Tag: state

Arizona Republic Corrects its Tax Credit Savings Estimate in Response to Cato Input

Last Wednesday, the Arizona Republic published a fiscal impact assessment of the state’s education tax credit programs for k-12 private school choice. While the story itself was a good faith effort, there were errors in both its data and assumptions. I wrote an op-ed intended for the Republic correcting those errors and e-mailed a copy to the story’s author, Ron Hansen, the same day his story was published.

While the paper’s editorial page expressed no interest in printing my submission, the Republic published a correction today based on the accurate spending and savings figures I provided. In a phone call, Hansen indicated that the correction was precipitated by my e-mail, though he opted not to mention that in his story, saying that he didn’t think the source of the correction was important.

On the one hand, Hansen and the Republic are to be commended for publishing a correction, and it should be noted that the bad data were provided to them by Arizona Director of School Finance, Yousef Awwad. On the other hand, their correction is incomplete – acknowledging only the bad data and not the mistaken assumption explained in my op-ed.

So while the Republic has now raised its savings estimate from their originally reported $3 million to a corrected $8.3 million, they have yet to explain that this figure could actually understate the total savings.

Still, their response is better than I expected.  Most newspapers, in my experience, do absolutely nothing when factual and reasoning errors in their education stories are brought to their attention, and in fact go on to repeat those same errors in subsequent stories.

And they wonder why two thirds of the public now doubt their credibility….

Revenge of the Laffer Curve, Part II

An earlier post revealed that higher tax rates in Maryland were backfiring, leading to less revenue from upper-income taxpayers. It seems New York politicians are running into a similar problem. According to an AP report, the state’s 100 richest taxpayers have paid $1 billion less than expected following a big tax hike. The story notes that several rich people have left the state, and all three examples are about people who have redomiciled in Florida, which has no state income tax. For more background information on why higher taxes on the rich do not necessarily raise revenue, see this three-part Laffer Curve video series (here, here, and here):

Early data from New York show the higher tax rates for the wealthy have yielded lower-than-expected state wealth.

…[New York Governor David] Paterson said last week that revenues from the income tax increases and other taxes enacted in April are running about 20 percent less than anticipated.

…So far this year, half of about $1 billion in expected revenue from New York’s 100 richest taxpayers is missing.

…State officials say they don’t know how much of the missing revenue is because any wealthy New Yorkers simply left. But at least two high-profile defectors have sounded off on the tax changes: Buffalo Sabres owner Tom Golisano, the billionaire who ran for governor three times and who was paying $13,000 a day in New York income taxes, and radio talk-show host Rush Limbaugh.

…Donald Trump told Fox News earlier this year that several of his millionaire friends were talking about leaving the state over the latest taxes.

Nanny State Doesn’t Like Competition - the English Version

A previous post by David Boaz poked fun at bureaucrats in Michigan for threatening a woman for the ostensible crime of keeping an eye on her neighbors’ kids without a government permit. English bureaucrats are equally clueless, badgering two women who take turns caring for each other’s kids. The common theme, of course, is that bureaucrats lack common sense – but the real lesson is that this is the inevitable consequence of government intervention (especially when politicians say they are “doing it for the children). The BBC reports:

England’s Children’s Minister wants a review of the case of two police officers told they were breaking the law, caring for each other’s children.

Ofsted said the arrangement contravened the Childcare Act because it lasted for longer than two hours a day, and constituted receiving “a reward”.

It said the women would have to be registered as childminders.

…Ms Shepherd, who serves with Thames Valley Police, recalled: “A lady came to the front door and she identified herself as being from Ofsted. She said a complaint had been made that I was illegally childminding.

“I was just shocked - I thought they were a bit confused about the arrangement between us. So I invited her in and told her situation - the arrangement between Lucy and I - and I was shocked when she told me I was breaking the law.”

…Minister for Children, Schools and Families Vernon Coaker insisted the Childcare Act 2006 was in place “to ensure the safety and wellbeing of all children”.

Debt Aggravates Spending Disease

USA Today’s Dennis Cauchon reports that ”state governments are rushing to borrow money to take advantage of cheap and plentiful credit at a time when tax collections are tumbling.” That will allow them to “avoid some painful spending cuts,” Cauchon notes, but it will sadly impose more pain on taxpayers down the road.

When politicians have the chance to act irresponsibly, they will act irresponsibly. Give them low interest rates and they go on a borrowing binge. The result is that they are in over their heads with massive piles of bond debt on top of the huge unfunded obligations they have built up for state pension and health care plans.

