No-Tax Texas Out-Competes High-Tax Arkansas

Writing in National Review, Greg Kaza discusses how Texas has been growing faster and creating more jobs than Arkansas. Much of the credit, he writes, is due to the fact that Texas has no state income tax while Arkansas penalizes workers with a  tax rate of 7 percent: 

Employment growth in Texas has been significantly higher than in Arkansas during periods of economic expansion. The population in Dallas has nearly tripled in the post-WWII period, while the population in Little Rock has barely doubled in size. Per capita personal income in Texas is 94 percent of the U.S total. In Arkansas it’s 77 percent of the nation’s total, a level that has hardly budged since the 1970s.

The list of statistical disparities is long, and there’s a good reason why: While Arkansas and Texas share a common border, each taxes income and capital in radically different ways. Arkansas has a top income-tax rate of 7 percent, the highest among the bordering states. Texas, however, does not impose an income tax. The imbalance is the same for capital gains: Arkansas taxes them. Texas does not. As a result, we can see a very basic economic principle at work: Talent and capital always will flow toward higher returns.

Bloated Salaries at the World Bank

The controversy involving Paul Wolfowitz  is seemingly devoid of any policy issues, but it has brought to light some of the exorbitant waste at the World Bank. Nearly 1,400 employees have salaries above the amount given to America’s secretary of state. But even that comparison is misleading, since World Bank bureaucrats get tax-free compensation.

The Wall Street Journal comments on the sweet deal — and virtual lifetime tenure — of the staff:

American taxpayers supply some 17% of the bank’s capital, and a new round of fund raising for the bank’s International Development Association is about to commence. If Congress is going to ante up the $7 billion or so the bank is expected to request, the least it can do is insist on more accountability….

Of its roughly 10,000 employees, no fewer than 1,396 have salaries higher than the U.S. Secretary of State; clearly “fighting poverty” does not mean taking a vow of poverty at “multilateral” institutions. At the time of Ms. Riza’s departure from the bank, she was a Grade “G” (senior professional) employee; the typical salary in that grade hovers around the $124,000 mark. For the next level, Grade “H”—the level to which Ms. Riza was due to be promoted—salaries average in the $170,000 range, with an upper band of $232,360. No fewer than 17% of bank employees are in this happy bracket.

Even sweeter, all of this is tax-free to non-Americans. U.S. employees have to pay U.S. tax but have their income taxes reimbursed by the bank. As with any public bureaucracy, these jobs are also impossible to lose for anything other than gross incompetence or venality.

Singapore Becoming One of the World’s Stellar Tax Havens

The New York Times has a thorough story detailing how officials in Singapore are taking advantage of globalization to diversify the nation’s economy. Bank secrecy and good tax law are particularly helpful in attracting capital from people suffering from fiscal oppression:

This affluent city-state of 4.5 million people is aiming to be a sanctuary for the world’s wealthy and their money, Asia’s answer to Geneva and Zurich. … Now the tiny enclave at the tip of the Malay peninsula is trying to carve out a new niche for itself in the global economy by bolstering banking secrecy laws and offering generous tax incentives. “I can’t think of any other place where private banking is growing so much as in Singapore,” said Henrik Mikkelsen, a private banker at Commerzbank in Singapore. “We want to be the Switzerland of Asia.” … Almost 40 private banks now have regional operations in Singapore, including Swiss stalwarts such as Bank Julius Baer. Citigroup’s headquarters for all private banking outside the United States is now in Singapore, as is the global banking headquarters of Standard Chartered Bank of Britain. …Robert Chandran, who emigrated to the US from India and made fortunes in California real estate and the fuel oil business. In 2005, contemplating retirement, he moved his company and family here, bought a luxury condominium downtown and space in a waterfront resort with parking for yachts. He traded in his American passport for one from Singapore. Chandran said he was lured by Singapore’s blend of Western conveniences with Asian values and by the Government’s zeal for keeping Singapore competitive. “They don’t have global taxation,” he said, which means that his capital gains and interest income from outside Singapore are not taxed here. …Tax rates are low as well. Singapore does not tax capital gains or interest income. Its top income tax rate is 20 per cent, and it does not tax income earned outside Singapore. … Singapore had already beefed up its banking secrecy laws in 2001. While many banks are moving their back offices to India, bankers here say Singapore’s secrecy rules are so tight, they are moving the data centres handling their private banking transactions from India to Singapore. … Singapore’s secrecy rules do not extend to anyone involved in terrorism or smuggling.

Back Door Takeover

In September 2005, U.S. Secretary of Education Margaret Spellings announced the creation of a commission charged with formulating a “comprehensive national strategy” for higher education. The commission was chaired by long-time Bush pal Charles Miller – who’d helped create the Texas predecessor to the No Child Left Behind Act (NCLB) when Bush was governor – and it seemed very likely the commission would recommend federally enforced standardized testing for all colleges and universities. Thankfully, federally mandated testing was not among the recommendations in its final report, an outcome almost certainly attributable to adamant opposition to such lunacy both from within and without academia.

Ah, but in Texas they don’t give up easily!

Unwilling to face what would no doubt be major opposition to publicly trying to force inane, NCLB-esque standardized testing on the Ivy League, Seven Sisters, etc., the Department of Education has chosen a different tactic: it’s tried to sneak it in through the ivory tower’s back door.  Rather than putting testing requirements into legislation that would have to get through Congress, the administration has been quietly trying to rewrite regulations governing accreditation in order to make accreditors force schools to administer standardized tests.

