Maryland and Michigan Committing Economic Suicide

The title is a bit of an exaggeration, but states that raise income tax rates are engaging in extremely foolish behavior because entrepreneurs, investors, and business owners will shift to states with lower tax rates. The Wall Street Journal opines against these self-destructive policies, noting that Maryland’s tax-increase orgy will finance new spending and penalize small business:

Governor Martin O’Malley has been undertaking something close to a tax-increase-a-day tour. In Ellicott City he proposed raising the sales tax to a rate of 6% from a nickel. The next day in suburban Baltimore he unveiled his plan to raise the top income tax rate to 6.5% from 4.75%. Last Wednesday in Landover he called for a doubling of the cigarette tax to $2 a pack. He has also endorsed a one percentage point hike in the state corporate income tax to 8%, new commercial real estate taxes, and a 12 cent hike in the gasoline tax to 35.5 cents a gallon. …

In all, Mr. O’Malley hopes to wrench $2 billion a year from Maryland workers – in the name of filling a $1.5 billion gap in the state’s $30 billion budget. The extra $500 million will finance new spending. … Mr. O’Malley’s income tax plan is consistent with the Democratic Party’s nationwide revival of its New Deal theme of the tax code as a tool for income redistribution. While nations over the globe move to flatter, simpler, pro-growth tax systems, the Governor is selling his proposal as a pain-free whack at the rich. Trouble is, there aren’t enough truly rich to finance his spending goals, so his real target is the not-so-upper middle class. His two new tax brackets of 6% and 6.5% will kick in at incomes of $200,000 and $500,000, respectively, for couples. …

The Governor also fails to mention that about two-thirds of the people he wants to hammer are small business owners – the major employers in the state. He might acquaint himself with a new study by Barry Poulson of the University of Colorado which finds that states with either no income tax, or low flat-rate structures, have significantly higher income growth rates than states with steeply progressive tax rates. … The losers will be Maryland citizens, unless they move to another state, which we’d guess some of them will.

The WSJ also explains that Michigan’s tax increase is going to undermine a state that already suffers from a weak economy and a punitive tax regime:

At about 2 a.m. Monday, a handful of Republicans in the Legislature broke days of gridlock and handed Democratic Governor Jennifer Granholm the $1.48 billion tax increase she has been demanding. The state’s personal income tax will rise to 4.35% from 3.9%, and the rest of the revenue grab will come from a new 6% sales tax on business services. Already 14th in tax burden among the 50 states, according to the Tax Foundation, Michigan is now headed up in the rankings. Congratulations. …

By the way, last year Michigan introduced a new 4.95% business income tax, which will be applied on top of the sales tax. Last year, amid the national expansion, Michigan was the only state outside the Gulf Coast to lose jobs and see a decline in economic output. Comerica Bank recently moved its headquarters to Texas, in part because of Michigan’s hostile business climate. Michigan’s 7.4% jobless rate is the highest of all states and far above the 4.6% national rate. …

In the past 25 years, the only period when Michigan’s growth has exceeded that of the national economy was in the mid-1990s after then-Governor John Engler’s tax cutting and welfare reform. For a time, Michigan became the unlikely national leader in job creation. Now the total tax burden is returning to where it was before the Engler years. Michigan last went on a taxing binge in 1983, and voters were outraged enough to mount a successful recall campaign against two state Senate ringleaders. This time, two of three Michigan voters have told pollsters they want budget cuts, not new taxes. It may be that the only way to get jobs back into Michigan is to make sure the taxing politicians in Lansing lose theirs.

The only good news from Maryland and Michigan is that these states will serve as laboratories for economic failure. In upcoming years, public policy experts will compare their economic performance to the results in states – like Rhode Island and New Mexico – that have lowered tax rates. Needless to say, it is easy to predict that the states lowering tax rates will prosper relative to the states that are increasing the burden of government.

Do Texas Taxpayers Get Longhorn Straight through the Middle?

Let me make one thing clear right off the bat (pun not intended): I’m a fan of college sports.

As I’ve written before, though, I have some problems with big-time college athletics because I think that private schools are at a huge disadvantage against public schools, if for no other reason than private school alumni donors have to spend their money on lots of their alma maters’ needs, academic and athletic, while state taxpayers take care of public schools’ academic stuff, letting alums focus on sports. (There are lots of other problems, but I’ll stick to my favorite for now.) A fascinating breakdown of athletics spending at the University of Texas in Sunday’s Austin-American Statesman illustrates just how excessive at least one public schools’ athletics budget can get, with UT set to spend $107.6 million on athletics this year, double what the school spent just six years ago. Of course, UT probably needs to fork out that much cash to make sure its football players have such things as a “lounge area with game tables, 125 personalized lockers for the players, five flat-screen TVs and a three-dimensional, lighted 20-foot Longhorn on the ceiling.”

