I don't blame Democrats for wanting to seduce Republicans into a tax-increase trap. Indeed, I completely understand why some Democrats said their top political goal was getting the GOP to surrender the no-tax-hike position.
I'm mystified, though, why some Republicans are willing to walk into such a trap. If you were playing chess against someone, and that person kept pleading with you to make a certain move, wouldn't you be a tad bit suspicious that your opponent really wasn't trying to help you win?
When I talk to the Republicans who are open to tax hikes, they sometimes admit that their party will suffer at the polls for agreeing to the hikes, but they say it's the right thing to do because of all the government red ink.
I suppose that's a noble sentiment, though I find that most GOPers who are open to tax hikes also tend to be big spenders, so I question their sincerity (with Senator Coburn being an obvious exception).
But even if we assume that all of them are genuinely motivated by a desire to control deficits and debt, shouldn't they be asked to provide some evidence that higher taxes are an effective way of fixing the fiscal policy mess?
I'm not trying to score debating points. This is a serious question.
European nations, for instance, have been raising taxes for decades, almost always saying the higher taxes were necessary to balance budgets and control red ink. Yet that obviously hasn't worked. Europe's now in the middle of a fiscal crisis.
So why do some people think we should mimic the French and the Greeks?
But we don't need to look overseas for examples. Look at what's happened in Illinois, where politicians recently imposed a giant tax hike.
The Wall Street Journal opined this morning on the results. Here are the key passages:
Run up spending and debt, raise taxes in the naming of balancing the budget, but then watch as deficits rise and your credit-rating falls anyway. That's been the sad pattern in Europe, and now it's hitting that mecca of tax-and-spend government known as Illinois.
...Moody's downgraded Illinois state debt to A2 from A1, the lowest among the 50 states. That's worse even than California.
...This wasn't supposed to happen. Only a year ago, Governor Pat Quinn and his fellow Democrats raised individual income taxes by 67% and the corporate tax rate by 46%. They did it to raise $7 billion in revenue, as the Governor put it, to "get Illinois back on fiscal sound footing" and improve the state's credit rating. So much for that.
...And—no surprise—in part because the tax increases have caused companies to leave Illinois, the state budget office confesses that as of this month the state still has $6.8 billion in unpaid bills and unaddressed obligations.
In other words, higher taxes led to fiscal deterioration in Illinois, just as tax increases in Europe have been followed by bad outcomes.
Whenever any politician argues in favor of a higher tax burden, just keep these two points in mind:
1. Higher taxes encourage more government spending.
2. Higher taxes don't raise as much money as politicians claim.
The combination of these two factors explains why higher taxes make things worse rather than better. And they explain why Europe is in trouble and why Illinois is in trouble.
The relevant issue is whether the crowd in Washington should copy those failed examples. As this video explains, higher taxes are not the solution.
Heck, I've already explained that more than 100 percent of America's long-fun fiscal challenge is government spending. So why reward politicians for overspending by letting them confiscate more of our income?
There is a very bizarre race happening in Illinois. The Governor and the leaders of the State Senate and General Assembly are trying to figure out how to ram through a massive tax increase, but they're trying to make it happen before new state lawmakers take office tomorrow. The Democrats will still control the state legislature, but their scheme to fleece taxpayers would face much steeper odds because of GOP gains in last November's elections.
As a result, the Illinois version of a lame-duck session has become a nightmare, sort of a feeding frenzy of tax-crazed politicians. Here's the Chicago Tribune's description of the massive tax hike being sought by the Democrats.
The 3 percent rate now paid by individuals and families would rise to 5 percent in one of the largest state tax increases in Illinois history. ...Also part of the plan is a 46 percent business tax increase. The 4.8 percent corporate tax rate would climb to 7 percent... In addition, lawmakers are looking at a $1-a-pack increase in the state's current 98-cent tax on cigarettes. ...Democrats will still control the new General Assembly that gets sworn in Wednesday, their numbers were eroded by Republicans in the November election. With virtually no Republican support for higher taxes, Democratic leaders contend it will be easier to gain support for a tax hike in a legislature with some retiring members no longer worried about facing the voters.
If Governor Quinn and Democratic leaders win their race to impose a massive tax hike, that will then trigger another race. Only this time, it will be a contest to see how many productive people "go Galt" and leave the state. John Kass, a columnist for the Tribune, points out that the Democrats' plan won't work unless politicians figure out how to enslave taxpayers so they can't escape the kleptocracy known as Illinois.
