Taxes And Growth

One of the most reliable laments I post to this blog is the absolute refusal of many policymakers  to base their decisions on evidence. We live in a time when experience and reality are no match for the preferred ideologies of our lawmakers. (In all fairness, that phenomenon is probably not new, but it has certainly become more obvious.)

Marketwatch is a business publication that focused upon that disconnect in an article from early May. The title was”Texas, California and Indiana offer surprising lessons about low taxes and economic growth” and the subtitle–which trumpeted the basic conclusion–was “Indiana slashed taxes. Yet wages have fallen even further behind the national average.”

If the subtitle was insufficiently clear, the introductory paragraphs left no doubt:

Among the most common claims of state economic development officials is that higher taxes drive down growth and cause businesses and people to relocate to low-tax states. If you listen to cable news, you are likely to hear dire stories of people fleeing high-tax states in droves.

Yet the high-tax parts of both California and Texas are growing faster than the low-tax parts of both states. And growth in Indiana, which has cut corporate and personal income taxes in the past decade as well as put a cap on property taxes, is dismal.

I tend to foam at the mouth whenever I encounter a reference to Indiana’s property tax cap–not only is the cap bad policy, not only does it disproportionately strangle urban areas in our rural-privileged state, but in an unconscionable move to elevate political game playing over responsible governance, former Governor Daniels constitutionalized the cap–ensuring that, even if subsequent evidence of its counter-productivity emerged, the measure would be virtually impossible to reverse.

The article wasn’t aimed at the multiple flaws of the tax cap, however, so I will leave my extended diatribe for another day.

Why is it that prescriptions for lower taxes, like other seemingly obvious economic “cause and effect” formulations, turns out to be contradicted by real-world evidence?

Modern economic research consistently reports that lower taxes tend to promote growth and migration, but only when all other factors are held constant.

Here’s the rub: It is straightforward to create a model holding all these other factors constant, but in the real world, they never are constant. So the role of taxes has to be weighed against the value of what tax dollars provide.

It took me a long time to recognize the importance of that insight. I used to think it was obvious that a higher minimum wage would depress job creation–until I realized that such a result required all things being equal–and all things are rarely, if ever, equal. The “obvious” result ignored–among other things–the effects of low-wage workers’ increased buying power. We now have real-world evidence from jurisdictions that raised the minimum wage that the “obvious” result isn’t necessarily the actual result.

In the case of economic growth, the article looks at the rivalry between Texas and California, and finds (surprise!) that the popular rhetoric doesn’t reflect reality.

Stories about people “fleeing” California for Texas are common, and Elon Musk’s high-profile announcement that he was moving to Texas fuels the anecdote-driven news cycle. Taxes per capita are higher in California than in Texas, giving weight to the story that low taxes are driving this migration.

In fact, in the last year for which we have data, two out of every 1,000 Californians departed for Texas, while 1.2 of every 1,000 Texans moved to California. This is hardly a notable exodus, and it hardly explains why a rational Texan would head to California. Something else has to be going on.

Furthermore, as the article notes, people are more likely to move from city to city within a state than they are to move out of state, and tax rates vary far more between local governments than between states.

In California, the total state and local taxes in the highest-taxed place were more than three times that of the low-tax county. In Texas, the difference is three times as large as in California.

Further contradicting the preferred story, it turns out that population growth in both California and in Texas is concentrated in the higher-tax places. That’s because–as city planners have long insisted–what matters most isn’t the tax rate (although it certainly factors in) but the quality of life. It’s value for the dollar.

 Taxes represent one price for living in a particular city or town, but value — not price — is the key decision variable.

For the average family, value comes from tangible amenities like safe, livable neighborhoods, high-quality schools and great parks and trails. They go far beyond natural amenities such as beaches and mountains.

That’s a lesson I doubt Indiana’s gerrymandered legislators will ever learn.

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True…And Very Sad.

Rick Wilson is one of the disillusioned Republicans who founded the Lincoln Project, and he recently opined about the devolution of the Grand Old Party. The Lincoln Project, as most of you are aware, was created by a group of long-time, well-respected strategists and operatives who had repeatedly been tapped for significant roles in high-profile Republican campaigns. The Project wasn’t composed of ordinary Republican voters who’d become disillusioned; it was the product of respected and savvy political professionals.

