut, and California).

Here’s the map showing states ranked my migration status.

Similar data also is collected by U-Haul.

Mark Perry of the American Enterprise Institute put together this visual on the states with the most in-migration and out-migration.

He looked at the data based on voting patterns. I’m more interested in the fact that states without income taxes do very well.

By the way, we don’t have to rely on moving companies.

And here are some excerpts from an editorial by the Wall Street Journal on the topic, based on data from the IRS and Census Bureau.

Slowing population growth will have significant economic and social implications for the country, but especially for high-tax states. The Census Bureau and IRS last week also released state population growth and income migration data for 2018 that show the exodus from high-tax to low-tax states is accelerating. …New York was the biggest loser as a net 180,000 people left for better climes. Over the last decade New York has lost more of its population to other states (7.2%) than any other save Alaska (8%), followed by Illinois (6.8%), Connecticut (5.6%) and New Jersey (5.5%). Hmmm, what do these states have in common? Large tax burdens… Where are high-tax state exiles going? Zero income tax Florida drew $16.5 billion in adjusted gross income last year. Many have also fled to Arizona ($3.5 billion), Texas ($3.5 billion), North Carolina ($3 billion), Nevada ($2.3 billion), Colorado ($2.1 billion), Washington ($1.7 billion) and Idaho ($1.1 billion). Texas, Nevada and Washington don’t have income taxes.

Here’s an accompanying visual.

Once again, we see a pattern.

Tax policy obviously isn’t the only factor that drives migration between states, but it’s clear that lower-tax states tend to attract more migration, while higher-tax states tend to drive people away.

And keep in mind that when people move, their taxable income moves with them.

Which brings me back to my opening analysis about trends. Over time, the uncompetitive states are digging themselves into a hole. Migration (at least by people – the Golden Geese – who earn money and pay taxes) in any given year may not make a big difference, but the cumulative impact will wind up being very important.

P.S. Speaking of which, feel free to cast your vote for the state most likely to suffer fiscal collapse.

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Based on rhetoric, the Democratic Party is committed to a class-warfare agenda.

They want higher income tax rates, higher capital gains taxes, higher Social Security taxes, higher death taxes, a new wealth tax, and many other tax hikes that target upper-income taxpayers.

There are various reasons why they push for these class-warfare tax hikes.

I don’t pretend to know which factor dominates.

But that’s not important because I want to make a different point. Notwithstanding all their rhetoric, Democrats are sometimes willing to shower rich people with tax breaks.

The Wall Street Journal exposes the left’s hypocrisy in the fight over the deduction for state and local taxes.

Democrats have…grown more concentrated in the richest parts of the country. That explains the strange spectacle of a Democratic presidential field running on the most redistributionist agenda in memory even as Democrats in Congress try to expand a tax break for high-earners in the New York City, San Francisco and Los Angeles metropolitan areas. …Coastal Democrats have failed with gimmicks at the state and federal level to eliminate the SALT cap. The latest effort is the Restoring Tax Fairness for States and Localities Act, which passed the House Ways and Means Committee last week. …The bill would raise the SALT deduction cap in 2019 and eliminate it in 2020 and 2021. …The Tax Foundation found the biggest benefit from the unlimited deduction went to households with incomes above $1 million.

A related issue is the federal government’s special tax exemption for interest paid to holders of state and local government bonds.

I explained in 2013 why it’s bad tax policy.

Josh Barro explained the previous year why this tax break is a boon for the rich.

In 2011, 35,000 taxpayers making more than $200,000 a year paid no federal income tax. …61 percent of those avoided tax for the same reason: their income consisted largely of interest on tax-exempt municipal bonds. As Washington looks…to eliminate tax preferences for the wealthy, why not eliminate this exemption? …Nearly all of those bondholders are either for-profit corporations or individuals with high incomes. The higher your tax bracket, the greater the value of the tax preference… muni bonds have an unfortunate feature…subsidies are linked to the interest rate. That means issuers who must pay higher interest rates get more valuable subsidies. Perversely, the worse a municipality’s credit, the greater incentive it is given to borrow more money.

Needless to say, it’s not a good idea to have a tax break that benefits the rich while subsidizing profligate states like New Jersey and Illinois.

In a column for Real Clear Policy, James Capretta analyzes how Democrats are working hard to preserve a big loophole.

The push to get rid of the Cadillac tax is short-sighted for both parties, but particularly for the Democrats. …In its estimate of H.R. 748, CBO projects that Cadillac tax repeal would reduce federal revenue by $200 billion over the period 2019 to 2029, with more than half of the lost revenue occurring in 2027 to 2029. …When examined over the long-term, repeal of the Cadillac tax is likely to be one of the largest tax cuts on record. …If the Cadillac tax is repealed, the government will have less revenue to pay for the spending programs many in the party want to expand. And Republicans will be able to say that it was the Democrats, not them, who paved the way for this particular trillion dollar tax cut.

Not only is it a big tax cut to repeal the Cadillac tax, it’s also a tax cut that benefits the rich far more than the poor.

Here are some distributional numbers from the left-leaning Tax Policy Center. I’ve highlighted in red the most-important column, which shows that the top-20 percent get more than 42 percent of the tax cut while the bottom-20 percent get just 1.2 percent of the benefit.

For what it’s worth, I don’t care whether tax provisions tilt the playing field to the rich or the poor.

I care about good policy.

That’s why I like the Cadillac tax, even though it was part of the terrible Obamacare legislation.

In other words, I think principles should guide policy.

My Democratic friends obviously disagree. They beat their chests about the supposed moral imperative to “soak the rich,” but they’re willing to shower the wealthy with big tax breaks so long as key interest groups applaud.

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Following their recent assessment of the best and worst countries, the Tax Foundation has published its annual State Business Tax Climate Index, which is an excellent gauge of which states welcome investment and job creation and which states are unfriendly to growth and prosperity.

Here’s the list of the best and worst states. Unsurprisingly, states with no income tax rank very high, as do states with flat taxes.

It’s also no surprise to see New Jersey in last place. The state has fallen dramatically, especially considering that it was like New Hampshire as recently as the 1960s, with no state income tax and no state sales tax.

And the bad scores for New York, California, and Connecticut also are to be expected. The Nutmeg State is an especially sad story. There was no state income tax 30 years ago. Once politicians got that additional source of revenue, however, Connecticut suffered a big economic decline.

Here’s a description of the methodology, along with the table showing how different factors are weighted.

…the Index is designed to show how well states structure their tax systems and provides a road map for improvement.The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. …This does not mean, however, that a state cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the second highest-rate corporate income tax in the country and a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.

For those who want to delve into the details, here are all the states, along with their rankings for the five major variables.

If you want to know which states are making big moves, Georgia enjoyed the biggest one-year jump (from #36 to #32) and Kansas suffered the biggest one-year decline (from #27 to #34). Keep in mind that it’s easier to climb if you’re near the bottom and easier to fall if you’re near the top.

Looking over a longer period of time, the states with the biggest increases since 2014 are North Carolina (+19, from #34 to #15), Wisconsin (+12, from #38 to #26), Kentucky (+9, from #35 to #24), Nebraska (+8, from #36 to #28), Delaware (+7, from #18 to #11), and Rhode Island (+6, from #45 to #39).