The chart shows that total state and local government debt soared 93 percent this decade. It jumped from $1.2 trillion in 2000 to $2.3 trillion by the second quarter of 2009, according to Federal Reserve data (Table D.3).

Government debt has soared during good times and bad. During recessions, politicians say that they need to borrow to avoid spending cuts. But during boomtimes, such as from 2003 to 2008, they say that borrowing makes sense because an expanding economy can handle a higher debt load. I’ve argued that there is little reason for allowing state and local government politicians to issue bond debt at all.

Unfortunately, the political urge to spend has resulted in the states shoving a massive pile of debt onto future taxpayers at the same time that they have built up huge unfunded obligations for worker retirement plans.

We’ve seen how uncontrolled debt issuance has encouraged spending sprees at the federal level. Sadly, it appears that the same debt-fueled spending disease has spread to the states and the cities.

Pakistan: More Aid, More Waste, More Fraud?

Pakistan long has tottered on the edge of being a failed state:  created amidst a bloody partition from India, suffered under ineffective democratic rule and disastrous military rule, destabilized through military suppression of East Pakistan (now Bangladesh) by dominant West Pakistan, dismembered in a losing war with India, misgoverned by a corrupt and wastrel government, linked to the most extremist Afghan factions during the Soviet occupation, allied with the later Taliban regime, and now destabilized by the war in Afghanistan.  Along the way the regime built nuclear weapons, turned a blind eye to A.Q. Khan’s proliferation market, suppressed democracy, tolerated religious persecution, elected Asif Ali “Mr. Ten Percent” Zardari as president, and wasted billions of dollars in foreign (and especially American) aid.

Still the aid continues to flow.  But even the Obama administration has some concerns about ensuring that history does not repeat itself.  Reports the New York Times:

As the United States prepares to triple its aid package to Pakistan — to a proposed $1.5 billion over the next year — Obama administration officials are debating how much of the assistance should go directly to a government that has been widely accused of corruption, American and Pakistani officials say. A procession of Obama administration economic experts have visited Islamabad, the capital, in recent weeks to try to ensure both that the money will not be wasted by the government and that it will be more effective in winning the good will of a public increasingly hostile to the United States, according to officials involved with the project.

…The overhaul of American assistance, led by the State Department, comes amid increased urgency about an economic crisis that is intensifying social unrest in Pakistan, and about the willingness of the government there to sustain its fight against a raging insurgency in the northwest. It follows an assessment within the Obama administration that the amount of nonmilitary aid to the country in the past few years was inadequate and favored American contractors rather than Pakistani recipients, according to several of the American officials involved.

Rather than pouring more good money after bad, the U.S. should lift tariff barriers on Pakistani goods.  What the Pakistani people need is not more misnamed “foreign aid” funneled through corrupt and inefficient bureaucracies, but jobs.  Trade, not aid, will help create real, productive work, rather than political patronage positions.

Second, Islamabad needs to liberalize its own economy.  As P.T. Bauer presciently first argued decades ago–and as is widely recognized today–the greatest barriers to development in poorer states is internal.  Countries like Pakistan make entrepreneurship, business formation, and job creation well-nigh impossible.  Business success requires political influence.  The result is poverty and, understandably, political and social unrest.  More than a half century experience with foreign “aid” demonstrates that money from abroad at best masks the consequences of underdevelopment.  More often such transfers actually hinder development, by strengthening the very governments and policies which stand in the way of economic growth.

Even military assistance has been misused.  Reported the New York Times two years ago:

After the United States has spent more than $5 billion in a largely failed effort to bolster the Pakistani military effort against Al Qaeda and the Taliban, some American officials now acknowledge that there were too few controls over the money. The strategy to improve the Pakistani military, they said, needs to be completely revamped. In interviews in Islamabad and Washington, Bush administration and military officials said they believed that much of the American money was not making its way to frontline Pakistani units. Money has been diverted to help finance weapons systems designed to counter India, not Al Qaeda or the Taliban, the officials said, adding that the United States has paid tens of millions of dollars in inflated Pakistani reimbursement claims for fuel, ammunition and other costs.

Writing blank checks to regimes like that in Pakistan is counterproductive in the long term.  Extremists pose a threat less because they offer an attractive alternative and more because people are fed up with decades of misrule by the existing authorities.  Alas, U.S. “aid” not only buttresses those authorities, but ties America to them, transferring their unpopularity to Washington.  The administration needs do better than simply toss more money at the same people while hoping that they will do better this time.