Thankfully, there’s been a lot of resistance among accreditors to this assault on academia, and Education Department negotiators have had to tone down their once explicit demands for testing. As Inside Higher Ed reports:

As the department’s various proposals have evolved over the weeks and months, they have become slightly less intrusive at each turn. Most recently, the department issued draft regulatory language — based, its officials repeated again and again, on a proposal that some of the “non-federal” negotiators had suggested — that would no longer require accrediting agencies to dictate to colleges the levels of performance they must achieve in student learning.

That’s good news, but as IHE continues, it hardly gets schools out of the woods:

But because the government would still require accrediting agencies to judge whether the standards that colleges set for themselves and their success in meeting those goals are sufficient — and because the accreditors would be doing so knowing that the Education Department can (through its process for recognizing accrediting agencies) punish any accreditor who doesn’t set the bar high enough to satisfy department officials — some members of the negotiating panel argued Tuesday that even the less-aggressive changes amount to federal control of accreditation, and ultimately of higher education.

In light of all this, I have a confession to make. When Spellings first announced the creation of her commission, and as the national strategizers conducted their work, I was almost certain we’d see the Bush administration try to assert explicit federal control over higher education, just as it had done in K-12. Well I was wrong. The administration hasn’t tried to do anything explicit in higher education. No, it’s tried to hide what it’s been up to ever since the commission’s final report came out.

Rare Sighting of Pro-Trade Democrats Rumored, Unconfirmed

Just when it seemed that control over the direction of U.S. trade policy was hopelessly and totally in the grips of congressional forces of darkness, there is a faint glimmer of hope that some Democrats might remember the days when they weren’t forced to consider trade a dirty word.  Given where things stand today, that’s not a trivial matter.

In a letter (sorry, subscription required–see excerpt below) dated May 2, six members of the House Ways and Means Committee (five of whom are Democrats!) urged Commerce Secretary Carlos Gutierrez to abandon (or at least work to minimize the disruption to trade caused by) his Department’s Import Monitoring Program of Textile and Apparel Products from Vietnam.  The novelty alone of a letter from Congress urging the administration to tread lightly where imports are concerned warrants this post.

As you may recall from a previous post, the Bush Administration felt it had to buy off opposition to the bill that granted Permanent Normal Trade Relations (PNTR) status to Vietnam.  Prominent holdouts demanding compensation were Sen. Elizabeth Dole (R-NC) and Sen. Lindsey Graham (R-SC), and the price, ultimately, was a commitment from the administration to monitor imports and to self-initiate antidumping cases if the situation warranted. That commitment from the administration was unprecedented, unnecessary, and disappointing.  Today it is reported to be scaring away investment in the Vietnamese industry and deterring trade between Vietnamese producers and U.S. customers. On trade policy, Democrats have earned most of their scorn by marching to the tune of labor unions, which would just as soon permanently separate U.S. customers from their foreign sources.  But Democrats also count among their constituents importers, distributors, wholesalers, retailers, producers, truckers, warehouse operators, port employees, and consumers who suffer when supply chains get tangled and severed.  The authors of the letter acknowledge:

Congressional passage of [PNTR] for Vietnam was intended to provide benefits for both United States businesses and consumers, as well as strengthen the U.S.-Vietnam relationship and provide opportunities for economic growth that would benefit the Vietnamese people.  We are deeply concerned that the disruption in trade caused by the import monitoring program is cutting away at many of the benefits of granting PNTR status to Vietnam.

Well put, indeed! Hopefully, the congressional trade leadership was copied because its recently unveiled New Trade Policy for America reflects predominantly an antitrade perspective that has been allowed to fester and metastisize within the Democratic caucus.

Shouting “There’s No Fire” in a Burning Theater

In today’s Washington Post, government schooling advocate Gerald Bracey argues that American education is just fine, thanks. He makes this case by noting that NAEP 4th grade science standards are set too high. Only 29 percent of kids are deemed “proficient” on that test, while the U.S. ranked third in an international test of 4th grade science a few years ago. If these are the only data you look at, Bracey’s argument is not ludicrous on its face. If you look at all the available data on U.S. student performance, it is.

Jerry has a habit of glossing over the evidence on the performance of older U.S. students and young adults. I ran into this eight years ago when I had an on-line exchange with him over my book Market Education. As I explained then:

While U.S. students sometimes do well and usually do adequately at the 4th grade, their performance deteriorates significantly by the 8th grade, and they hit rock bottom by the 12th grade. American 16-25 year olds are among the most illiterate in the world, with nearly a quarter scoring at the lowest possible level measured by the International Adult Literacy Survey. Since most Americans are chiefly concerned with how well their children are prepared for adult life at the end of their education, the appalling performance of U.S. high-school seniors and recent graduates represents a genuine and not a manufactured crisis….

Regrettably, but not at all surprisingly, little has changed in the intervening years. I updated my analysis of U.S. peformance in an international context when the latest TIMSS and PISA tests were released two years ago. The data continue to show that “the notion [our] public school problems are confined to inner cities, and that our wealthy suburbs produce world-beating high school graduates is a myth.”