The states with the biggest declines are Kansas (-9, from #25 to #34), Hawaii (-8, from #29 to #37), Massachusetts (-8, from #28 to #36), and Idaho (-6, from #15 to #21).

We’ll close with the report’s map, showing the rankings of all the states.

P.S. My one quibble with the Index is that there’s no variable to measure the burden of government spending, which would give a better picture of overall economic liberty. This means that states that finance large public sectors with energy severance taxes (which also aren’t included in the Index) wind up scoring higher than they deserve. As such, I would drop Wyoming and Alaska in the rankings and instead put South Dakota at #1 and Florida at #2.

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When I wrote a few days ago that the Trump tax reform was generating good results, I probably should have specified that some parts of the country are not enjoying as much growth because of bad state tax policy.

As illustrated by my columns about Texas vs California and Florida vs New York, high-tax states are economic laggards compared to low-tax states.

This presumably helps to explain why Americans are voting with their feet by moving to states where the politicians are (at least in practice) less greedy.

Let’s look at some new evidence on the interaction of federal and state tax policy.

Writing for Forbes, Chuck DeVore of the Texas Public Policy Foundation shares data on how and why lower-tax state are out-performing higher-tax states.

Job growth has been running 80% stronger in low-tax states than in high-tax states since the passage of the Tax Cuts and Jobs Act of 2017 in December 2017. Understanding why holds important lessons for policy, economics, and politics. The new tax law scaled back the federal subsidy for high state and local taxes. …As a result of limiting the SALT deduction to $10,000, income tax filers in high-tax states saw a relatively smaller tax cut, losing out on about $84 billion since the tax code was changed. With $84 billion less to invest, the pace of job creation in the 23 high-tax states has slowed relative to the low-tax states, with the data suggesting a shift of almost 400,000 private sector jobs may have occurred.

Here are some of his numbers.

Prior to the tax reform’s enactment, annualized private sector job growth was 1.9% in the low-tax states from January 2016 to December 2017 compared to 1.4% in the high-tax states, giving the low-tax jurisdictions a comparatively modest advantage of 35% more rapid job growth over the 23-month period. Now, 17 months of federal jobs data suggest that the Tax Cuts and Jobs Act has increased the competitive advantage of 27 low-tax states where the average SALT deduction was under $10,000 in 2016 as compared to 23 high-tax taxes with average SALT deductions greater than $10,000. Private sector job growth is now running 80% faster in the low-tax states, 2% annualized compared to 1.1%, up from just a 35% advantage in the prior 23 months. …For California, the lost employment opportunity adds up to 153,000 positions since December 2017… New York’s employment growth was about 128,000 less than might have been the case had the SALT deduction not been capped.

And here’s his data-rich chart.

Based on previous evidence we’ve examined, these numbers are hardly a surprise.

Chuck suggests the right way for high-tax states to respond.

…if political leaders in states accustomed to taxing and spending far more than their more frugal peers wish to participate in higher rates of job creation, they should reform their own fiscal houses, rather than expect their neighbors to subsidize their high-spending ways.

Sadly, this doesn’t appear to be happening.

Politicians is high-tax states such as Illinois and New Jersey are trying to make their already-punitive systems even worse.

Based on what we’ve seen from Greece, that won’t end well.

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‘Two years ago, I wrote about how Connecticut morphed from a low-tax state to a high-tax state.

The Nutmeg State used to be an economic success story, presumably in large part because there was no state income tax.

But then an income tax was imposed almost 30 years ago and it’s been downhill ever since.

The last two governors have been especially bad news for the state.

As explained in the Wall Street Journal, Governor Malloy did as much damage as possible before leaving office.

The 50 American states have long competed for people and business, and the 2017 tax reform raises the stakes by limiting the state and local tax deduction on federal returns. The results of bad policy will be harder to disguise. A case in point is Connecticut’s continuing economic decline, and now we have even more statistical evidence as a warning to other states. The federal Bureau of Economic Analysis recently rolled out its annual report on personal income growth in the 50 states, and for 2017 the Nutmeg State came in a miserable 44th. …the state’s personal income grew at the slowest pace among all New England states, and not by a little. …The consistently poor performance, especially relative to its regional neighbors, suggests that the causes are bad economic policies… In Mr. Malloy’s case this has included tax increases starting in 2011 and continuing year after year on individuals and corporations… It is a particular tragedy for the state’s poorest citizens who may not be able to flee to other states that aren’t run by and for government employees.

Here’s some of the data accompanying the editorial.

Eric Boehm nicely summarized the main lesson from the Malloy years in a column for Reason.

If it were true that a state could tax its way to prosperity, Connecticut should be on a non-stop winning streak. Instead, state lawmakers are battling a $3.5 billion deficit. Companies including General Electric, Aetna, and Alexion, a major pharmaceutical firm, have left the state in search of a lower tax burden. Connecticut is looking increasingly like the Illinois of New England: A place where tax increases are no longer fiscally or politically realistic, even though budgetary obligations continue to grow and spending is completely out of control.

Unfortunately, the new governor isn’t any better than the old governor. The Wall Street Journal opined on Ned Lamont’s destructive fiscal policy.

Connecticut desperately needs a new economic direction. Unfortunately, the biennial budget soon to be signed by new Gov. Ned Lamont doubles down on policies that have produced abysmal results.The state’s economic indicators are grim. Connecticut routinely ranks near the bottom in surveys of economic competitiveness. Residents and businesses have been voting with their feet. According to the National Movers Study, only Illinois and New Jersey suffered more out-migration in 2018. General Electric left for Boston in 2016. This week, Farmington-based United Technologies Corp. announced it too will move its headquarters… Mr. Lamont’s budget seems designed to accelerate the decline. It increases spending by $2 billion while extending the state’s 6.35% sales tax to everything from digital movies to laundry drop-off services to “safety apparel.” It adds $50 million in taxes on small businesses, raises the minimum wage by 50%, and provides the country’s most generous mandated paid family medical leave. Florida and North Carolina must be licking their lips. …The state employee pension plan is underfunded by $100 billion—$75,000 per Connecticut household. A responsible budget would try to start filling the gap; the Lamont budget underfunds the teachers’ plan by another $9.1 billion, increasing the long-term liability by $27 billion. …Mr. Lamont proposes to slap a 2.25% penalty on people who sell a high-end home and move out of state. Having given up on attracting affluent families, he’s trying to prevent the ones who are here from leaving.

As one might expect, all this bad news is generating bad outcomes. Here are some details from an editorial in today’s Wall Street Journal.

…as a new study documents, more businesses are leaving Connecticut as they get walloped with higher taxes that are bleeding the state. Democrats in 2015 imposed a 20% surtax on top of the state’s 7.5% corporate rate, effectively raising the tax rate to 9%. They also increased the top income tax rate to 6.99% from 6.7% on individuals earning more than $500,000. The state estimated the corporate tax hike would raise $481 million over two years, but revenue increased by merely $323 million… Meantime, the state’s Department of Economic and Community Development, whose job is to strengthen “Connecticut’s competitive position,” in 2016 alone spent $358 million…to induce businesses to stay or move to the state. This means that Connecticut doled out twice as much in corporate welfare as it raked in from the corporate tax increase. …Thus we have Connecticut’s business model: Raise costs for everyone and then leverage taxpayers to provide discounts for a politically favored few. …The state has lost population for the last five years. …The exodus has depressed tax revenue.