Of course, none of this proves that Texas taxpayers are footing the academic bills so alums can focus on the thrill of victory, but there is nationwide evidence that such displacement might just be happening. As the American-Statesman notes:

Big-time sports can cost schools money in other ways, too. This spring, an analysis of Division I-A schools by the Journal of Sports Management found athletic department donations represent a larger and larger share of total university giving. “In some cases, the increase in athletics giving may be coming at the expense of academic gifts,” said co-author Jeffrey Stinson, a North Dakota State University marketing professor.

So, while we don’t know for sure from this article, it seems quite possible that, at least in part, Texas fans are able to cheer because Texas taxpayers are getting a longhorn straight through the middle.

More on Klein (and Cusack)

Tim flays poor Naomi Klein’s impoverished reading of Milton Friedman below, but there are even more bizarre assertions in the interview (which is conducted, unfortunately, by a fawning John Cusack).

Klein claims that times of crisis, such as the aftermath of terrorist attacks, are the most fertile moments to “push through radical free-market policies” against the will of the American people. This, of course, defies all systematic study of such things, which has proved to the contrary that the State, not the private sector, is the beneficiary of such environments. For starters, go to the books by Bruce Porter or Robert Higgs. There is a wealth of literature out there on this topic, and any undergraduate with a passing interest in the subject should be familiar with it. Such knowledge would preclude making the type of nutty claim that Klein does.

But even if one limits his analysis to, say, life under the Bush administration, one would be hard-pressed to point to the “radical free-market policies” which the administration has successfully and quietly spirited into American society in the wake of 9/11. Remember, for example, the widely-debated and spectacularly unsuccessful Bush approach to trying to partially privatize Social Security. Or, for a broader look, refer to my colleague Steve Slivinksi’s conclusion two years ago that

Even after excluding spending on defense and homeland security, Bush is still the biggest-spending president in 30 years…

Total government spending grew by 33 percent during Bush’s first term. The federal budget as a share of the economy grew from 18.5 percent of GDP on Clinton’s last day in office to 20.3 percent by the end of Bush’s first term.

Those don’t sound like stealthily enacted radical free-market policies to me. To the extent that Klein gestures toward these facts in the interview, she seems to protest that she’s not against government exploitation of crises per se, but rather is disgusted that the beneficiaries of this largesse may include private sector companies. For example, Klein is aghast that “food” and “pest control” in Iraq are provided by private companies. The horror!

One might expect this type of nonsense from Klein, but it’s really disappointing to see John Cusack do the interview with his eyebrows raised about an inch and a half above his eyes, apparently floored by Klein’s analytical brilliance. A shame, really–the guy’s made some pretty good movies.

Klein Slanders Friedman

A video interview of Naomi Klein, who’s promoting her new book, has some truly vicious slander of Milton Friedman. Klein says:

I start the book with a quote from Milton Friedman saying only a crisis, actual or perceived, produces real change. And you know Milton Friedman lived by this. His first laboratory was Chile under Augusto Pinoche, where the crisis was the coup and an economic crisis and it was after that that you had the economic shock therapy. And you also had another kind of shock which is torture, which was a way of enforcing these policies.

Klein seems to be insinuating that Friedman somehow orchestrated, supported, or encouraged the coup in Chile, or at least that he was an important Pinochet advisor. She also makes it sound like torturing people was one of Friedman’s policy recommendations. But here’s how Friedman tells the story:

MILTON FRIEDMAN: While I was in Santiago, Chile, I gave a talk at the Catholic University of Chile. Now, I should explain that the University of Chicago had had an arrangement for years with the Catholic University of Chile, whereby they send students to us and we send people down there to help them reorganize their economics department. And I gave a talk at the Catholic University of Chile under the title “The Fragility of Freedom.” The essence of the talk was that freedom was a very fragile thing and that what destroyed it more than anything else was central control; that in order to maintain freedom, you had to have free markets, and that free markets would work best if you had political freedom. So it was essentially an anti-totalitarian talk.

INTERVIEWER: So you envisaged, therefore, that the free markets ultimately would undermine Pinochet?

MILTON FRIEDMAN: Oh, absolutely. The emphasis of that talk was that free markets would undermine political centralization and political control. And incidentally, I should say that I was not in Chile as a guest of the government. I was in Chile as the guest of a private organization.