The warlords of Madiganistan — that bankrupt Midwestern state once known as Illinois — are hungry to feed on our flesh once again. This time the ruling Democrats are planning a...state income tax increase, with more job-killing taxes on corporations... A few tamed Republicans also want to join in and support a tax deal, demonstrating their eagerness to play the eunuch in the court of the pasha. And though they've been quite ingenious, waiting for the end of a lame-duck legislative session to do their dirty work, they forgot something important. They forgot to earmark some extra funds for that great, big wall. You know, that wall they're going to need, 60 feet high, the one with razor wire on top and guard towers, equipped with police dogs and surrounded by an acid-filled moat. The wall they're going to have to build around the entire state, to keep desperate taxpayers from fleeing to Indiana, Wisconsin and other places that want jobs and businesses and people who work hard for a living. ...With the state billions upon billions in debt, and the political leaders raising taxes, borrowing billions more and not making any substantive spending cuts, we've reached a certain point in our history. The tipping point. Taxes grow. Employers run. The jobs leave. High-end wage earners have the mobility to escape. What's left are the low-end workers who are stuck here. ...the Democrats aren't about to disappoint their true constituents. So they don't cut, they tax. Because the true constituents of the Democratic warlords are the public service unions and the special interests that benefit from all that spending. Why should politicians make cuts and anger the people that give them power, the power that allows them access to treasure? ...we reach another tipping point: The point at which those who are tied to government, either through contracts or employment, actually outnumber those who are not tied to government. Do the math on Election Day.
Illinois is America's worst state, based on what it costs to insure state debt. The greedy politicians in Springfield think a tax hike will give them enough money to pay bondholders and reward special-interest groups. But that short-sighted approach is based on the assumption that people and businesses will cheerfully bend over and utter the line made famous by Animal House: "Thank you, sir! May I have another?"
Moving across state lines is generally not something that happens overnight. But this giant tax hike is sure to be the tipping point for a few investors, entrepreneurs, rich people, and employers. Each year, more and more of them will decide they can be more successful and more profitable by re-domiciling in low-tax states. When that happens, Illinois politicians will get a lesson about the Laffer Curve, just as happened in Maryland, Oregon, and New York.
Last week, I blogged about the fact that Chicago students' NAEP test score gains were modest under Arne Duncan's leadership, and statistically indistinguishable from the modest gains made in urban districts around the nation. My analysis -- which contradicts the rosy impression given by Illinois' ISAT test -- has just been released here.
Secretary Duncan has said that state and district officials should not make inflated claims about student achievement based on misleading state test scores, and has used the NAEP to fact check their claims. He's right about that.
For seven months, Secretary of Education Arne Duncan and the media have bombarded us with tales of how Duncan dramatically boosted student achievement as leader of Chicago Public Schools. Based on two new independent analyses, Duncan's real impact appears to have been near zero.
The usual evidence presented for Duncan's success is the rise in the pass rate of elementary and middle school students on Illinois' own ISAT test. But state tests like the ISAT are notoriously unreliable (they tend to be corrupted by teaching to the test and subject to periodic "realignments" in which the passing grade is lowered or the test content is eased). In January, the Schools Matter blog argued that exactly such a realignment had occurred in 2006.
So to get a reliable measure of Duncan's impact, I pulled up the 4th and 8th grade math and reading scores for Chicago on the National Assessment of Educational Progress -- a test that is much less susceptible to massaging by states and districts. I then compared the score changes in Chicago to those for all students in Large Central Cities around the nation, and tested if the small differences between them were statistically significant. Not one of them is even remotely significant at even the loosest accepted measure of significance (the p < 0.1 level). Chicago students did no better than those in similar districts around the nation between 2002/2003 and 2007, a period covering virtually all of Duncan's tenure in Chicago.
As I was finishing up this statistical analysis a few minutes ago, I came across a new report by the Civic Committee of The Commercial Club of Chicago. According to the Civic Committee report, the elementary and middle-school ISAT gains touted by Duncan and the media appear to be almost entirely illusory: artifacts of the 2006 realignment. Chicago high school students, who take a different test that was not realigned, perform no better today than they did in 2001 -- so whatever real gains did occur in the early grades evaporated by the end of high school.
Writing in the Chicago Tribune a few days ago, columnist Greg Burns touted Duncan's supposed success as CEO of Chicago Public Schools, and noted that Duncan had good prospects for winning the support of business leaders nationally, as he did in Chicago. But Chicago's Commercial Club has now concluded that Duncan failed to accomplish what he has claimed, and given that the NAEP scores echo their findings, the education secretary may soon find national business leaders more skeptical as well.
[Indiana] Republican Gov. Mitch Daniels' budget proposal includes a scholarship tax credit that supporters say would give poor students the opportunity to attend private schools, but opponents say would open the door to vouchers.
Daniels' budget proposal includes a 50 percent tax credit for donations to a nonprofit scholarship-granting organization that helps students from low-income families attend their choice of a private school or a public school outside their home district.
A couple of quick points.
I’m not sure how this would “open the door to vouchers,” since credits are an alternative form of school choice and obviate the need for vouchers.
Gov. Daniels should promote a 100% tax credit for donations, not a 50% credit. At the least, he can drop that to 90% like the successful Pennsylvania credit program. But 50% is simply too low to act as an effective catalyst for serious reform. And as we all know, its best to aim high at the start of negotiations so you have somewhere to go. He’s selling himself and his state short on this.