And there’s no question that people are voting with their feet, as Bloomberg reports.

Roughly 5 million Americans move from one state to another annually and some states are clearly making out better than others. Florida and South Carolina enjoyed the top economic gains, while Connecticut, New York and New Jersey faced some of the biggest financial drains, according to…data from the Internal Revenue Service and the U.S. Census Bureau. Connecticut lost the equivalent of 1.6% of its annual adjusted gross income, as the people who moved out of the Constitution State had an average income of $122,000, which was 26% higher than those migrating in. Moreover, “leavers” outnumbered “stayers” by a five-to-four margin.

Here’s a chart from the article showing how Connecticut is driving away some of its most lucrative taxpayers.

Here’s a specific example of someone voting with their feet. But not just anybody. It’s David Walker, the former Comptroller General of the United States, and he knows how to assess a jurisdiction’s financial outlook.

…my wife, Mary, and I are leaving the Constitution State. We are saddened to do so because we love our home, our neighborhood, our neighbors, and the state. However, like an increasing number of people, the time has come to cut our losses… current state and local leaders have the willingness and ability to make the tough choices needed to create a better future in Connecticut, especially in connection with unfunded retirement obligations. …Connecticut has gone from a top five to bottom five state in competitive posture and financial condition since the late 1980s. In more recent years, this has resulted in an exodus from the state and a significant decline in home values.

All of this horrible news suggests that perhaps Connecticut should get more votes in my poll on which state will be the first to suffer fiscal collapse.

Incidentally, that raises a very troubling issue.

The former Governor of Indiana, Mitch Daniels, wrote last year for the Washington Post that we should be worried about pressure for a bailout of profligate states such as Connecticut.

…several of today’s 50 states have descended into unmanageable public indebtedness. …in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen. …More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them. …So where is a destitute governor to turn? Sooner or later, we can anticipate pleas for nationalization of these impossible obligations. …Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece.

And don’t forget other states that are heading in the wrong direction. Politicians from California, New York, New Jersey, and Illinois also will be lining up for bailouts.

Here’s the bottom line on Connecticut: As recently as 1990, the state had no income tax, which put it in the most competitive category.

But then politicians finally achieved their dream and imposed an income tax.

And in a remarkably short period of time, the state has dug a big fiscal hole of excessive taxes and spending (with gigantic unfunded liabilities as well).

It’s now in the next-to-last category and it’s probably just a matter of time before it’s in the 5th column.

P.S. While my former state obviously has veered sharply in the wrong direction on fiscal policy, I must say that I’m proud that residents have engaged in civil disobedience against the state’s anti-gun policies.

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Time for another edition of our long-running battle between the Lone Star State and the Golden State.

Except it’s not really a battle since one side seems determined to lose.

For instance, Mark Perry of the American Enterprise Institute often uses extensive tables filled with multiple variables when comparing high-performing states and low-performing states.

But when comparing California and Texas, sometimes all you need is one data source because it makes a very powerful point. Which is what he recently did with that data on one-way U-Haul rental rates between California cities and Texas cities.

There’s a very obvious takeaway from this data, as Mark explains.

…there is a huge premium for trucks leaving California for Texas and a huge discount for trucks leaving Texas for California. …U-Haul’s one-way truck rental rates are market-based to reflect relative demand and relative supply. In California there’s a relatively low supply of trucks available and a relatively high demand for trucks destined for Texas; in Texas there’s a relatively high supply of trucks and a relatively low demand for trucks going to California. Therefore, U-Haul charges 3-4 times more for one-way truck rentals going from San Francisco or LA to Houston or Dallas than vice-versa based on what must be a huge net outflow of trucks leaving California (leading to low inventory) and a net inflow of trucks arriving in Texas (leading to high inventory). …in 2016…the ratios for the same matched cities were much smaller, 2.2 to 2.4 to 1, suggesting that the outbound migration from California to Texas as reflected in one-way U-Haul truck rental rates must have accelerated over the last three years.

So why is California so unattractive compared to Texas?

To answer that question, this map from the Tax Foundation is a good place to start. It shows that California has the most punitive income tax of any state, while Texas is one of the sensible states with no income tax.

By the way, I sometimes get pushback from my leftist friends who point out that California’s 13.3 percent tax rate only applies to millionaires.

I don’t think that’s an effective argument since it makes zero sense to penalize a state’s most productive citizens. Especially when they’re the ones who can easily afford to move (and many of them are doing exactly that).

That being said, California pillages middle-class taxpayers as well. If some trendy young millennial wants to live in San Francisco, I wish that person all the luck in the world – especially since the 8 percent tax rate kicks in at just $44,377.

Now let’s ask the question of whether California residents (rich, poor, or middle class) are getting something for all the taxes they have to pay.

  • Is there any evidence that they are getting better schools? No.
  • How about data showing that they get better health care? No.
  • What about research indicating better infrastructure in the state? No.

Instead, they’re paying for a giant welfare state and for a lavishly compensated collection of bureaucrats.

P.S. There’s also plenty of international data showing big government isn’t the way to get good roads, schools, and healthcare.

P.P.S. If you want more data comparing Texas and California, click herehere, and here.

P.P.P.S. Here’s my favorite California vs Texas joke.

P.P.P.P.S. Comparisons of New York and Florida tell the same story.

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If the people who advocate higher taxes really think it’s a good idea to give politicians more cash, why don’t they voluntarily send extra money with their tax returns?

Massachusetts actually makes that an easy choice since state tax forms give people the option of paying extra, yet tax-loving politicians such as Elizabeth Warren and John Kerry never avail themselves of that opportunity.

And the Treasury Department has a website for people who want to give extra money to the federal government, yet proponents of higher taxes (at least for you and me) never lead by example.

For lack of a better phrase, let’s call this type of behavior – not choosing to pay extra tax – conventional hypocrisy.

But what about politicians who support higher taxes while dramatically seeking to reduce their own tax payments? I guess we should call that nuclear-level hypocrisy.

And if there was a poster child for this category, it would be J.B. Pritzker, the Illinois governor who is trying to replace his state’s flat tax with a money-grabbing multi-rate tax.

The Chicago Sun Times reported late last year that Pritzker has gone above and beyond the call of duty to make sure his money isn’t confiscated by government.

…more than $330,000 in property tax breaks and refunds that…J.B. Pritzker received on one of his Gold Coast mansions — in part by removing toilets… Pritzker bought the historic mansion next door to his home, let it fall into disrepair — and then argued it was “uninhabitable” to win nearly $230,000 in property tax breaks. …The toilets had been disconnected, and the home had “no functioning bathrooms or kitchen,” according to documents Pritzker’s lawyers filed with Cook County Assessor Joseph Berrios.

Wow, maybe I should remove the toilets from my house and see if the kleptocrats in Fairfax County will slash my property taxes.

And since I’m an advocate of lower taxes (for growth reasons and for STB reasons), I won’t be guilty of hypocrisy.

Though Pritzker may be guilty of more than that.

According to local media, the tax-loving governor may face legal trouble because he was so aggressive in dodging the taxes he wants other people to pay.

