Former Milwaukee Braves manager Fred Haney was once quoted as saying that anyone can be an example — an example of how to do things, or an example of how not to do things.
Guess which state the latter applies to in the American Legislative Exchange Council’s Rich States, Poor States? When one of the chapters is titled “Wisconsin Exposes Deeper State Budget Crisis,” you’re definitely an example.
Fortunately, Wisconsin as bad example is limited in the text to this:
In the wake of the recent protests in Wisconsin and several other states, Americans are taking a much closer look at the grim budget realities facing our states today. Wisconsin Governor Scott Walker correctly points out that his state’s current budget trajectory is unsustainable, and he is not alone.
ALEC Tax and Fiscal Policy Task Force director Jonathan Williams, economist Arthur Laffer, and Wall Street Journal senior economics writer Stephen Moore compiled their fourth ranking of the states in two listings — their State Economic Competitiveness Index and their Economic Outlook Index.
The first index “is a backward-looking measure based on a state’s performance on three important variables: Personal Income Per Capita, Absolute Domestic Migration, and Non-Farm Payroll Employment—all of which are highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on this economic data.”
In terms of economic performance between 1999 and 2009, Wisconsin ranks 44th of the states — 30th in absolute domestic migration (between 2000 and 2009, 18,365 more people left Wisconsin than moved to Wisconsin), 40th in per capita personal income growth (33.2 percent), and 41st in non-farm payroll employment (3.4 percent less).
Thanks to Gov. James Doyle and the previous Legislature, Wisconsin has the 15th highest top personal income tax rate, the 21st highest top corporate income tax rate, the seventh highest property taxes, and the fourth highest increase in taxes for the 2009 and 2010 tax years. Wisconsin ranks 20th in progressivity of income taxes.
Why did I write “Thanks to Gov. James Doyle and the previous Legislature?” The answer is found on page 98, where you’ll note that the state’s nosedive in income growth and non-farm employment below even the (increasingly weak) national economy came in 2008 and 2009, when Democrats controlled the state Senate (from 2007 to 2010) and Assembly (in 2009 and 2010). And how did that work out?
The conclusion is getting to be nearly inescapable that states with high and rising tax burdens are more likely to suffer in an economic decline while those with lower and falling tax burdens are more likely to enjoy robust economic growth. Here is a quick synopsis of the results:
- The overall level of taxation has an inverse relationship to economic growth in a state.
- The change in the level and rate of taxation impacts state economic performance.
- High tax rates are especially harmful.
- Some state taxes have a more negative impact than others.
Next is the Economic Outlook Index, which is “a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less—especially on income transfer programs, and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states which tax and spend more.”
Wisconsin ranks 30th in its Economic Outlook Index, based on a combination over the past decade of gross state product growth (34.6 percent), personal income growth (35 percent), per capita personal income growth (33.2 percent), population growth (5.2 percent), net domestic in-migration (0.9 percent), non-farm payroll employment growth (0.8 percent), and 2010 unemployment rate (9.1 percent). Utah ranked first, and New York ranked last. And 30th is a significant downgrade from a year ago, when Wisconsin ranked 23rd.
Population growth and in-migration (the difference between people moving into Wisconsin and people moving out of Wisconsin) is a particularly interesting measure. There is one particular political impact from those two numbers: Since the 1960 Census, Wisconsin has gone from having 10 Congressional seats to having eight. Only 12 states have lost as many Congressional seats since 1960. Given that the House of Representatives has 435 seats and does not grow in size, one state’s loss is another state’s gain, which means that one state’s loss of Congressional power is another state’s Congressional power gain.
The usual suspects will … actually, the report nails it:
Some dedicated class warriors will angrily attack proponents of these business friendly, progrowth tax measures. However, as we have said for years, businesses do not pay taxes, people do, and economists from all parts of the political spectrum agree. Don’t take our word for it—even the left leaning Tax Policy Center Blog recently admitted that states need to rid themselves of corporate income taxes: “State corporate income taxes are lineal descendents of the federal version and share many of its flaws. They doubly tax income at the firm and individual level, penalize businesses that organize as corporations, and reward debt versus equity finance. They also are very sensitive to the business cycle, and tend to plunge when the economy sags.”
(It’s like they live in Wisconsin or something.)
The other thought from the preceding paragraph is that, contrary to the views of the class warriors and the other Madison protesters, is that their view of the purpose of government is wrong. The purpose of government is to provide government services. It is neither to serve as employer you’d most like to work for (or employer, period, beyond the absolute minimum of employees needed to perform government services), nor to redistribute income, nor to effect social change popular with those in power.
I wrote last week about those decrying the widening gap between the rich and the poor. There is a widening gap, but it isn’t just that gap:
The top 1 percent of earners nearly pays a larger share of federal income taxes than the bottom 95 percent. This happened for the first time in American history in 2007, even after tax rates were cut under President George W. Bush. Some critics argue that the rich pay most of the taxes because they make most of the income. Indeed, the top 1 percent of earners makes about 25 percent of income, but their share of the federal income tax is much higher than their share of earned income. It is also worth noting that the bottom 50 percent of Americans now pays less than 3 percent of the total federal income tax. The U.S. tax system is highly progressive already.
We already know what our state economy has been like with Doyle and Democrats in charge; the 44th ranking just quantifies what happened in our own Lost Decade. The more important number for the future is the 30th ranking. In order to do better than a 30th ranking over the next few years, the report suggests several principles that are obvious and yet escaped the attention of the now-minority party in state government (which led to the Nov. 2 election results):
- Keep tax rates low.
- Guard against inflation. (The report notes that education and health care, “two industries largely provided by government, particularly state government … have had nearly the highest rates of inflation over the past decade. The third-party-payer system in both industries is one of the biggest reason for this.”)
- Balance the budget.
- More spending is not the answer.
The third point isn’t happening because I believe state finances will show a continuing GAAP deficit as of June 30, the end of the 2010–11 fiscal year. The jury is still out on the other three points. It’s not clear to me that those extremist, divisive radicals (have I gotten in all the Dumocrat pejoratives?) in the Walker administration and the state Republican Party have gone nearly far enough to erasing years of bad policy.