Hey Democrats, Why Is It That States With The Highest Tax Rates Have The Highest Debt???

I wrote an article entitled, “Tax Cuts Increase Revenues; They Have ALWAYS Increased Revenues” that documents the fact that, on every single occasion in which it has ever been tried, cutting income tax rates has increased federal tax revenues and resulted in a healthier economy.

Democrats stupidly won’t believe that.  Mostly because they are stupid people who are committed to stupid and depraved world views (such as Marxism).

A Newsmax article documents that what is true of the federal government and tax cutting also happens to be true of the states and tax cutting:

Abolish State Income Taxes
Tuesday, 20 Jul 2010 11:15 AM
By Richard Rahn

Did you know there are nine states that have no state income tax?

The non-income-tax states (see accompanying chart) are geographically and economically diverse, ranging from the state of Washington in the Pacific Northwest, to Texas and Florida in the South, and up to New Hampshire in the Northeast.

Why is it that some of the states with the biggest fiscal problems have the highest individual state income tax rates, such as New York and California, while some of the states with the least fiscal problems have no state income tax at all?

High-tax advocates will argue that the high-tax states provide much more and better state services, but the empirical evidence does not support the assertion.

On average, schools, health and safety, roads, etc. are no better in states with income taxes than those without income taxes. More importantly, the evidence is very strong that people are moving from high-tax states to lower-tax-rate states — the migration from California to Texas and from New York to Florida being prime examples. (Next year, the combined federal, state, and local income tax rate for a citizen of New York City will be well over 50 percent, as contrasted with approximately 38 percent for citizens of Texas and Florida.)

If the citizens of California and New York really thought they were getting their money’s worth for all of the extra state taxation, they would not be moving to low-tax states.

The obvious question then is, Where is all the extra money from these state income taxes going?

It is going primarily to service debt, and to pay for inflated salaries and employee benefits. It is interesting that the high-tax-rate states also, on average, have much higher per capita debt levels than states without income taxes. (Alaska is an outlier because it has its oil reserve to borrow against and actually gives its citizens a “dividend” each year.)

The biggest additional burden the high-tax states have is unionized government worker contracts. My Cato colleague Chris Edwards notes: “Half of all state and local spending — $1.1 trillion out of $2.2 trillion in 2008 — goes toward employee wages and benefits.”

His study showed that, on average, total hourly compensation for state and local government workers was 45 percent higher than for equivalent private-sector workers.

In addition, the government workers are rarely fired even those with poor job performance. Importantly, the differential was much greater in states where more than half of the state employees were unionized, and these were all in states with state income taxes, with the exception of Washington.

High rates of unionization of public employees and high rates of debt go hand in hand. Those states whose government workers are less than 40 percent unionized have median per capita state debt of $2,238, while those states where unionization rates are over 60 percent have a median per capita state debt of $6,380.

High rates of unionization tend to lead to excess staffing, unaffordable benefits, and pensions.

There have been a number of both empirical and theoretical studies showing the negative impacts of state income taxes and particularly those with high marginal rates on economic growth within the state.

A recent study published in the Cato Journal by professors Barry W. Poulson and Jules Gordon Kaplan, which was carefully controlled for the effects of regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states concluded: “Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue.”

State Income Tax Rates and Debt (All Figures Percent)

States	Income Tax	State Debt as % of Income
Without Individual Income Tax
Tennessee	0	2.02
Texas	0	2.70
Nevada	0	4.07
Wyoming	0	4.90
Florida	0	5.20
Washington	0	7.93
South Dakota	0	10.95
New Hampshire	0	14.10
Alaska	0	24.01
Highest Individual Income Tax rates
Iowa	9.28	6.47
Maryland	9.23	7.26
California	10.55	7.55
Oregon	11.36	8.61
Hawaii	11.00	11.89
New Jersey	9.06	12.01
New York	10.67	12.22
Vermont	8.95	13.12
Rhode Island	9.9	20.04

The state of New York is a poster child for what not to do. At one time, it was the richest and most populous state. But at least going back to the Harriman and Rockefeller administrations decades ago, it decided it could tax and spend its way to prosperity. (Note: New York City residents face a maximum combined state and city income tax of over 12 percent, while those in many New York counties pay a little less than 9 percent, giving the state an average maximum tax rate of almost 11 percent.)

The results have been the opposite of what was promised.

New York’s relative population, economic growth, and per capita income have all declined, particularly in relation to those states without a state income tax.

In the past year, per-person taxes have increased by $419 in New York, far higher than any other state. (Note: They went up only $1 in Texas. Is New York or Texas now better off?)

Income taxes, as contrasted with consumption (i.e., sales) taxes and modest property tax rates, are far more costly to administer and do far more economic damage (by discouraging work, saving and investment) and are far more intrusive on individual liberty.