Democratic Illinois Gov. JB Pritzker, his wife and his brother-in-law are under federal criminal investigation for a dubious residential property tax appeal that dogged him during his gubernatorial campaign last year, WBEZ has learned. …The developments demonstrate that the billionaire governor and his wife may face a serious legal threat arising from their controversial pursuit of a property tax break on a 126-year-old mansion they purchased next to their Gold Coast home. …The county watchdog said all of that amounted to a “scheme to defraud” taxpayers out of more than $331,000. …Pritzker had ordered workers to reinstall one working toilet after the house was reassessed at a lower rate, though it’s unclear whether that happened.

This goes beyond nuclear-level hypocrisy – regardless of whether he’s actually guilty of a criminal offense.

Though he’s not alone. Just look at the Clintons. And Warren Buffett. And John Kerry. And Obama’s first Treasury Secretary. And Obama’s second Treasury Secretary.

Or tax-loving international bureaucrats who get tax-free salaries.

Or any of the other rich leftists who want higher taxes for you and me while engaging in very aggressive tax avoidance.

To be fair, my leftist friends are consistent in their hypocrisy.

They want ordinary people to send their kids to government schools while they send their kids to private schools.

And they want ordinary people to change their lives (and pay more taxes) for global warming, yet they have giant carbon footprints.

P.S. There is a quiz that ostensibly identifies hypocritical libertarians.

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When I gave readers an opportunity to select their favorite political cartoonist back in 2013, they picked Michael Ramirez.

And I can understand, given the excellent options that I shared (here, here, here, and here).

But I now think I overlooked his true masterpiece, at least if salience is an issue. The cartoon he produced on politicians and bureaucrat unions perfectly identifies the problem that has produced gaping fiscal shortfalls in so many states and communities.

Simply stated, politicians and bureaucrats have figured out how to gang up against taxpayers.

The Chicago Tribune recently opined on this horrific example.

…a controversial state law…allowed a lobbyist for the Illinois Federation of Teachers, David Piccioli, to become certified as a substitute teacher in December 2006 by working one day at a Springfield elementary school — and to buy pension credit for his 10 previous years working as a lobbyist. That sweet deal qualified him for a pension windfall from a teachers retirement fund that as of late 2018 carried an unfunded liability of more than $75 billion-with-a-B. Because he also draws a pension from a previous job as a House Democratic aide, Piccioli’s total pension income now rises to nearly $100,000.

Sadly, Illinois courts routinely acquiesce to this kind of scam.

…the court upheld a dubious loophole that allowed government employees who left those jobs to work for their union in the private sector to still qualify for a public pension — with payouts based on their much higher salaries in their union roles. One example: Former Chicago labor boss Dennis Gannon, who started out working for the city, was able to retire at age 50 with a city pension based on his union salary of at least $240,000. The Supreme Court upheld that arrangement too.

Perhaps those actually were correct legal decisions.

But, if so, that underscores my original point about politicians and bureaucrat union working together to fleece taxpayers.

This story underscores the unfairness of a system that provides much higher levels of compensation for government bureaucrats compared to those toiling in the economy’s productive sector.

But it also can be seen as a Exhibit A for why Illinois is a fiscal black hole. Which is, of course, why the state’s politicians are so anxious and determined to get rid of the state’s flat tax.

And this explains why productive people are leaving.

Needless to say, this won’t end well.

P.S. I’m not going to put Mr. Piccioli in the Bureaucrat Hall of Fame. That high honor is reserved for people who actually had government jobs for longer than one day (such as the Philadelphia bureaucrat who “earned” a $50,000 annual pension after being employed for just 2-1/2 years. As a consolation prize, I will instead offer him up as a potential candidate for Bureaucrat of the Year.

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I used to think Texas vs. California was the most interesting and revealing rivalry among states. It was even the source of some clever jokes and cartoons.

But the growing battle between Florida vs. New York may now be even more newsworthy.

I wrote last month about how many entrepreneurs, investors and business owners are escaping bad tax policy by moving from the Empire State to the Sunshine State.

Not that we should be surprised.

Florida ranks #1 for economic freedom while New York languishes in last place.

A big reason for the difference is that Florida has no state income tax, which compares very favorably to the punitive system in New York.

And because the federal tax code no longer provides an unlimited deduction for state and local taxes, I expect the exodus from New York to Florida to accelerate.

What’s especially amusing is that Alexandria Ocasio-Cortez’s mother is one of the tax refugees.

Here are some excerpts from a report in the New York Post.

The mother of soak-the-rich Congresswoman Alexandria Ocasio-Cortez said she was forced to flee the Big Apple and move to Florida because the property taxes were so high. “I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida. It’s stress-free down here,” Blanca Ocasio-Cortez told the Daily Mail… Her daughter raised eyebrows with her pitch to hike the top marginal tax rate on income earned above $10 million to 70 percent. She has also gotten behind the so-called Green New Deal, which would see a massive and costly government effort.

The former Governor of Florida (and new Senator from the state) obviously is enjoying the fact that New York politicians are upset.

Here’s some of what Rick Scott wrote in today’s Wall Street Journal.

America is a marketplace where states are competing with each other, and New York is losing. Their loss is Florida’s gain… I would like to tell New Yorkers on behalf of the rest of America that our hearts go out to you for your sagging luxury real-estate market. But you did this to yourself, and you can fix it yourself. If you cut taxes and make state and local government efficient, maybe you can compete… I made more than 20 trips to high-tax states like California, Connecticut, Illinois, New York and Pennsylvania to lure businesses to Florida. The tax-happy leaders of those states were furious, which made the visits all the more enjoyable for me. They called me every name in the book. But they were the ones who raised taxes, and bad decisions have consequences. The elites in New York and Washington should commission a study of Florida to see what happens when conservative ideas are put into practice. …Florida’s economy is thriving, expanding at a record pace. …There’s a reason Rep. Alexandria Ocasio-Cortez’s mom left New York for Florida. And there’s a reason companies are fleeing high-tax states, bringing jobs with them to Florida.

I mentioned above that having no state income tax gives Florida a big advantage over New York.

Courtesy of Mark Perry, here a comprehensive comparison of the two states.

Wow. If this was a tennis tournament, the announcers would be saying “game, set, and match.” And if it was a boxing contest, it would be a knock-out.

The bottom line is that we should expect more rich people to escape New York and move to Florida because they’ll get to keep more of their money.

And we should expect more lower-income and middle-class people to also make the same move because Florida’s better policy means more jobs and more opportunity (sadly, Rep. Ocasio-Cortez has learned nothing from her mother’s move).

P.S. New York actually doesn’t do terribly in nationwide rankings for pension debt, though it is still below Florida.

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I wrote a couple of weeks ago about how New York is committing slow-motion fiscal suicide.

The politicians in Illinois must have noticed because they now want (another “hold my beer” moment?) to accelerate the already-happening collapse of their state.

The new governor, J.B. Pritzker, wants to undo the state’s 4.95 percent flat tax, which is the only decent feature of the Illinois tax system.

And he has a plan to impose a so-called progressive tax with a top rate of 7.95.

Here are some excerpts from the Chicago Tribune‘s report., starting with the actual plan.

Democratic Gov. J.B. Pritzker embarked on a new and potentially bruising political campaign Thursday by seeking to win public approval of a graduated-rate income tax that he contended would raise $3.4 billion by increasing taxes for the wealthy…for his long-discussed plan to replace the state’s constitutionally mandated flat-rate income tax. Currently, all Illinois residents are taxed at 4.95 percent… Pritzker’s proposal is largely reliant on raising taxes significantly on residents making more than $250,000 a year, with those earning $1 million and up taxed at 7.95 percent of their total income. …The corporate tax rate would increase from the current 7 percent to 7.95 percent, matching the top personal rate. …The governor’s proposal would give Illinois the second-highest top marginal tax rate among its neighboring states.

