The lesson of the 20th century is that Marxism was tried and
tried and tried, and failed and failed and failed. But that lesson
is lost on the true believer Barack Obama and his Democrat Party.
Supposedly a forward looking progressive, Obama is dragging America
back into cutting edge ideas from the late 19th century, already
proven wrong to everyone except those in Obama’s freeze dried
corner of American culture.
What else can we make of the spectacle of our re-elected,
conquering, Democrat hero president — the cultural progeny of a
1960s radical American rejectionist mother and the openly Communist
Kenyan she embraced to be Obama’s father — demanding multiple,
explosive, income tax rate increases to make “the rich” pay their
“fair share,” even though those very same rich already pay
virtually all federal income taxes? The 51 percent that re-elected
Obama will soon receive a lesson in economics: the renewed
recession, soaring unemployment, declining tax revenue, and
record-shattering deficits that those foolish tax increases will
produce.
America’s Rational Remnant
But there are oases of rationalism found in the 25 states now
governed under total Republican control, with a Republican
governor, state senate, and state house. America is conducting a
national experiment on capitalism versus socialism among these
increasingly partisan states. Compare the fiscal and economic
performance, for example, of Democrat-controlled California,
Illinois, and New York, to that of Republican-controlled Texas,
Florida, and Virginia, not to mention Indiana and Wisconsin.
What can the Republicans do with this state control? They can
remake the economic and political map of America. Here are the
policies that state Republicans should pursue to get their
economies booming even more:
• Phase out State Income Taxes
There are nine states that prosper perfectly well with no state
income taxes. In fact, the south is ringed with them: Texas,
Florida, and booming Tennessee. That policy should spread across
the remaining South, from Louisiana to Virginia, up the Plains
states, following South Dakota’s lead, and to the rest of the West,
joining Wyoming, Nevada, Washington state, and Alaska. The
resulting economic competition will force the remaining states to
abandon state income taxes as well.
A study by Art Laffer, Stephen Moore, and Jonathon Williams in
the Rich States, Poor States volume published in 2010
compared the nine states with no state income taxes to the nine
with the highest top marginal income tax rates. Over the 10 year
period from 1998 to 2008, economic growth was 50 percent higher in
the states with no income tax. Jobs grew more than twice as fast.
Yet total state tax receipts still grew 30 percent faster
in the states with no income tax. Faster economic growth powered
their tax receipts higher.
Moreover, the authors studied the 11 states that
adopted an income tax in approximately the previous
decade. Their economies and total state revenues grew more slowly
after the income tax was adopted.
To cite a direct example: Between 2002 (after the tech boom and
the 9/11 recession ended) and 2008, Texas added jobs more than
twice as fast as California. Real economic growth rose almost 50
percent faster in the Lone Star state, and real personal income
grew 46 percent faster. And jobs in Texas grew more than twice as
fast as in California.
Americans for Tax Reform reports from official IRS data that in
2007, the nine states with no income tax gained 235,000 residents
from the other 41 states. Those residents took with them $11.8
billion of net adjusted gross income. The 10 states with the
highest tax burden together lost 441,000 residents, who took with
them $12.8 billion in income.
Phasing out state income taxes does not require eliminating
everything in the state budget. It just requires limiting the
growth of state expenditures to a level below the rate of state
economic growth, and using the savings to cut the income tax rate
until it is phased out entirely. A good place to start would be
something like the Colorado Taxpayer Bill of Rights, which limits
the growth of state spending to the rate of population growth plus
inflation. This is a desirable limitation in itself, since it keeps
per capita spending stable in real dollars. And as I demonstrate in
my 2011 book, America’s Ticking Bankruptcy Bomb, that
policy alone would allow income taxes to be phased out in every
state within 10 years.
• Right to Work
Laffer, Moore, and Williams also demonstrate that right to work
laws provide a big boost to state economic growth. All right to
work laws do is provide each worker with the personal, individual
freedom to decide whether or not to join a union. That is just
basic American freedom and fairness.
• Paycheck Protection
Experience shows that where government employees are free to decide
whether or not to pay union dues (just like any other membership
fee), the great majority of them decide not to do so. That was the
experience most recently in Wisconsin, where Governor Scott Walker
gave public employees that freedom. The dramatic reduction in union
income greatly reduces interference contrary to the will of the
people by such government unions in the state’s free elections.
• Government Employee Pension Reform
The unfunded liabilities for state and local pensions are
realistically estimated as $3.8 trillion, equivalent to one-fourth
the entire national debt, as currently calculated. Lavish pension
plans provide for retirement as early as 55 after 30 years of
service, with monthly benefits equal to 60 percent or more of the
employee’s last salary. This is, on average, more than twice the
average private sector pension of $13,100, on top of Social
Security — and most private sector workers no longer have employer
provided pensions in the first place.