Thursday Links

  • A new T-shirt for Senator Baucus: I worked for six months with half a dozen members of the Senate Finance Committee, and all I got was this lousy 223-page summary of what I hope the new health care bill will look like.
  • It’s time to narrowly define the mission in Afghanistan. “The United States does not have the patience, cultural knowledge or legitimacy to transform what is a deeply divided, poverty stricken, tribal-based society into a self-sufficient, non-corrupt, and stable electoral democracy.”

Bob McDonnell: The Modern Republican

This is from the Reagan administration’s deregulatory 1981 energy plan: “All Americans are involved in making energy policy. When individual choices are made with a maximum of personal understanding and a minimum of government restraints, the result is the most appropriate energy policy.”

Many modern Republicans claim devotion to Ronald Reagan’s ideas, but they often seem to forget about the “minimum of government” thing. The following points are from Republican Virginia gubernatorial candidate Bob McDonnell’s “More Energy, More Jobs” plan:

  • “McDonnell was the chief sponsor of legislation creating the Virginia Hydrogen Energy Plan.”
  • “McDonnell also supported grant programs for solar photovoltaic manufacturing, tax exemptions for solar energy and recycling property, and tax credits for solar energy equipment.”
  • “In order to protect Virginia’s citizens from the skyrocketing wholesale prices of electricity seen in other states, McDonnell brought together all the necessary stake holders to re-regulate electricity in Virginia.”
  • “Currently, Virginia is the second largest importer of electricity behind California.  This is unacceptable.”
  • “Bob McDonnell will establish Virginia as a Green Jobs Zone to incentivize companies to create quality green jobs. Qualified businesses would be eligible to receive an income tax credit equal to $500 per position created per year for the first five years.”
  • “The Virginia Alternative Fuels Revolving Fund was established to assist local governments that convert to alternative fuel systems … Bob McDonnell will expand the purpose of this fund to include infrastructure such as refueling stations, provide seed money and aggressively pursue additional grants.”
  • “Bob McDonnell will make Southwest and Southside Virginia the nation’s hub for traditional and alternative energy research and development…To assist with the attraction, building and operation of major energy facilities in Southside and Southwest Virginia, we will also support the establishment of the Center for Energy.”
  • “To help Virginia universities gain access to federal stimulus money, as Governor, Bob McDonnell will establish the Virginia Universities Clean Energy Development and Economic Stimulus Foundation.”
  • “As Governor, Bob McDonnell will leverage stimulus funding to incentivize individuals and businesses to conduct energy audits and encourage public private partnerships between small businesses and government.”

It’s true that McDonnell’s plan has some free market elements, and also that Ronald Reagan supported some wasteful energy boondoggles. However, the degree to which the modern Republican wants to micromanage and manipulate the energy industry is remarkable. McDonnell is almost setting out a Soviet five-year plan for a substantial part of the Virginia economy. For goodness sakes, he wants to treat Virginia like a separate country and try to fix the supposed problem that it is “importing” too much energy from other states!

It’s not just energy. Look at the top-down central planning ideas that McDonnell has for “creating jobs”:

  • “Expanding use of the Governor’s Opportunity Fund by roughly doubling the funding available and broadening Fund rules to allow companies that generate additional state and local tax revenue to qualify.”
  • “Appointing Lieutenant Governor Bolling to serve as “Virginia’s Chief Job Creation Officer” in the McDonnell/Bolling Administration.”
  • “Designating one Deputy Secretary of Commerce to Focus Solely on Rural Economic Development.”
  • “Providing a $1,000 tax credit per job to businesses that create 50 new jobs, or 25 new jobs in economically distressed areas.”
  • “Double the funding for the Virginia Tourism Corporation. Currently Virginia trails 14 states including West Virginia and Tennessee in tourism funding.”
  • “Increase funding for the Governor’s Motion Picture Fund by $2 million.”
  • “Providing a $1,000 tax credit per job to businesses that create 50 new jobs, or 25 new jobs in economically distressed areas.”

Again, McDonnell mixes some pro-market proposals in with these Big Government interventions. And his opponent, Creigh Deeds, is promoting his own interventionist schemes, many very similar to McDonnell’s.

In 1980, the difference between Jimmy Carter and Ronald Reagan on economic policy was clear. But today, we seem to have arrived at a point where it’s virtually impossible to tell the difference in economic platforms between a self-proclaimed conservative Republican and a liberal Democrat.