Tag: states

Jilted Cavs Fans Should Blame Ohio’s Income Tax

Supporters of the Cleveland Cavaliers, especially the owner of the team, are upset that basketball superstar LeBron James has decided to sign with the Miami Heat. The anger is especially intense because the Cavaliers offered James $4 million more over the next five years. But their anger is misplaced because more money in Cleveland actually translates into about $1 million less disposable income when the burden of state and local income taxes is added to the equation. Rather than condemn James for making a rational choice, local basketball fans should tar and feather Ohio politicians.

This story from CNBC walks through the calculations.

[I]f you match up what James’ salary would be for the first five years in Cleveland and the five years in Miami, you find that the Cavaliers are only offering him $4 million more. That advantage gets erased — and actually gives the Heat the monetary edge over — when you consider the income tax difference. …Playing in Cleveland, LeBron would face a state income tax of 5.925 percent, plus a Cleveland city tax of two percent. Over the first five years of a new contract with Cleveland, James would give back $3,953,060 combined to the state and city for the 41 games each season he’d play at home. But James would have to pay none of that for home games in Miami since Florida doesn’t have an income tax. Athletes have to pay income taxes to states that they play in on the road, so the games he’ll play away from home — whether he played for Cleveland or Miami — are essentially a wash. But there are, on average, 11 away games per season where James would have to pay Ohio and Cleveland taxes. Why? Because he has to pay when he plays in the six areas –– Florida, Texas, Washington D.C., Illinois, Toronto and Tennessee –– that have no jock taxes. That’s another $1,061,128 he’ll have to pay in taxes that he wouldn’t have to pay in Miami.

New York basketball fans also should be angry. With some of the highest taxes in the nation, many of which target highly productive people as part of a class-warfare policy, New York is bad news for professional athletes. The New York Post, commenting on the probability that James would sign with the Miami Heat, identified the real villains.

[B]lame our dysfunctional lawmakers in Albany, who have saddled top-earning New Yorkers with the highest state and city income taxes in the nation, soon to be 12.85 percent on top of the IRS bite. There is no state income tax in Florida. On a five-year contract worth $96 million – what he’d get from the Knicks or the Heat — LeBron would pay $12.34 million in New York taxes. Quite a penalty for the privilege of working in Midtown.

Now let’s look at the big picture. The calculations that LeBron James made when deciding to sign with the Miami Heat are the same calculations that companies make when deciding whether to build factories and create jobs. So when people wonder why high-tax states such as Ohio, California, and New York are losing jobs to zero–income tax states such as Florida and Texas, part of the answer should be obvious. And if we move to the global level, folks should not be too surprised that companies and investors, all other things equal, are likely to avoid the United States, with its punitive 35 percent corporate tax, and instead create jobs and build wealth in places like Hong Kong, Ireland, and Switzerland.

The Moocher Index

The Center for Immigration Studies recently put out a study arguing that immigration has had negative effects on California. One of their measures was a comparison of how many people in the state were receiving some form of welfare compared to other states. I found that data (see Table 3 of the report) very interesting, but not because of the immigration debate (I’ll leave others to debate that topic). Instead, I wanted to get a better understanding of the variations in government dependency. Is there a greater willingness to sign up for income redistribution programs, all other things being equal, from one state to another? The “all other things being equal” caveat is very important, of course, since the comparison produced by CIS may simply be an indirect measure of the factors that determine welfare eligibility. One obvious (albeit crude) way of addressing this problem is to subtract each state’s poverty rate to get a measure of how many non-poor people are signed up for income-redistribution programs. Let’s call this the Moocher Index.

A few quick observations. Why is Vermont (by far) the state with the largest proportion of non-poor people signed up for welfare programs? I have no idea, but maybe this explains why they elect people like Bernie Sanders. But it’s not just Vermont. Four of the top five states on the Moocher Index are from the Northeast, as are six of the top nine. Mississippi also scores poorly, coming in second, but many other southern states do well. Indeed, if we reversed the ranking and did a Self-Reliance Index, Virginia, Florida, and Georgia would score in the top 10. Nevada, arguably the nation’s most libertarian state, is the state with the lowest number of non-poor people signed up for welfare.

Let’s now emphasize several caveats. I’m not an expert on the mechanics of social welfare programs, but even I know that eligibility is not governed solely by the poverty rate. Indeed, some welfare programs are open to people with much higher levels of income. This means that a more thorough analysis at the very least would have to include some measure of income distribution by state. Moreover, states use different formulas for Medicaid eligibility, so this index ideally also would be adjusted for state-specific policies that make it easier or harder for people to become dependent. There also are some states (and even colleges) that actually try to lure people into signing up for welfare, which also might affect the results. And I’m sure there are many other factors that are important, including perhaps immigration. If anybody knows of substantive research in this area, please don’t hesitate to share material.

Run Away from ‘Common’ Education Standards

A couple of days ago, Fordham Institute president Chester Finn declared on NRO that conservatives should embrace new, national education standards from the Common Core State Standards Initiative. Today I respond to him on The Corner, and let’s just say it’s clear that neither conservatives, nor anybody else, should embrace national standards.

Oh, one more thing: I shouldn’t have to keep saying this to savvy Washington insiders like the folks at Fordham, but when the federal government bribes states with their own citizens’ tax money to do something, doing that thing is hardly voluntary, at least in any reasonable sense. 

