Civitas ReviewThe Blog of the Civitas Institute

Jan

29

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Following up on last week’s post regarding the liberal Budget & Tax Center’s poorly-conceived article criticizing our tax modernization study, Civitas has posted a closer examination of the specific data BTC uses to support their claim about the proposed tax plan’s impact on various income groups. In short, they’ve got some explaining to do. Here’s a key passage from the Civitas article:

Adding in the $544 in “average tax change” BTC presents in their most recent study for that income group brings the total tax burden they estimate under the proposed tax plan would be roughly $1,275. Recall, the new tax plan would only impact households via the sales tax.

In order to pay $1,275 in sales tax, one must make $15,839 in purchases, under the 8.05 percent sales tax rate proposed in the income tax elimination plan. But according to the BTC chart, average income of these households in the lowest 20 percent of income is only $11,000.

So how does BTC explain households with an average $11,000 of income making nearly $16,000 worth of purchases?

Unfortunately, the media has frequently cited the BTC article without looking at the actual numbers. At minimum, interested reporters, legislators and concerned citizens should demand an answer from BTC before giving their paper any credibility.

Jan

28

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Famed economist Arthur Laffer provided real-world economic solutions at the Civitas legislative training session last week.

First, though he is best known for advising President Reagan, he’s not about party or ideology, he said. “It’s economics.”  And it’s the economic facts, not just theory.  He reviewed the actual history of how the right tax mix can boost the economy — and opportunities for all people.

The U.S. economy boomed after tax cuts by Presidents Kennedy and Reagan. It floundered under the economic policies of most of the other recent chief executives. Laffer reviewed his research comparing no-income tax states with high progressive income tax states, over five decades. “There is no ambiguity,” he said. The data shows that “the no-tax states way outperform the high tax states — period.”

“There was not one year in which the no-income tax states out-perform the high-tax states,” he concluded.

So cutting income taxes is not just theory, it’s a fact that has been proved all over the nation.

Also, he emphasized that economics must be based on real human behavior. “The reason to change tax rates is to change behavior,” he said. “People respond to incentives.”

Sadly, too many experts base their theories on the assumption that taxes don’t change behavior. As Laffer said, the game of dodgeball would be easy — if the other players didn’t duck. But they do.

People react to tax policy. “Taxes are a negative incentive,” he said. “They tell people not to report taxable income” — or to stop working, or move to another state.

Meanwhile, pay people to not work, and often, duh, they won’t work. (HT to Instapundit.)

Most of all, Laffer presented an upbeat and impassioned vision of how fair taxes help everyone by creating wealth and jobs. He quoted President Kennedy: “The best form of welfare is a good, high-paying job.”

That’s why the North Carolina tax modernization fight is so important, he said. “You can win this fight. It’s your obligation, it’s your destiny.”

3

Jan

23

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In response to the Civitas Institute’s study evaluating a tax plan that would eliminate state income taxes, the far-left Budget & Tax Center released a predictable and economically illiterate response that further confirms their dogmatic faith in centralized political power.

The short response is tightly packed with fallacies, sloppy and misleading “data”, and glaring omissions.

For starters, BTC claims that North Carolina’s economic woes are a “non-problem.” For folks that claim to care about the poor and unemployed, they sure seem ready to sweep our state’s 9.2% unemployment rate (5th highest in the nation) and lagging incomes under the rug in order to defend their extremist ideological dogma. BTC then laughably try to make the claim that North Carolina’s woes are simply the result of its citizens not forking enough money over politicians in Raleigh, and repeatedly make the claim that our revenue system is “inadequate” and revenue collections are at “historic lows.” Naturally, we know better. As this article and chart illustrate, North Carolina went on a 30-year spending binge from 1979-2009 that saw inflation-adjusted state spending increase at three times the rate of population growth. The minor correction over the last couple of years is barely a blip on the radar screen of that long-term trend. Moreover, the state General Fund budget being referenced here doesn’t capture the full amount of state spending, which also includes federal government funds passed through to the state. When factoring that in, state spending growth rates are even more dramatic. But for these worshippers of state power who long for more centralized political control over its subjects, that’s still not enough.

They then attempt to counter our study’s assertion that sales tax revenue is more stable than income tax revenue. Oddly, they admit that income tax revenue is more volatile “in the short-term” but say that is ok because income tax revenue grows more quickly during economic boom years. In short, they approve of wild revenue swings which enable state budget writers to overextend budget commitments during the flush economic years and result in panic when recession hits and reveals the unsustainability of those spending commitments. They conclude their defense of this roller-coaster method of state budgeting by warning that the income tax elimination plan would “likely reduce the long-term growth of state revenue.” Let’s hope so!