Wilson describes himself as an American political strategist, media consultant, and author. He’s produced televised political commercials for governors, U.S. Senate candidates, Super PACs, and corporations. (He’s also the author of the book Everything Trump Touches Dies.)

Wilson’s basic point in the rant that follows was that the GOP–far from being the party of Lincoln–is now the party of Marjorie Taylor Green, she of the “California fires were started by Jewish space lasers” and more recently “Being made to wear masks to battle the pandemic is just like what happened to the Jews during the Holocaust.”

Wilson’s takedown was heated and comprehensive, and I decided it was worth sharing in its entirety– so with apologies for the length of the quotation, here it is:

This woman is not an outlier. She is the core of the Republican Party. She is the heart and soul of the Republican Party. She is more important in the Republican Party ecosystem than Kevin McCarthy. He issued a pusillanimous, limp-dicked statement today about her finally after getting beat up for hours and hours on end, and I gotta tell you something: He does that because he wants to stay [minority leader]. And he knows that she is the future of the GOP. She is the core, the heart, the soul of what the Republican Party now stands for. It is idiotic, it is violently stupid. It hates experts, it hates authority, it hates science, it hates culture. It hates everything except their reflexive trolling of the rest of the country. She is a monstrous person. She is a person who I would not piss on her if she was on fire. She is a person who deserves all the public … shame you could possibly imagine. But here’s the thing: Kevin McCarthy will not take a single step to expel her from Congress. She is the heart and soul of the Republican Party today. She is exactly the center of it, she is what they have become, and everybody in the Republican Party who goes, ‘Oh, no, that’s not me,’ they only do it quietly. They won’t go out in her face and say, ‘Shut the hell up.’ They won’t go in her face and say, ‘You are a crude, anti-Semite clown.’ They won’t do that because they understand she is their future. She is the party as it is written today, she is the party as it is comprised today. I find her so repulsive and so disgusting that it is all I can do not to get myself thrown off social media by saying what I really feel about her.

Before you dismiss this diatribe as an overheated and exaggerated description of Greene’s influence, let me tell you about a recent incident in Nashvillle, Tennessee.

Hatwrks, a hat shop in Nashville, advertised an anti-vaccine yellow star patterned after those forced on Jews by Nazi Germany. Needless to say, that product has been met with considerable backlash; as a local rabbi told Nashville TV station WSMV, “Using the yellow star, or any holocaust imagery for anything, is a disservice to the memory of the six million Jews who were systematically murdered during the Holocaust.”

It boggles the mind that proprietors of any retail establishment would hear the ludicrous anti-Semitic ramblings of someone like Greene, and then produce a product endorsing her odious comparison. But then, it boggles the mind that a significant percentage of self-identified Republicans believe Donald Trump won an election that he lost decisively.

Marjorie Taylor Greene is obviously mentally ill, and she’s far from the only elected Republican to routinely manifest delusions and mental disorders. What is truly terrifying, however, is not the presence of a few mental cases–it is the accuracy of Rick Wilson’s accusation, and the fact that clinical insanity is arguably the central characteristic of a once-respectable political party.

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Some Conflicts Never Die…

Back in 2000, I wrote a couple of newspaper columns and an academic article about litigation involving the Kentucky Baptist Children’s Home. The Children’s Home had fired a youth counselor solely because she was a lesbian; they admitted that she was an excellent counselor, but justified the firing by explaining that “the gay lifestyle” (discovered because her picture appeared in media snapped at a Pride parade) was inconsistent with their theological beliefs.

Ordinarily, this firing would not have given rise to a lawsuit-even in those few states that had then extended civil rights protections to gays and lesbians, religious organizations were (and are) exempt from civil rights laws. But the Home was essentially funded by the state of Kentucky. Some $12 million of its $15 million dollar annual budget came from state tax dollars paying for the children placed in the facility by the state. The lawsuit challenged the propriety of using tax dollars to discriminate.

The case ran into some technical issues not germane to the principle being litigated, and I lost track of its subsequent path. (A very similar case from Georgia was settled when that state agreed to abide by the Constitution.) Evidently, the Kentucky Home did not lose its state support–nor its insistence on disadvantaging members of the LGBTQ community–because AP has reported on the emergence of a similar conflict between the Home–now renamed Sunrise Children’s Services–and the state.