For more wise thoughts on the national standards issue, check out this interview with Jay Greene, and this Sacramento Bee piece by Ben Boychuk.  Oh, and this interview with yours truly.

The Standards Themselves Are, Frankly, Irrelevant

Three days ago I reported that draft, grade-by-grade, national curricular standards would soon be released by the Common Core State Standards Initiative. Yesterday, they were. (If you want to get a sense for what the proposed standards are follow the link to them. Don’t bother with the appendices, though, unless you really want to get into the weeds.)

Naturally, in the coming days lots of people will be offering heaps of commentary about what the standards do or do not contain. That’s not my main concern (though reading through the English standards I am dubious that mastery of them could be easily or consistently assessed). You see, the content of the standards is largely irrelevant because the main problem isn’t what the standards are, but standardization itself.

As I’ve blathered about on numerous occasions, it makes little sense to expect all kids to master all the same things at the same rates. All kids are different – they have different talents, desires, and abilities – and to impose one, “best” progression on them is simply illogical.

Another problem with imposing a single standard nationwide – and yes, this will be imposed, unless states suddenly decide they don’t like getting their citizen’s tax dollars back from Uncle Sam – is that it prevents competition between curricula. And that, in turn, kills innovation, the lifeblood of progress. So unless these standards have achieved perfection – and I’m pretty sure they haven’t – it’s a very dangerous thing to make them the end-all and be-all.

Finally, no matter how brilliant the draft standards, there is no reason to believe that they will drive meaningful educational improvement. Government schools will still be government schools, and the people employed by them will still have very little incentive to push kids to excellence, and every incentive to game the system to make the standards toothless. And no one yet has offered a decent proposal, other than school-choice supporters, for getting around that very inconvenient, public-schooling truth.

All of these problems help to explain why there is no convincing empirical evidence that national standards drive superior educational outcomes. Unfortunately, most national-standards advocates will talk themselves blue in the face about what’s in the standards, but avoid at all costs the question of whether standardization makes sense in the first place.

Federal Aid to States Is Too Popular

The Economist’s Free Exchange blog asks: “[W]hy isn’t federal aid to states more popular, and popular enough to get through Congress, given that nearly every American lives in one?”

I would ask the blog’s author: How much more popular would he like it to be? As the following charts show, federal aid to state and local governments has catapulted to record levels.

As I’ve discussed elsewhere, Medicaid has been driving the growth in federal subsidies to state and local governments. But other areas, such as education, income security, and transportation, have also seen substantial increases.

Subsidizing state and local government is quite popular with federal, state, and local policymakers and associated special interests. It’s doubtful the average citizen is aware that so much of their state’s spending is derived from their federal tax dollars. However, I suspect that most folks (who aren’t on the take) would frown upon the concept of sending money to Washington only to have politicians send it back to the states via the federal bureaucracy. While there may be popular support for many of the state programs funded with federal dollars, citizens need to understand that federal subsidization of state and local government has fueled unhealthy government growth at all levels.

Race to Domination

Today’s the day that states must submit their applications to the U.S. Department of Education to compete for round-one “Race to the Top” grants. But no worries if your state’s a little behind: Not only will there be another application round for the $4.35-billion dash-for-cash, but as President Obama announced today, he wants a $1.35-billion sequel to what was supposed to be a one-time, stimulus-funded contest.

The important question, of course, is whether sponsoring this race is worthwhile for federal taxpayers. The clear answer is no.

Sure, in response to RttT states have been raising charter-school caps, allowing teachers to be evaluated using student performance, and instituting other changes, but they’ve done little of real substance. Just raising caps won’t make it much easier to get good, competitive charter schools since most of the charter-supply problem revolves around over-regulation and painful authorization processes. And while states have eliminated prohibitions on using student test results to evaluate teachers, they haven’t done much to actually base teacher evaluations on student performance or other meaningful metrics.

What has RttT done that is of substance? Unfortunately, push yet more power into federal hands, forcing  states and districts to jump through all manner of hoops for a chance to get back some of their citizens’ money. Indeed, it is becoming painfully clear that President Obama intends to put Washington firmly above the states in the hierarchy of education power.

For his $1.35 billion RttT expansion, President Obama plans to allow districts to directly compete for federal funding, bypassing states completely. And then there’s his crusade for national curricular standards. His administration has been talking up “common” standards since almost day one, and in the ”fact sheet“ accompanying the RttT expansion announcement the first bullet states that RttT emphasizes “designing and implementing rigorous standards and high-quality assessments, by encouraging states to work jointly toward a system of common academic standards.” 

Don’t be fooled, by the way, by the “states” working “jointly” thing, or utterly unbelievable administration denials. If the feds are paying states to adopt common standards then those standards will be de facto federal. Either that, or the feds will let states adopt any old joint standards and still get paid. Six of one bad thing, half dozen of the other…

Thankfully, there is resistance to Obama’s bribe-to-the-top scheme. Texas, most notably, has refused to participate in RttT, with Gov. Rick Perry declaring that ”we would be foolish and irresponsible to place our children’s future in the hands of unelected bureaucrats and special interest groups thousands of miles away in Washington.” And Texas is not alone: According to a New York Times article appearing yesterday, states and districts around the country are refusing to put on their track shoes and run for the federal funds. 

Still, federal money – taxpayer money – can be a tough thing for any elected offical to turn down. Sooner or later, if we let him, Obama will almost certainly find an amount that no state or district can resist.