The states without state income taxes overall have had far better economic performance for most of the past several decades than have the income tax states — particularly those with high marginal taxes.

The Tea Party movement indicates that it might be the right time politically for politicians in the income tax states to call for those taxes to be phased out.

Good economics might actually be good politics this year.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

That table alone is worth a million bucks.  Notice how it documents the fact that liberal/Democrat economic policy is about as abject a failure as you can get.

What is also interesting is that the United States did not have a permanent federal income tax until 1913.  That, coincidentally, was the same year that Democrats also gave us the Federal Reserve with the promise that they would now be able to fix everything.  Like all of their promises, it was a giant lie.

Many founding fathers warned against a federal reserve system that Woodrow Wilson ultimately rammed down our national throats.  Here are the words of Thomas Jefferson in particular:

“If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” -Thomas Jefferson, The Debate Over The Recharter Of The Bank Bill, (1809).

For the factual record, the Federal Reserve, perversely named as it is, is in fact the very kind of “private bank” that Jefferson warned us about.  It’s fascism, but Democrats love fascism.  Fannie Mae and Freddie Mac are examples of other “government sponsored enterprises” devised by Democrats that give us the very, very worst of both government and private enterprise.

And this article directly relates that tax and the out of control Federal Reserve system with our present out of control debt.

Democrats have led the way in screwing up America for the last hundred years.  They were screwing it up in 1913 under Woodrow Wilson.  They were screwing it up again in the 1930s under FDR.  And now we are royally screwing it up under Obama.

And now we have no chance of lasting another hundred years because Democrats have loaded us up with debt that we can never hope to ever repay even as our debt continues to spiral even more out of control.

The Pathological Stupidity Of Obama’s ‘Fairness’ Meme Of Taxing The Rich

We need to balance our insane budget deficit, Democrats say.  And it’s time the rich paid their fair share.

All the top 10% of earners paid is 73 percent of the income taxes collected by the federal government.  That’s nothing.  It’s those poor poor who suffer the most.  The bottom 50% have to pay a whole bunch of nothing.  It’s just brutal for them every April.  They want to write a check to the government, but only the rich get to do stuff like that.  And the bottom 40% are so screwed by our federal income tax system that they actually are forced to accept free money in addition to paying a whole bunch of nothing.  Unless the Associated Press is lying about it.

Nothing makes me more annoyed than the phrase “give the rich tax cuts.”  Because it presumes that the government owns us and graciously allows us to keep some of what we earn.  The way liberals understand things, they own all the means of production.  They own my labor and whatever I earn from my labor.  And I am lucky if the commissars allow me to keep enough to feed myself.  It derives from a tenant of Marxism: “From each according to his ability, to each according to his need.”  At the core is central planning; government stands above us, it stands above God (which is why consistent Marxists deny God exists and religion is merely an opiate of the masses), and government should redistribute everything according to its divine power.

That is the intrinsic logic of their view that allowing the rich or anyone else to keep more of their own money is considered a cost to the government.  But it ISN’T a cost to the government to allow me to keep more of my own money; anymore than it is a cost to me to allow my next door neighbor to keep more of his own tools.

Obama gave an address in which he paid lip service to reducing spending – even though his budget that he released only TWO MONTHS AGO didn’t reduce any spending at all – and in fact stated that it would be dangerous to do so.  Obama has no plans to cut spending; in fact, the deficit in just the first six months of this year shot up another 15.7%.  Obama is going to do what he’s been doing since he started running for president; he’s going to offer meaningless rhetorical platitudes about cutting spending and reducing costs, while demonizing the rich and demanding that the ONLY people who pay REALLY START TO PAY.

Obama is going to talk about “fairness.”

The ‘fairness’ meme
April 12, 2011 – 4:47 am – by Roger Kimball

We don’t know exactly what Barack Obama is going to say when he fires up his teleprompters at George Washington University tomorrow. The color, we do know, however: it’s red, as in “red ink,” what Mitch Daniels at his speech at CPAC earlier this year called “the new red menace.” (I like to think that the invocation of the old “red menace,” the Communist, socialist one, was deliberate: it is, I would argue, apt.)

The substance of the speech, as ABC notes, is “closely held.” Everybody thinks that there will be at least pro forma acknowledgement that spending on such programs as Medicare and Social Security needs to be reined in. But the big O will also return to one of his favorite themes, a by-word from his 2008 campaign: “increased taxes on the wealthy” (that’s according to “White House officials”).

Here’s my bet: the operative word in Obama’s speech tomorrow night, the mantra that will be repeated endlessly not only by O but also by the left-wing commentariat, is “fairness.” You remember his campaign shtick: the Saddleback Church event, for example, when Rick Warren asked candidates John McCain and B.O. about taxes. “Define rich,” he asked. McCain tossed out an income of $5 million, which elicited derision. But the gravamen of his response came in the elaboration: “I don’t want to take any money from the rich. I want everybody to get rich.”