A cultural clash pitting religious beliefs against gay rights has jeopardized Kentucky’s long-running relationship with a foster care and adoption agency affiliated with the Baptist church that serves some of the state’s most vulnerable children.

The standoff revolves around a clause in a new contract with the state that bans discrimination based on sexual orientation and that Sunrise Children’s Services is refusing to sign.

It’s another round in a broader fight in states and the courts over religious liberty and LGBTQ rights, including whether businesses can refuse to provide services for same-sex weddings. An upcoming U.S. Supreme Court decision in a Pennsylvania case could be decisive in the Kentucky clash; it’s reviewing a refusal by Philadelphia Catholic Social Services to work with same-sex couples as foster parents.

The original case–twenty-one years ago–involved the home’s refusal to employ LGBTQ staff members, no matter how professionally competent. I was unable to determine whether that situation has changed, but this time, the argument is about the agency’s refusal to place children with same-sex foster or adoptive parents.

Sunrise wants its religious beliefs to exempt it from a law that applies to other agencies doing business with the state, a requirement imposed by what lawyers call a law of general application. It wants to continue benefitting from tax dollars paid by all Kentucky residents, gay and straight, while picking and choosing which rules it will follow.

That isn’t the way it’s supposed to work.

“If Sunrise doesn’t want to abide by that, that’s fine. They shouldn’t have access to state money, state contracts or children in the state’s care,” said Chris Hartman, executive director of the Fairness Campaign, a Louisville-based gay rights advocacy group.

Hartman said he worries LGBTQ children in Sunrise’s care are “deeply closeted,” hiding their sexual orientation out of fear of “indoctrination and proselytization.”

Whether that fear is justifiable or not is beside the point. It was actually Justice Scalia–no champion of secularism–who wrote the decision in Employment Division v. Smith, confirming that religious belief does not exempt citizens from compliance with laws of general application.

Sunrise is perfectly free to follow its theological principles. It isn’t free to demand continued public funding at the same time it is refusing to follow the rules that govern distribution of that funding.

I sometimes wonder whether America has turned into a version of Animal Farm, where everyone is equal, but some folks (“good Christians”) think they’re entitled to be more equal than others.

 

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Corrupting The Process

In New York, a recent release by the Attorney General’s office reported the results of an  investigation into efforts by “Big Telecom” to defeat Net Neutrality. It seems that in 2017, major U.S. telecom companies pumped “millions of dollars into a secret campaign” to flood the FCC with millions of fake comments supporting the agency’s  repeal of net neutrality protections.

The product of a multi-year investigation, the new report (pdf) details an industry-backed effort to create the appearance of “widespread grassroots support” for then-FCC chair Ajit Pai’s broadly unpopular repeal of net neutrality rules.

I have written before about Ajit Pai who was put in charge of the FCC by the Trump Administration in furtherance of that administration’s intent to make online life easier–and more lucrative– for monied interests. Apparently, simply installing a tool at the FCC wasn’t seen as sufficient; so the industry’s “big guys” decided to give Pai’s efforts a boost.

“In 2017, the nation’s largest broadband companies funded a secret campaign to generate millions of comments to the FCC. Many of these comments provided ‘cover’ for the FCC’s repeal of net neutrality rules,” the investigation found. “To help generate these comments, the broadband industry engaged commercial lead generators that used prizes—like gift cards and sweepstakes entries—to lure consumers to their websites and join the campaign.”

“However, nearly every lead generator that was hired to enroll consumers in the campaign, instead, simply fabricated consumers’ responses,” the report states, noting that 8.5 million fake comments in favor of net neutrality repeal were generated by the effort.

New York AG Letitia James issued a statement that identified the danger of such campaigns: the fabrication of responses in order to influence public policies drowns out  actual responses from the American people, distorting public opinion and defeating passage of laws and regulations that should be responsive to that opinion.

“Today, we are taking action to root out this fraud and the impersonation that has been corrupting the process for far too long,” James continued. “From net neutrality rules to laws affecting criminal justice reform, healthcare, and more, these fake comments have simply been generated to influence too many government policies, which is why we are cracking down on this illegal and deceptive behavior.”