Most government employee pensions are “defined benefit” plans,
which specify a certain future benefit to be paid, based on some
formula, regardless of how much money has accumulated to pay such
benefits. These should all be reformed into “defined contribution”
plans, in which the government provides a certain contribution to
each worker’s pension, as defined by some formula, and future
benefits are equal to whatever the contributions can finance.
Defined contribution pension plans by definition involve no
unfunded liabilities, or further obligations on taxpayers. Further,
most government workers would gain from such plans, as the typical
defined benefit plan favors the longest tenure worker at the
expense of all the others.
If the government bureaucrat unions prevent such reasonable
pension reforms, the answer is just to sharply slash the number of
government workers, cutting unfunded liabilities to the same
degree. States and localities can contract out services to private
companies, which has a long, highly successful record in American
government. The ultimate example is Sandy Springs, Georgia, a
suburb of Atlanta, which has successfully contracted out all city
services except the police and courts. Privatizing in this way
would eliminate virtually all state and local unfunded pension
liabilities.
• Cut Counterproductive Overregulation
Laffer, Moore, and Williams identify excessive, counterproductive
state and local government overregulation and associated costs as
another major factor retarding state economic growth. A major
program of deregulation, similar to what President Reagan pursued
at the federal level in the 1980s, should be adopted by every state
that Republicans control.
Particularly harmful, Laffer et al. found, are state mandates
that health insurance cover benefits favored by special interests,
such as acupuncturists. Such mandates sharply raise the cost of
health insurance and are effectively yet another tax on employment,
further reducing such employment.
• School Choice
School choice shifts power from the public school bureaucracy to
parents, students, and families, which is why the bureaucracy and
unions oppose it so strongly. Such reform creates a competitive
market in education, replacing the current government monopoly.
Parents and students have the power to determine where school
funding goes, so schools, teachers, administrators, and the
bureaucracy must be maximally responsive to their concerns and
preferences, to win the market competition.
The reforms recently adopted in Louisiana under Governor Bobby
Jindal are a model for such reform. Caps and barriers to charter
schools should be eliminated. School choice tax credits should be
adopted, at least for the poor and disadvantaged to start. This
issue can help Republicans appeal to poor minority voters, who are
rightly concerned about the poor quality of public schools
hampering their children’s futures.
Remaking America
These reforms hold the promise of remaking the economic and
political map in America, as pro-growth states rise to replace the
over-the-hill, declining ones that pursue the defunct
redistribution policies of the past. Moreover, people — and the
resulting political power that comes with them — follow economic
growth.
This is already happening. The South, from Texas to Florida, is
rising as the new industrial base of the nation. The Northeast is
in long-term decline and will be left behind the rest of the
country. If upstate New York were its own state, it would be the
poorest one in the union.
As Laffer, Moore, and Williams write:
With respect to the economic importance of the Northeast, all
the data point to one conclusion: it is dying. The Atlantic states
are suffering from a slow motion version of the economic paralysis
now affecting much of Europe, particularly France and Sweden with
their state-of-the-art, massive welfare systems. In 2007, the
Northeast was home to a smaller share of the U.S. population than
ever before; it had a smaller industrial base and produced a
smaller percentage of America’s total value added than at any time
in the nation’s history. For the rest of the United States — which
has impressively restructured its economy for the challenges of the
productivity-driven information age — the Northeast is not so much
unnecessary as it is irrelevant. Today, most of America —
competitive, capitalist and confident — observes the Northeast
through its rearview mirror.
These fundamental economic realities will translate into
fundamental political realities more and more over time as economic
patterns translate into population patterns. Florida now has as
many electoral votes as New York. Georgia has as many as Michigan,
and almost as many as political powerhouse Ohio. Barry Goldwater’s
Arizona has as many electors as George McGovern’s Massachusetts.
Winning Texas alone nearly offsets losing Pennsylvania and Illinois
combined. California did not gain any electoral votes after the
2010 Census, the first time its power did not increase since it
became a state in 1850.
Liberal northeast media outlets can shelter their populations
from competing points of view, as they have been so successful in
doing for so long. But they cannot shelter their populations from
reality. The Northeast intellectual elites are locked in a brain
freeze circa the 1930s. If that freeze does not thaw, the rest of
America, and even economically emerging nations abroad, will pass
them by.
Photo:
WisPolitics.com (Creative Commons 2.0).