How different was B.O.’s response: What he was looking for, he said, was “a sense of balance, and fairness in our tax code. It is time for folks like me who make more than $250,000 to pay our fair share.”

“Our fair share.” That, as I noted at the time, is B.O.’s refrain. “[W]e will save Social Security for future generations by asking the wealthiest Americans to pay their fair share.” It’s a small step from the invocation of “our fair share” to Obama’s call for a tax on “the windfall profits of oil companies,” a tax increase on capitals gains, elimination of the tax on Social Security tax, etc., etc.

The crucial point here is that what Obama is interested in is not increasing revenue but in promulgating redistributionist policies that make it harder for people to prosper economically. William McGurn, writing in The Wall Street Journal back then, recalled Obama’s response to ABC’s Charlie Gibson when Gibson observed that raising taxes led to decreased revenues: “Well, Charlie,” Obama replied, “what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”

“For purposes of fairness”: that means, “for purposes of economic egalitarianism.”

McGurn observed:

[I]t doesn’t really matter whether a tax increase actually brings in more revenue. It’s not about robbing from the rich to give to the poor. Robbing from the rich will do, especially if it’s done in the name of fairness.

Now there are good reasons Mr. Obama is not likely to pursue the revenue side of the fairness question. As this newspaper noted in a recent editorial, the latest data from the Internal Revenue Service does not show to Mr. Obama’s advantage. As we come to the end of the Bush administration, the top 1% of American taxpayers already pay 40% of all income taxes — the highest level in 40 years. The top 10% of income earners pay 71% of the taxes.

The bottom line is that when Obama invokes “fairness,” he wants us to feel guilty about economic success. This is the secret of his appeal to the socialistically inclined.

It worked in 2008. Let’s see how it goes down tomorrow. Over the last two years, Barack Obama has presided over an economic Armageddon. Everyone knows about that $14 trillion that is the federal debt. Few people, I suspect, really appreciate what that unimaginable figure represents. And the kicker is, $14 trillion is only a tithe of the trouble. As Kevin Williamson and others have pointed out, the country’s real debt, when you facotr in state indebtedness and unfunded so-called “entitlement” liabilities, is closer to $130 trillion. That horror-movie figure is just too awful to contemplate, so I will draw a veil.

[…]

For the record, I wrote an article entitled, “Tax Cuts Increase Revenues; They Have ALWAYS Increased Revenues,” in which I documented that every single time the United States has reduced the income tax rate, federal revenues have gone up.  I go back to Warren Harding to document that.  I include John F. Kennedy, Ronald Reagan, and George Bush – who increased federal revenues by lowering tax rates.

But this recurring documented fact of U.S. history is tantamount to rocket science to liberals.  Because they adhere to the entirely unrealistic premise that if I were to double your taxes, I would collect double the revenue, because people wouldn’t react to the tax increase by altering their behavior.

Recent developments give me a crystal clear example of why liberals couldn’t be more wrong:

Gas Price Rise, Americans Drive Less
By Rachel Smith
Posted: Apr 12, 2011 10:30 a.m.

Americans are taking rising gas prices seriously. They’re already driving less, “reversing what had been a steady increase in demand for fuel,” the Associated Press writes. “For five weeks in a row, they have bought less gas than they did a year ago.”

The average price of gas is an obvious indicator of why national fuel consumption is dropping. At the end of March, AAA reported that gas reached an average of $3.60 nationally. Today, AAA says the national average is $3.79 for regular grade, a 29 cent jump in about two weeks. Business Week reports that many analysts forecast that these numbers will worsen, and expect that consumers could pay as much as $5 a gallon this year due to political unrest in North Africa and the Middle East, which supply much of the United States’ oil. The $5 per gallon speculation has been floating around the industry for some time, but last year, CNN stated that former president of Shell Oil, John Hofmeister predicted that Americans could pay $5 a gallon by 2012. Analysts have bumped that date up.

“Drivers are already reacting to the change,” writes Kicking Tires. “In the first week of April, consumption was down 3.6%, or 2.4 million gallons of gasoline,” based on data from MasterCard Spending Pulse.

One of the best ways to combat rising gas prices is to drive less, but there are other simple things you can do. […]

Even uneducated, ignorant and frankly stupid people understand this incredibly basic concept: cost goes up, activity goes down.  And yet you have liberals with PhDs staffing agencies such as the Congressional Budget Office utterly fail to understand that if they make taxes go up, they will end up with reactions that will invariably produce less revenue for the government.

If even high-school dropouts understand that if the price of gasoline goes up, they need to drive less, how is it that brilliant businessmen won’t realize that if their tax rates go up, they need to protect their money?