James also announced that the AG’s office had negotiated settlements with three of the companies that had generated millions of false comments on behalf of Big Telecom—Fluent, Inc, Opt-Intelligence, Inc., and React2Media, Inc. Those companies will pay more than $4.4 million in penalties and disgorgement; significantly, they will also be required to implement “comprehensive reforms in future advocacy campaigns.”

Supporters of Net Neutrality had suspected something of this sort, and this investigation confirmed those suspicions. Unfortunately, it confirmed something even more troubling–the extent to which presumably reputable American business interests engage in (or at the very least, wink at) corrupt behaviors.

I still remember how shocked I was when my middle son, who was then traveling through India, told me about the frustration of an Indian friend. The friend ran an orphanage and wanted to increase its capacity to care for abandoned children. In order to get a permit for the expansion, he was expected to pay a fairly substantial bribe to the official responsible for issuing such permits. My son said that such expectations were widespread, not particularly secretive, and just as applicable to “do-gooders” as to more profitable enterprises.

We Americans used to pride ourselves on the absence of such expectations in our dealings with government officials, petty and not-so petty.

When societies become desensitized to corrupt behavior, when “winning” and/or profiting are the only metrics that matter, it’s a short distance to the normalization of outright bribery and other highly unethical practices.

The corruption that attended the fight over Net Neutrality is so troubling because it may well be a “canary in the coal mine”– a very worrisome omen.

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The End Of Free Markets?

Last month, Time Magazine published an article asserting that the “free market” was effectively dead. The author then went on to speculate over what might replace.it. (For the record, I’m pretty skeptical of definitive pronouncements of this sort–as I used to tell my students, the real world is considerably more complicated than that.)

Time’s conclusion was evidently prompted by a recent meeting in the White House between President Biden and the CEOs of some of America’s largest companies, attended by the head of the U.S. Chamber of Commerce (whose “presence was enough to rock the political landscape” according to the article.)

“Washington’s most powerful trade group is having a political identity crisis,” wrote Politico. Two weeks later, a group of 150 CEOs, unaffiliated with the Chamber, followed suit, throwing their weight behind Biden’s COVID relief bill, which sailed through Congress. They have been similarly supportive of the additional $2 trillion the administration has now proposed for infrastructure spending – but they unsurprisingly don’t want corporate tax rates to be the means for paying for it.

The article went on to say that corporate America’s support for public investment is not a new or temporary phenomenon–rather, it’s evidence of the “most profound realignment in American political economy in nearly forty years,” and it cites the rise of ethno-nationalism on the right and democratic socialism on the left as evidence of a widespread disillusionment with conventional economic wisdom.

For the record, the “conventional economic wisdom” being undermined has only been conventional for some 40 years.

The article traces the evolution of free market absolutism, and acknowledges that prior to the 1970s, most economists had advocated fairly robust government action—countercyclical fiscal spending, management of the currency, tactical protectionism—to create long-term prosperity. The emergence and influence of what the article calls “free market apostles” changed that, and led to what we now call Reaganomics–the notion that virtually any government regulation of the market is unhelpful, if not illegitimate. (This required some cherrypicking of Adam Smith, but hey…)

Interestingly, in what may be the most insightful portion of the article, it connected this shift to an anti-government “free market” philosophy to racial politics. The need for government to take a “hands off” approach coincided with federal efforts to ameliorate some of the most egregious economic effects of state-sanctioned racism.

In any event, while the article argues that public and expert opinion have swung against what it labels “free-market orthodoxy,” what is actually happening–at least among people who are concerned with such things– is a return to a much more nuanced understanding of market economics.

Virtually all rich countries today have mixed economies, in which certain services are “socialized”–i.e., provided communally by government–and others are left to a market subject to reasonable regulation. Americans love “either/or” politics–it’s either capitalism or socialism, freedom or tyranny. That makes for great sloganeering, but bad politics.

The issue isn’t free markets versus socialism. The actual issues confronting policymakers are much more nuanced, and fall into two broad categories: 1) which services ought to be provided by government, and which should be left to the market? and 2) what regulations are needed to ensure the proper operation of that market and which are counterproductive? Just how “free” should markets be?

People of good will will have different answers to those questions, and it would be nice if the ensuing arguments were evidence based–although I’m not holding my breath.

I do know that those evidence-based conversations are not encouraged by headlines suggesting that a new emphasis on anti-trust enforcement or other regulatory activity is tantamount to the end of the free market.

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