And here’s what would need to happen for the change to occur.

Before Pritzker’s plan can be implemented, three-fifths majorities in each chamber of the legislature must approve a constitutional amendment doing away with the flat tax requirement. The measure would then require voter approval, which couldn’t happen until at least November 2020. …Democrats hold enough seats in both chambers of the legislature to approve the constitutional amendment without any GOP votes. Whether they’ll be willing to do so remains in question. Democratic leaders welcomed Pritzker’s proposal… voters in 2014 endorsed the idea by a wide margin in an advisory referendum.

The sensible people on the Chicago Tribune‘s editorial board are not very impressed, to put it mildly.

…how much will taxes increase under a rate structure Pritzker proposed? You might want to cover your eyes. About $3.4 billion annually… That extraction of dollars from taxpayers’ pockets would be in addition to roughly $5 billion raised annually in new revenue under the 2017 income tax hike. …How did Springfield’s collection of all that new money work out for state government and taxpayers? Here’s how: Illinois remains deeply in debt, continues to borrow to pay bills, faces an insurmountable unfunded pension liability and is losing taxpayers who are fed up with paying more. The flight of Illinoisans to other states is intensifying with 2018’s loss of 45,116 net residents, the worst of five years of consistent, dropping population. …Illinois needs to be adding more taxpayers and businesses, not subtracting them. When politicians raise taxes, they aren’t adding. A switch to a graduated tax would eliminate one of Illinois’ only fishing lures to attract taxpayers and jobs: its constitutionally protected flat income tax. …Pritzker’s proposal, like each tax hike before it, was introduced with no meaningful reform on the spending side of the ledger. This is all about collecting more money. …In fact, the tax hike would come amid promises of spending new billions.

And here’s a quirk that is sure to backfire.

For filers who report income of more than $1 million annually, the 7.95 percent rate would not be marginalized; meaning, it would be applied to every dollar, not just income of more than $1 million. Line up the Allied moving vans for business owners and other high-income families who’ve had a bellyful of one of America’s highest state and local tax burdens.

The Tax Foundation analyzed this part of Pritzker’s plan.

This creates a significant tax cliff, where a person making $1,000,000 pays $70,935 in taxes, while someone earning one dollar more pays $79,500, a difference of $8,565 on a single dollar of income.

That’s quite a marginal tax rate. I suspect even French politicians (as well as Cam Newton) might agree that’s too high.

Though I’m sure that tax lawyers and accountants will applaud since they’ll doubtlessly get a lot of new business from taxpayers who want to avoid that cliff (assuming, of course, that some entrepreneurs, investors, and business owners actually decide to remain in Illinois).

While the tax cliff is awful policy, it’s actually relatively minor compared to the importance of this table in the Tax Foundation report. It shows how the state’s already-low competitiveness ranking will dramatically decline if Pritzker’s class-warfare plan is adopted.

The Illinois Policy Institute has also analyzed the plan.

Unsurprisingly, there will be fewer jobs in the state, with the losses projected to reach catastrophic levels if the new tax scheme is adjusted to finance all of the Pritzker’s new spending.

And when tax rates go up – and they will if states like Connecticut, New Jersey, and California are any indication – that will mean very bad news for middle class taxpayers.

The governor is claiming they will be protected. But once the politicians get the power to tax one person at a higher rate, it’s just a matter of time before they tax everyone at higher rates.

Here’s IPI’s look at projected tax rates based on three different scenarios.

The bottom line is that the middle class will suffer most, thanks to fewer jobs and higher taxes.

Rich taxpayer will be hurt as well, but they have the most escape options, whether they move out of the state or rely on tax avoidance strategies.

Let’s close with a few observations about the state’s core problem of too much spending.

Steve Cortes, writing for Real Clear Politics, outlines the problems in his home state.

…one class of people has found a way to prosper: public employees. …over 94,000 total public employees and retirees in Illinois command $100,000+ salaries from taxpayers…former Chicago Mayor Richard M. Daley, who earned a $140,000 pension for his eight years of service in the Illinois legislature. …Such public-sector extravagance has fiscally transformed Illinois into America’s Greece – only without all the sunshine, ouzo, and amazing ruins.

So nobody should be surprised to learn that the burden of state spending has been growing at an unsustainable rate.

Indeed, over the past 20 years, state spending has ballooned from $34 billion to $86 billion according to the Census Bureau. At the risk of understatement, the politicians in Springfield have not been obeying my Golden Rule.

And today’s miserable fiscal situation will get even worse in the near future since Illinois is ranked near the bottom when it comes to setting aside money for lavish bureaucrat pensions and other retirement goodies.

Indeed, paying off the state’s energized bureaucrat lobby almost certainly is the main motive for Pritzker’s tax hike. As as happened in the past, this tax hike is designed to finance bigger government.

Yet that tax hike won’t work.

Massive out-migration already is wreaking havoc with the state’s finances. And if Pritzker gets his tax hike, the exodus will become even more dramatic.

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

P.P.S. I created a poll last year and asked people which state will be the first to suffer a fiscal collapse. Illinois already has a big lead, and I won’t be surprised if that lead expands if Pritzker is able to kill the flat tax.

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I shared data a couple of weeks ago showing that Florida is the freest state in America (for both overall freedom and economic freedom) while New York is in last place (in both categories).

Well, it seems that freedom has consequences when people can “vote with their feet.”

We’ll start with an op-ed in the Miami Herald by Ed Pozzuoli.

In a recent press conference, New York Gov. Andrew Cuomo…mentioned Florida as an attractive option for New Yorkers who are unhappy… a Census Bureau report late last year detailing the states that lost residents because of high taxes, overregulation and dwindling opportunities. Leading the list? New York. …what jurisdiction did the Census folks say benefits the most from domestic “in-migration? You guessed it — Florida… our low-tax, business-friendly welcome to asylum seekers from Big Government states like New York… It’s Florida’s low taxes and reasonable regulatory environment that attract businesses here. Florida ranks sixth among states for new business creation. …Unlike the federal government, Florida balances its budget and does so without an income tax. New York can keep its big progressive government.

And that “big progressive government” means onerous and punitive taxes, as the Wall Street Journal opined.

New York City’s combined state and local top rate of 12.7% hits taxpayers earning more than $1 million and is the second highest in the country after California. The deduction limit raised New York’s top rate by an effective 5%, though this was partially offset by the tax reform’s 2.6 percentage-point reduction in the federal top rate. …According to IRS data we’ve examined, New York state lost $8.4 billion in income to other states in 2016 (the latest available data), up from $4.6 billion annually on average during the prior four years. Florida raked in the most New York wealth. Mr. Cuomo says that “a taxpayer in Florida would see no increase, or a decrease” under the GOP tax reform and “Florida also has no estate tax.” New York’s 16% estate tax hits assets over $10.1 million. …Mr. Cuomo promised to let New York’s tax surcharge on millionaires expire. But he has extended it again and again and now wants to renew it through 2024 because he says the state needs the money. Meantime, he warns that a wealth exodus could force spending cuts for education and higher taxes on middle-income earners. All of this was inevitable, as we and others warned. Yet rather than propose to make the state’s tax burden more competitive, Mr. Cuomo rages against a tax reform that has helped the overall U.S. economy, even in New York.