Here’s another analogy that might be spot on the money.  Suppose your going to work and a mugger jumps you and takes all your money.  As he’s walking off, counting your (well, his now) cash, he says, “I hope you’ve got as much dough tomorrow, because I’m going to mug you again.”  Now, if you’re smart, you won’t be happening by that way at all the next day.  But if you’ve absolutely got to go that way to get to work, will you have as much money that next day?  Not if you’ve got a single functioning brain cell.  On my analogy, if you figure out some other way to get to work, that’s tax avoidance.  If you stash your cash somewhere so you don’t have it for the robber to take, that’s tax sheltering.  And if you’re too stupid to understand that this is what people do when their taxes go up, that’s liberalism.

The more taxes increase, the more activities that were previously not worth doing – such as sheltering assets, moving assets overseas, investing in collectibles, purchasing tax-exempt investment vehicles, or just dodging taxes – become worth doing.

And so,what happens every single time happens yet again.  Raise taxes expecting more revenue, get less revenue, and hurt the economy in the process by penalizing productivity and investment risk and thereby restricting growth.  And when you encourage growth by reducing the tax burden and allowing people to keep what they earn, lo and behold, cetaris parabis, there is a surge in activity, an increase in economic growth and a corresponding increase in federal tax revenue.

I say “cetaris parabis” because if you throw in a socialist Fannie Mae and Freddie Mac that undermine something as vital as our housing mortgage market by imposing morally and fiscally insane policies until the system comes crashing down, such as what occurred leading up the crash in 2008, the best tax rates in the world can’t save the system.

Here are just a few articles I wrote on that subject, in order of date written with the earliest listed first:

Biden: ‘We Misread The Economy, And It’s All Republicans’ Fault

AEI Article: How Fannie And Freddie Blew Up The Economy

Barney Frank And Democrat Party Most Responsible For 2008 Economic Collapse

More Proof Democrats Destroyed The Economy In 2008: The Ongoing Fannie Mae/Freddie Mac Disaster

We need to have intelligent economic policies.  If we don’t have such policies, we’re going to struggle regardless of our tax rates.

Quickly, another liberal policy that will not even possibly work is the Federal Reserve QE2 (that’s the second shot at quantitative easing) that artificially reduces interest rates by artificially increasing the money supply in order to increase lending.

Here’s the problem with that.  Short term, it might seem to work.  The stock market looks at the apparent backstopping of our economy and follows the leader (Uncle Sam) up until the ship starts to sink.  After which they will sell, sell, sell.  But the ship ALWAYS sinks.  Why?  Because you have a lot more dollars chasing after the same supply of finite goods and services (if anything, in the last few years, we have a LOWER supply of finite goods and services).  So what happens?  More dollars chasing less stuff.  That’s inflation.  It will INVARIABLY require more devalued dollars to buy the same things.  The more you inflate the money supply, the worse that inflation gets.  And we have massively increased our money supply.

Let me go back to what I wrote going on a year ago now:

An increase in the money supply is rather like an overdose of drugs.  And in this case the effect of the overdose will be hyperinflation.  Basically, the moment we have any kind of genuine recovery, our staggering deficit is going to begin to create an ultimately gigantic inflation rate.  Why?  Because we have massively artificially increased our money supply beyond our ability to actually produce real wealth, and that means that money will ultimately be devalued.  There’s simply no way it can’t be.  If simply printing money solved financial problems, the government could just mail everyone several million dollars, and we could all retire.  The problem is that more money chasing a limited supply of goods simply pushes up prices higher and higher without doing anything to solve the underlying economic problems.  If we have a recovery, with increased economic activity, there will be increased demand on the money supply, forcing an upward climb in interest rates as a means of controlling the currency.  And then we’ll begin to seriously pay for Obama’s and the Democrat Party’s sins.  Paradoxically, the only thing preventing hyperinflation now is the recession, because people aren’t buying anything and therefore aren’t competing for those limited goods.

And let me point out that we’re looking at huge inflation now – even as Obama declares victory over the recession – in insanely rising gas prices, food prices, clothes prices, all prices:

Hope ‘n Change Coming To Fruition: Cost Of EVERYTHING About To Go Up

Instability, Food Riots And A Heaping Dose Of ‘I Told You So’

Just like I said would happen.  And just like the long list of economists said would happen when they begged Obama not to do the $3.27 trillion stimulus.

This phenomenon is going on all over the world because most of the world is tied to the U.S. dollar – the currency that Obama has been poisoning hoping for short-term political gains.

And, again, a temporary extension of the Bush tax cuts (which doesn’t help businesses and individuals who are desperately searching for consistency so they can predict their costs) is not going to help us out of this kind of moral and fiscal insanity.

But what we are going to see is Obama now demagoguing all the massive economic failure that his own policies are responsible for creating in the first place to demand that the rich “pay their fair share.”