Next they try to refute the claim that there is no correlation between high income tax burdens and economic growth. To do this they of course need to ignore mountains of evidence, and instead rely mostly on one paper produced by a far left-wing think tank in Washington DC. This paper was soundly refuted last year, but BTC can’t be bothered with such details. Their underlying premise that states can somehow tax their way to prosperity is so patently absurd it does not warrant a response.

Finally, the primary focus of their paper is on the predictable assertion that sales taxes are highly “regressive,” and that low-income households would be hit hardest by an expansion of and slight increase of the sales tax. But BTC has in fact advocated for expanding the state sales tax in the past, and certainly had no problems when Gov. Perdue created a “temporary” sales tax hike in 2009. Oops.

But this leads to the glaring omission, and that is the fact that BTC completely ignores the chart prominently featured in our study that factors in the value of government benefits when examining how regressive a sales tax may be. In short, when they attempt to calculate the amount of sales tax dollars paid as a share of income, they willfully and misleadingly ignore a vital part of low-income households’ resources: government benefits such as Medicaid, food stamps, free/subsidized child care, housing subsidies, etc., etc. etc. Once that is factored in (and it can add to several thousands of dollars), along with the federal taxes paid by middle and upper income earners, the “regressivity” argument collapses.

I could go on, like discuss the difference between a nominal tax burden and tax incidence (i.e. who really bares the burden of a tax, like employees who receive lower pay due to high corporate taxes), but the BTC’s slapdash and surface deep paper has already consumed too much of my time.

The people of North Carolina deserve legitimate debate about such an important topic. Unfortunately the folks at BTC are only capable of thoughtless emoting and mindless regurgitation of talking points from a radical left-wing Washington DC think tank.

Jan

21

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Financial transparency is not the strong suit of most public schools. That said, last week Rick Hess gave kudos in his Education Week column (subscription required) to  one district that is  doing a good job.  Hess lauded Clark County (NV) School District for their effort to show the public how their money is spent.  The district encompasses Las Vegas and a large chunk of southeast Nevada.  Clark County School District is the sixth largest school district in the nation. True it’s easy to tell why NV’s costs are lower than its larger, more urbanized peers. Still the data and the breakdown is a good first step in allowing citizens to get their heads around the costs of public education.

Texas has the best  transparency requirements in the country for public schools. They even require school districts to publish check registries. While North Carolina is not quite there yet, we can certainly do better.

In 2011-12, North Carolinians spent $11.9 billion (state, federal and local funds) on public K-12 education.  Why is it so difficult for citizens to learn how their money is being spent?

Jan

21

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An oped in a local paper recently called the expansion of Medicare a “no brainer.”

It’s another reminder of how liberals hate young people and even hate the sick.

First, you must understand that our current health care system spends billions upon billions “providing” health care that benefits Big Pharma and the rest of the medical industry, while often making our health worse.

A UNC doctor and professor has made it his mission to expose this. I have flipped through another recent book with much the same view. In Catastrophic Care, Author David Goldhill tells the story of his own father’s death and how it opened his eyes to the often catastrophic nature of our health care system. He begins his focus on Medicare, but the same applies to Medicaid. From the publisher’s web site:

Contrasting the Island of health care with the Mainland of our economy, he demonstrates that high costs, excess medicine, terrible service, and medical error are the inevitable consequences of our insurance-based system. He explains why policy efforts to fix these problems have invariably produced perverse results, and how the new Affordable Care Act is more likely to deepen than to solve these issues.

In short, because there is no real free market in health care, our health suffers. The problem is that our current system fails to provide a way to figure out costs, risks and benefits. Thus neither patients, doctors nor hospitals have workable incentives for good yet cost-effective treatments.

This is why the free market is morally superior. It allows us to make valid choices; it presents real options, and acknowledges our responsibility for choosing them. A free health care market would provide the truth, not deceptions, and would endow us us with the power to make our own choices. Ultimately, empowered patients and an honest system would provide better health care.

So Medicaid expansion will fail to improve health. Meanwhile it will suck money away from schools and other real needs.

Some advocates say it is federal money. Uh, where does that money come from? Much of it comes from taxpayers, thus taking money they could spend on their own children. The rest will be borrowed. It will come from the children, who will have to repay our huge federal debt. Every million dollars of federal spending means another $400,000 our children and grandchildren will have to pay.

Wasteful Medicaid spending just robs programs that could really help the ailing and the young. I still don’t get why liberals hate the sick and the young so much.