I especially enjoy how Governor Cuomo is irked because his state’s profligacy is no longer subsidized by an unlimited federal deduction for state and local taxes.

Investor’s Business Daily shares a similar perspective.

New York Gov. Andrew Cuomo…we appreciate his recent frankness on taxes. …”I don’t believe raising taxes on the rich,” Cuomo said. “That would be the worst thing to do. You would just expand the shortfall. God forbid if the rich leave.” …In support of his comments, Cuomo cited “anecdotal” evidence that showed high-income earners are leaving the high-tax Empire State for other low-tax states. But the evidence isn’t merely anecdotal. It’s a fact. …From 2010 to mid-2017, New York had a net outmigration of over 1 million people, more than any other state. No, they’re not all rich. But many are. …the wealthy have choices that others don’t. One of those choices is to move if taxes become not merely burdensome, but punitive. That’s what’s happening in New York. …Many high-income taxpayers are leaving New York for low-tax states, tired of paying the state’s bills and then being demonized leftist activists for being “rich” and told they must give more.

Let’s close with some excerpts from a column in the Washington Times by Richard Rahn. He compares New York, Virginia, and Florida.

…many high-income New Yorkers have been moving their tax homes to Florida, undermining the New York tax base. …Florida imposes no state and local income taxes… Florida is booming, with a budget surplus, while New York is mired in debt. Only 50 years ago, New York had four times the population of Florida, and now Florida is larger than New York. …the state of Florida…created an environment where businesses could flourish without undue tax burdens and government interference. It went from being a poor state to a prosperous one. …citizens of New York should be asking: Why they are required to pay such high state and local income tax rates while the citizens of Florida get by perfectly well without any state income tax; Why they have three times more per capita debt than Floridians, and infrastructure that is in far worse shape; …Why it takes a third more of their citizens’ personal income to run the government than in Virginia or Florida; Why their state takes twice the percentage of per capita income in taxes than Virginia and Florida; …When it comes to taxes and government services, people’s feet tell more about how they feel than their mouths.

And if you want to know why so many people are traveling down I-95 from New York to Florida, this table from Richard’s column tells you everything you need to know.

For what it’s worth, there are people who are willing to pay extra tax to live in certain high-tax states. New York City has an allure for some people, as does California’s climate and scenery.

But are those factors enough to compensate for awful tax systems? Will they save those states from economic decay?

At best, they’ll delay the day of reckoning. For what it’s worth, I actually think New Jersey or Illinois will be the first state to fiscally self-destruct.

You can cast your vote by clicking here.

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I wrote a couple of days ago about America’s best and worst cities for pro-market policy, and I noted that there are several rankings of economic liberty for states and nations.

But what if you want to know the place with the most overall freedom? In other words, what is the most libertarian place to live based on both economic liberty and personal liberty?

If you don’t mind a bit of travel, the answer is New Zealand.

For those who prefer to stay in the United States, Will Ruger and Jason Sorens periodically crunch numbers to calculate Freedom in the 50 States.

Their previous edition had New Hampshire in first place, so let’s take a look at the newest version.

This 2018 edition of Freedom in the 50 States presents a completely revised and updated ranking of the American states on the basis of how their policies promote freedom in the fiscal, regulatory, and personal realms. …More than 230 policy variables and their sources are now available to the public on a new website for the study. …the 2018 edition provides annual data on economic and personal freedom and their components back to 2000. …Freedom in the 50 States is an essential desk reference for anyone interested in state policy and in advancing a better understanding of a free society.

The publication is loaded with data, as you’ll see from the following charts.

To put all this data in context, the report separately calculates fiscal freedom, regulatory freedom, and personal freedom.

We’ll start with the fiscal section, which includes variables about taxes and spending, as well as other measures such as debt and government employment.

For those interested, the report has plenty of analysis and explanation about the variables that are used and the weights that are assigned.

Most of us, though, simply want to see which states get good scores and which ones get bad scores.

I’m not surprised to see that zero-income-tax states – led by Florida – are at the top. And I’m also not surprised that flat-tax states – led by Pennsylvania – also are well represented.

I assume nobody is surprised to see New York in last place.

Now let’s shift to regulatory policy and see where the burden of red is most onerous.

This part of the ranking covers a range of issues, most notably controls on land use and restrictions on the use of markets in health care.

But there are other important variables, including the extent and burden of occupational licensing.

Indeed, before getting to the overall rankings for regulation, I want to share those scores because it is so galling and upsetting that politicians impose barriers that limit the freedom of people to earn income.

Colorado deserves hearty applause for being at the top, edging out Idaho by a narrow margin. And even though Vermont was near the bottom of the fiscal rankings, it merits a mention for being good on the issue of occupational licensing.

California deserves hearty condemnation for being in last place. And I’m not surprised to see states like Illinois and New Jersey near the bottom.

I’m very disappointed, however, that Texas and Florida have such a dismal record.

But let’s not fixate on just one of the variables. If we look at the rankings for all regulatory issues, Kansas is in first place, followed by Nebraska and Idaho.

The worst states (hardly a surprise) are New York, New Jersey, and California.

Now let’s combine fiscal policy and regulatory policy and see the report’s ranking for overall economic freedom.

Florida is in first place by a comfortable margin, followed by three other zero-income-tax states (though the absence of a state income tax does not guarantee a good score, as you can see from the poor performance of Alaska, Wyoming, and Washington).

New York wins the Booby Prize by a large margin.

Hawaii and California also stand out in a bad way.

The above table tells us which state enjoys the most economic liberty, but that doesn’t tell us where to live if you want the maximum amount of overall freedom.

To identify the nation’s most libertarian state, we also need to look at rankings for personal liberty.

This means, in part, whether people are harassed and persecuted for victimless crimes, but it also includes measures of educational freedom and gun rights.

Speaking of which, I can’t resist sharing the data on which states most respect the 2nd Amendment.

Kansas gets the best score, followed by Vermont(!), Arizona, Idaho, and Mississippi.

Hawaii is the worst state by a significant margin and we (again) find California near the bottom.

Another issue which is near and dear to my heart is asset forfeiture.

I am nauseated and disgusted that governments are allowed to steal property from people who have not been convicted of any wrongdoing.

So let’s applaud New Mexico, Nebraska, and New Hampshire for putting limits on this awful practice.

And let’s heap unending scorn on Rhode Island for having the nation’s worst track record on this issue.

But what happens when we combine all issue relating to personal freedom?

Well, that’s exactly what the authors did, which means we get a comprehensive ranking for personal freedom. I’m not surprised that Nevada, Colorado, and New Hampshire are in the top 5, but I’m surprised to see that Maine leads the pack.

Likewise, I guess I’m not too surprised that Texas and other bible-belt states are socially conservative.

But Hawaii next to last?!?

In any event, the report combines economic freedom and personal freedom and tells us which state could be considered the most libertarian.

And the winner is the Sunshine State of Florida, followed by New Hampshire, Indiana, Colorado, and Nevada. I’m surprised that Florida does so well, though some of the other high-scoring states make sense (especially when I look at data on who reads these columns).