It’s true, of course, that Pinochet employed some of the economic policies Friedman had been advocating for decades, that some of Pinochet’s advisors had studied economics at the University of Chicago, and that Friedman subsequently cited the success of those policies. But just as Michael Moore’s endorsement of Cuba’s health care system doesn’t constitute endorsement of Castro’s dictatorial rule, so Friedman’s endorsement for Chilean tax or pension policies don’t constitute an endorsement of coups, purges, or torture.

There’s also some ideological slander at the heart of Klein’s argument, which she lays out later in the video. Klein seems to believe that Haliburton and Blackwater—companies that thrive on wartime corporate welfare—represent Friedman’s ideal society. Not only is this obviously wrong on a theoretical level, but it’s also flatly at odds with Friedman’s stated views. Milton Friedman was an opponent of the Iraq war and has been vociferous critic of corporate welfare for decades. Conflating Friedman’s advocacy of limited government with Bush’s interventionist foreign policy and profligate domestic spending illustrates either a failure to grasp the basics of Friedman’s position or a calculated attempt to play to the prejudices of her intended audience, many of whom will lump together anyone they don’t agree with as “right wingers,” even if they have little in common with one another.

Why We Fight Today… and Tomorrow?

Two news items highlight how divisive public schooling in the United States is today, and how much worse it could potentially be were we ever to adopt a national curriculum.

The first article tackles Banned Books Week, an event organized by the American Library Association, the American Civil Liberties Union, and other groups, that will feature readings all over the nation of controversial books like Judy Blume’s Forever and Robert Cormier’s The Chocolate War. According to the ALA, in 2006 there were over 546 challenges to books held in public and school libraries. Unfortunately, what the article neglects to mention is that in our public schools and libraries such battles are both inevitable and, no matter what the outcome, always result in the crushing of someone’s rights. As long as libraries are paid for by all taxpayers, all taxpayers have equal rights to demand both that the libraries carry the books they want and NOT carry material they find objectionable. One man’s book-banning battle is another’s revolt against compelled support of repugnant speech.

In Okinawa, Japan, the subject of the second article, we see just what kind of widespread acrimony a national curriculum can produce, again because all people are forced to support teachings imposed by the most politically powerful group, and because there is no alternative to government-sanctioned content, no matter how controversial that content might be. According to The Japan Times, on Saturday roughly 110,000 people rallied in Okinawa to protest a directive from Japan’s education ministry that history textbook publishers strike references in their books to military-imposed civilian suicides in the 1945 Battle of Okinawa. Were the United States ever to adopt a national history curriculum, imagine the fights we’d have over the treatment of race, religion, class, etc? And we don’t even have to think about something as inherently values-laden as history. Just look at the acrimony that’s accompanied our on-going “reading wars” and you can easily imagine the conflict any national standards would cause.

Debunking Coercion

The Congress for the New Urbanism has responded to my July policy analysis, Debunking Portland, with a paper titled, Debunking Cato. I am posting my reply on the Antiplanner blog.

New Urbanism refers to a recent architectural fad that includes mixed-use developments (retail and housing in the same complex), high-density housing (either multi-family or single-family on tiny lots), and pedestrian-friendly design (limited parking and storefronts on sidewalks instead of facing large parking lots). There is a demand for this type of development and no one objects to developers meeting that demand.

Portland, however, has decided to go far beyond market demand by imposing this type of development on many people. An urban-growth boundary has driven up the cost of single-family housing and the city uses subsidies, including tax-increment financing and below-market land sales, to promote high-density housing. A member of the Portland city council (and leading candidate for mayor) has even said that no new housing should be built in Portland that does not meet New Urban densities and designs.

My paper shows that Portland has achieved very little from this massive and cost coercion. The Congress for the New Urbanism basically argues that it has achieved slightly more than my paper says. But those benefits are still so tiny that they are overwhelmed by the costs to homebuyers, commuters, and taxpayers in the region.

Some people in the Congress for the New Urbanism say they merely want to build for the market and do not support coercive policies. Lovers of freedom can support New Urbanist efforts to dismantle obsolete zoning codes that prevent developers from meeting market demand for New Urban designs.

By the same token, I note in my reply, New Urbanists who oppose coercion cannot defend Portland’s policies, which are based almost entirely on coercive land-use regulations, taxation, and subsidies. Those policies don’t produce the benefits claimed for them and they do impose huge costs on the cities that apply them.