By contrast, the most dirigiste state is New York. That doesn’t surprise me, and I’m also not shocked by some of the other bottom dwellers.

I’m tempted to end here since we’ve already surveyed so much information.

But there’s one final chart which hopefully should be very fascinating.

We just looked at the data on how states currently rank for overall liberty.

This final selection tells us which ones have been moving in the right direction and wrong direction since the turn of the century.

Kudos to Oklahoma for adopting a lot of good reform. Same for New Mexico. And it’s also interesting to see that several states from the Great Lakes region boosted their scores (with Illinois being a laggard, of course).

Vermont has the dismal distinction of having moved the fastest in the wrong direction (No wonder it’s the Moocher State).

Hawaii also deserves an unfavorable mention, while the deterioration of New Jersey and New York is hardly a surprise.

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I’ve written many times about people and businesses escaping high-tax states and moving to low-tax states.

This tax-driven migration rewards states with good policy and punishes those with bad policy.

And now we have some new data.

The Wall Street Journal recently opined on the updated numbers.

…some states are booming while others are suffering a European-style sclerosis of population loss and slow economic growth. …The eight fastest-growing states by population last year…also experienced rapid employment and GDP growth spurred by low tax rates and policies generally friendly to business and job creation. Nevada, Arizona, Texas, Washington, Utah, Florida and Colorado ranked among the eight states with the fastest job growth this past year, according to the Bureau of Labor Statistics. Nevada, Texas, Washington and Florida have no income tax. …Then there’s California. Despite its balmy weather and thriving tech industry, the Golden State last year lost more people to other states than it gained from foreign immigration. Since 2010, a net 710,000 people have left California for other states. …New York Gov. Andrew Cuomo recently blamed cold weather for the state’s population exodus, but last year frigid New Hampshire with no income tax attracted 3,900 newcomers from other states. …Illinois’s population has declined by 157,000 over the past five years… Cold weather? While Illinois’s population has declined by 0.8% since 2010, Indiana’s has grown 3.1% and Wisconsin’s by 2.2%.

Here’s my favorite part of the editorial.

America as a whole can thank the Founders for creating a federalist system that allows the economic and political safety valve of interstate policy competition.

Amen. Federalism is great for a wide range of reasons, but I especially like that people have the freedom to escape when policy is decentralized.

Companies escape high taxes.

Honeywell International Inc. is snubbing New Jersey and heading south. …Honeywell’s move follows other companies that have moved corporate offices out of states with elevated costs of living and high taxes, including General Electric Co.’s relocation of its headquarter to Boston from Connecticut. Those costs were exacerbated by a new law last year that removed state income-tax deductions on federal taxes. North Carolina has a lower state income tax than New Jersey for higher-paid employees.

Former governors escape high taxes.

Gov. Paul LePage said Monday that he plans to move to Florida for tax reasons… LePage and his wife, Ann, already own a house in Florida and often vacation there. He said he would be in Maine from April to September. Asked where he would maintain his legal residency, LePage replied Florida. …”I have a house in Florida. I will pay no income tax and the house in Florida’s property taxes are $2,000 less than we were paying in Boothbay. … At my age, why wouldn’t you conserve your resources and spend it on your family instead of on taxes?” …LePage often has cited Maine’s income tax – currently topping out at 7.15 percent, down from a high of 8.5 percent when he took office – as an impediment to economic growth and attracting/retaining residents.

Even sports stars avoid class-warfare tax regimes.

Bryce Harper and Manny Machado…will “take home” significantly higher or lower pay depending on which teams sign them and the applicable income tax rates in the states where those teams are based. This impact could be worth tens of millions of dollars. …For example, assume the Cubs and Dodgers offer identical eight-year, $300 million contracts to Machado. Lozano would warn the Dodgers that their offer is decidedly inferior. As a Dodger, Machado’s million-dollar wages would be subject to the top bracket of California’s state income tax rate. At 13.3%, it is the highest rate in the land. In contrast, as a Cub, Machado would be subject to the comparatively modest 4.95% Illinois income tax rate. …the difference in after-tax value of these two $300 million contracts would be $14 million.

Though Lozano needs to warn Machado that the recent election results significantly increase the danger that Illinois politicians will finally achieve their long-held goal of changing the state constitution and replacing the flat tax with a class-warfare system.

Since we’re talking about the Land of Lincoln, it’s worth noting that the editors at the Chicago Tribune understand the issue.

Every time a worker departs, the tax burden on those of us who remain grows. The release on Wednesday of new census data about Illinois was alarming: Not only has the flight of citizens continued for a fifth straight year, but the population loss is intensifying. This year’s estimated net reduction of 45,116 residents is the worst of these five losing years. …Residents fed up with the economic climate here are heading for less taxaholic, jobs-friendlier states. …Many of them left because they believed Illinois is headed in the wrong direction. Because Illinois politicians have raised taxes, milked employers and created enormous public indebtedness that the pols want to address with … still more taxation. …How bad does the Illinois Exodus have to get before its dominant politicians understand that their debt-be-damned, tax-and-spend policies are ravaging this state?

Wow, no wonder Illinois is perceived to be the first state to suffer a fiscal collapse.

Let’s now zoom out and consider some national implications.

Chris Edwards took a close look at the data and crunched some numbers.

The new Census data confirms that people are moving from tax-punishing places such as California, Connecticut, Illinois, New York, and New Jersey to tax-friendly places such as Florida, Idaho, Nevada, Tennessee, and South Carolina. In the chart, each blue dot is a state. The vertical axis shows the one-year Census net interstate migration figure as a percentage of 2017 state population. The horizontal axis shows state and local household taxes as a percentage of personal income in 2015. …On the right, most of the high-tax states have net out-migration. …On the left, nearly all the net in-migration states have tax loads of less than 8.5 percent. …The red line is fitted from a simple regression that was highly statistically significant.

Here’s the chart.

Professor Glenn Reynolds wrote a column on tax migration for USA Today.

He starts by warning states that it’s a very bad recipe to repel taxpayers and attract tax consumers.

IRS data show that taxpayers are migrating from high-tax states like New York, Illinois, and California to low-tax states like Texas and Florida. …In time, if taxpayers tend to migrate from high-tax states to low-tax states, and if people receiving government benefits tend to stay in place or migrate from lower-benefit states to higher-benefit states, then over time lower-tax states will tend to accumulate more people with high earnings, while higher-benefit states will tend to accumulate more people who live on the dole. …if high-benefits states are also high-tax states (as is often the case) since then states with high benefits will accumulate more people who draw on them, while shedding the taxpayers they need to support them. The problem is that the result isn’t stable: High-tax, high-benefit states will eventually go bankrupt because they won’t retain enough taxpayers to support their welfare spending.

He then makes a very interesting observation about the risk that people who leave states such as New York, Illinois, California, and New Jersey may bring their bad voting habits to their new states.

…migrants from high tax states might bring their political attitudes with them, moving to new, low-tax states for the economic opportunity but then supporting the same policies that ruined the states they left. This seems quite plausible, alas, and I’ve heard Coloradans lament that the flow of Californians to their state involved a lot of people doing just that. …If I were one of those conservative billionaires…I might try spending some of the money on some…sort of welcome wagon for blue state migrants to red states. Something that would explain to them why the place they’re moving to is doing better than the place they left, and suggesting that they might not want to vote for the same policies that are driving their old home states into bankruptcy.

Glenn makes a very good point.

As part of my work on defending TABOR in Colorado, I often run into people who fret that the state has moved in the wrong direction because of migration from left-leaning states.

Though Chuck DeVore shared some data on how migrants to Texas are more conservative than people born in the state.

I’ll close today’s column with a helpful map from the Tax Foundation.

All you really need to know is that you should move if you live in a blue state and you should erect a no-leftists-allowed sign if you live in a gray state.

P.S. Everything I wrote about the benefits of tax migration between states also applies to tax migration between nations.

I will never stop defending the right of labor and capital to escape high-tax regimes. I especially enjoy the hysterical reactions of folks on the left, who think that my support of fiscal sovereignty means that I’m “trading with the enemy,” being disloyal to my government, or that I should be tossed in jail.

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Like any sensible person, I want victimless crimes to be legalized. In part because I believe in freedom, but also for utilitarian reasons.

  • I don’t approve of drugs and I’ve never used drugs, but I think the social harm of prohibition is greater than the social harm of legalization.
  • I don’t particularly like alcohol and I am almost a teetotaler, but I’m glad there’s now a consensus that the social harm of prohibition was greater than the social harm of legalization.
  • I don’t approve of prostitution and I’ve never consorted with a prostitute (other than the political ones in DC), but I think the social harm of prohibition is greater than the social harm of legalization.

So it won’t surprise you to learn that I want gambling to be legal because the social harm of prohibition is greater than the social harm of legalization.

But that definitely doesn’t mean I want government to be in charge, which is why I’m not a fan of state-sponsored lotteries.

Joe Setyon, in a column for Reason, points out that politicians are the only group that actually benefits from these schemes.

At some point in the near future, the record-high Mega Millions jackpot is going to make someone very, very rich. But as is usually the case when it comes to the lottery, the biggest winner will be the government. …there are a few things us suckers need to keep in mind about the lotto. First, the majority of lottery revenue goes back to the government. In 2015, The Atlantic estimated that 40 percent of all lottery ticket sales are allocated to state governments. …Meanwhile, some states that allow lotteries crush their competition with strict gambling regulations. In Texas, for instance, most forms of gambling are illegal. This means the government has a near-monopoly. The double standard for public and private gambling operations is obvious. Ultimately, the lottery system is a kind of regressive tax on low-income earners. “If the promised return is by far illusory—and it is—it would be hard to argue that those purchases do not constitute a tax on those who believe the state’s hype,” Fiscal Policy Institute research associate Brent Kramer wrote in 2010.

And here’s an article from CNBC that reveals the unpalatable tax consequences for the “lucky” people who happen to win a big prize.

…there’s at least one guaranteed recipient of a chunk of the loot — the IRS. …If you happen to beat the astronomical odds and hit all winning numbers in either game, be aware that the taxation of your prize starts before even reaching you. Whether you take your haul as a lump sum or as an annuity spread out over three decades, your win is reduced by a 24 percent federal tax withholding… The immediate cash option for Mega Millions is $904 million. The federal withholding would reduce that by $217 million. For the $354.3 million Powerball lump sum, it would mean $85 million getting shaved off the top. …However, that’s just the start of what you’d owe. The top income tax rate for individuals is 37 percent… That rate applies to adjusted gross income of $500,000 or more. In other words, hitting either jackpot would mean facing that top rate. …On top of the federal withholding, you’ll owe state taxes on the money unless you live where lottery wins are untaxed. …Translation: You might pay north of 45 percent altogether in taxes, depending on where you purchased the ticket and where you live.

In other words, the government pillages people when they buy tickets.

And then the government pillages the tiny fraction of people who actually win something.

As I wrote above, the only real winners are politicians.

The biggest losers, by the way, are poor people.

Arthur Brooks of the American Enterprise Institute summed up this sad state of affairs in a column for the Wall Street Journal.

Powerball—the lottery shared by 44 states, the District of Columbia and two territories—is just one of the sweepstakes run by 47 jurisdictions in the U.S. These games produce nearly $70 billion a year in government revenue and enjoy profits of about 33%—much higher than margins in the private gambling industry. Who are these lotteries’ most loyal customers? Poor people. …the poorest third of Americans buy more than half of all lotto tickets… Scholars have dug up evidence that states intentionally direct such ads at vulnerable citizens. A marketing plan for Ohio’s lottery some years back recommended scheduling campaigns to coincide with the distribution of “government benefits, payroll and Social Security payments.” …the average return from $1 spent on lottery tickets is 52 cents… After a state introduces the lotto, the bottom third of households shift about 3% of their food expenditures and 7% of their mortgage payments, rent and other bills. Effectively, the lottery works like a regressive tax. …Is there any set of policies more contradictory than pushing lotto tickets on poor people, and then signing them up for welfare programs that make them financially dependent on the government?

Here’s some additional analysis from the Wall Street Journal, this time from Holman Jenkins.

Gambling is what economists call an “inferior good”—demand is higher among those at the lower end of the income scale. As economist Sam Papenfuss argued in a 1998 paper, state-sponsored gambling became popular as a way for high-income taxpayers to recoup some of the money spent on programs for the poor. State-sponsored gambling in the form of lotteries (now in 44 states) arrived on the same antitax wave that gave us property-tax caps and other antitax measures in the 1970s and ’80s. It should not surprise anyone that Democrats, as big supporters of the welfare state, have been the biggest supporters (though by no means exclusively so) of gambling as a way to finance it.

Last but not least, here are excerpts from a column I wrote for the Washington Times more than 20 years ago.

…government-run lotteries represent bad public policy. The No. 1 objection is that they lead to more government spending. …Perhaps even more disturbing, government lotteries victimize the poor. More than any other group, lower-income residents are the ones who play the lottery, often shelling out hundreds of dollars each year in the hope of striking it rich. Yet these are precisely the people who should avoid lotteries. As an investment, lotteries are lousy, paying out only about half of what they take in. …why should state governments be running lotteries? If nothing else, lotteries show how much better consumers are treated by the free market system. Private gambling operations pay out about 90 cents for every dollar wagered (even higher for games such as blackjack), a far better deal than the miserly return provided by government-run lotteries. …This analysis applies to illegal gambling as well. Bookies traditionally allow customers to bet against the point spread for sporting events, and they make their money by applying a 10 percent charge on the money wagered by those who make losing bets.

Two decades later and I wouldn’t change a single thing I wrote.

I don’t like when politicians mistreat rich people, but I get far more upset when they do things that impose disproportionate costs on poor people. This is one of the reasons I don’t like government flood insurance, Social Security, the Export-Import Bank, the mortgage interest deduction, or the National Endowment for the Arts.

And lotteries definitely belong on that list as well.

I’m not a paternalist. I support legal gambling and I don’t want to prohibit poor people from making (what I think) are misguided decisions.

But at least leave the gambling to the private sector so poor people will get back, on average, 90 cents of every dollar they bet.

P.S. I just had a horrifying thought. What if politicians decided to legalize prostitution because they wanted more revenue. But instead of legalizing and taxing (like they do – often to excess – with marijuana), what if they followed the lottery approach and we wound up with government-run brothels?!?

P.P.S. To be fair, the government will continue to give you food stamps if you become a lottery millionaire.

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