In this excerpt from WichitaLiberty.TV: Government leaders tell us they want to run government like a business. But does government actually do this, even when accounting for its money? View below, or click here to view at YouTube.
For more on this issue, see Accounting for government like business.
Here is an interactive visualization of the growth of gross domestic product in the states and regions.
In the visualization, you may select a range of years, several diferent industries, and any combination of states and regions. Click here to open and use the visualization in a new window.
Writing in USA Today, Charles Koch offers insight into why our economy is sluggish, and how to make a positive change.
For years, Washington politicians have said that our economy is turning the corner. They said it in 2011, in 2013 and again last week — every time they report a quarter with 4% economic growth. But each time, the economy has turned sluggish again.
Like most Americans, I am deeply concerned about our weak economic recovery and its effects on millions of families. Opportunity, especially for the young and disadvantaged, is declining. High underemployment has become our new norm.
The effects of underemployment are not just economic, they are also social and psychological. Real work is an important part of how we define ourselves. Meaningful work benefits both us and others. Those who lack real jobs often end up depressed, addicted or aggressive.
Today, opportunities for such work are not what they should be. We need a different approach, focused less on politics and more on basic principles.
Continue reading at Charles Koch: How to really turn the economy around.
When the Obama Administration needed additional funds for the Cash for Clunkers program, Todd Tiahrt was agreeable to funding this wasteful program.
As summarized by the Congressional Research Service: “Makes emergency supplemental appropriations of $2 billion for FY2009 and FY2010 to the National Highway Traffic Safety Administration (NHTSA) of the Department of Transportation (DOT) for the Consumer Assistance to Recycle and Save Program (Cash for Clunkers Program).”
This bill passed the House of Representatives by a vote of 316 to 109. Among House Republicans, the vote was 78 to 95 in favor of passage. Todd Tiahrt was one of the minority of Republicans that voted for Cash for Clunkers.
(When this bill was voted on in the Senate, then-Senator and present Kansas Governor Sam Brownback voted in favor, and Pat Roberts voted against.)
But the Cash for Clunkers program has been widely and roundly criticized. Did it work as advertised? It all depends on the meaning of the word “work,” I suppose. To evaluate the program, we need to look at the marginal activity that was induced by the program. When we do, we find that the cost of moving the additional cars is astonishingly high.
An Edmunds.com article calculated the cost per car for the clunkers program in a different way than the government, and found this:
Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as the Car Allowance Rebate System (CARS), but Edmunds.com analysts indicate that only 125,000 of the sales were incremental. The rest of the sales would have happened anyway. Analysts divided three billion dollars by 125,000 vehicles to arrive at the average $24,000 per vehicle sold. The average transaction price in August was $26,915 minus an average cash rebate of $1,667.
This is just the latest evidence that the clunkers program didn’t really increase the well-being of our country. Writing at the Foundation for Economic Education, Bruce Yandle doubts the glowing assessment of effectiveness of the program:
The doubt arises for at least three reasons. First, the program was supported politically primarily for its much touted environmental benefits. Carbon emissions would be reduced. But the reduction costs are at least ten times higher than alternate ways of removing carbon. Second, there is Bastiat’s parable of the broken window to consider. And third, there is a serious matter of eroding social norms for conserving wealth. A crushed clunker with a frozen engine is lost capital. … The cost per ton of carbon reduced could reach $500 under a set of normal values for critical variables. The cost estimate was $237 per ton under best case conditions. The much celebrated Waxman-Markey cap-and-trade carbon-emission control legislation estimates the cost of reducing a ton of carbon to be $28 when done across U.S. industries. Yes, we are getting carbon-emission reductions by way of clunker reduction, but we are paying a pretty penny for it. … Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”
It’s very difficult for the government to intervene in the economy and produce a net positive result. Even if it could, the harmful effects of taking one person’s money and giving it to another so they can get a discount on a new car far outweigh the small economic benefit that might be realized.
The evaluation of economic development incentives requires thinking at the margin, not the entirety.
When considering the effect of economic development incentives, cities like Wichita use a cost-benefit analysis to determine whether the incentive is in the best interests of the city. The analysis usually also considers the county, state, and school districts, although these jurisdictions have no say over whether the incentive is granted, with a few exceptions. The basic idea is that by paying money now or forgiving future taxes, the city gains even more in increased tax collections. This is then pitched as a good deal for taxpayers: The city gets more jobs (usually) and a profit, too.
Economic activity generates tax revenue flowing to governmental agencies. When people work, they pay income taxes. When they buy stuff, they pay sales taxes. When they create new property or upgrade existing property, it is taxed.
In the calculation of cost-benefit ratios, when a company receives economic development incentives, government takes credit for the increase in tax revenue. Government often says that without the incentive, the company would not have located in Wichita. Or, it might not have expanded in Wichita. Or these days, it is claimed that incentives are necessary to persuade companies to consider remaining in Wichita rather than moving somewhere else.
But there are a few problems with the arguments that cities and their economic development agencies promote. One is that the increase in tax revenue happens regardless of whether the company has received incentives. What about all the companies that locate to or expand in Wichita without receiving incentives?
Related is that jurisdictions may grant relatively small incentives and then take credit for the entire deal. I’ve been told that when economic development agencies learn of a company moving to an area or expanding, they swoop in with small incentives and take credit for the entire deal. The agency is then able to point to a small incentive that enabled a huge deal. As you can imagine, it’s difficult to get the involved parties to speak on the record about this.
Here’s an example of the importance of looking at marginal gains rather than the whole enchilada. In 2012, the City of Wichita developed a program called New HOME (New Home Ownership Made Easy). The crux of the program is to rebate Wichita city property taxes for five years to those who buy newly-built homes in certain neighborhoods under certain conditions.
The important question is how much new activity this program will induce. Often government takes credit for all economic activity that takes place. This ignores the economic activity that was going to take place naturally — in this case, new homes that are going to be built even without this subsidy program. According to data compiled by Wichita Area Builders Association and the WSU Center for Economic Development and Business Research — this is the data that was current at the time the Wichita city council made its decision to authorize the program — in 2011 462 new homes were started in the City of Wichita. The HOME program contemplated subsidizing 1,000 homes in a period of 22 months. That’s a rate of 545 homes per year — not much more than the present rate of 462 per year. But, the city has to give up collecting property tax on all these homes — even the ones that would be built anyway.
What we’re talking about is possibly inducing a small amount of additional activity over what would happen naturally and organically. But we have to subsidize a very large number of houses in order to achieve that. The lesson is that we need to evaluate the costs of this program based on the marginal activity it may induce, not all activity. For more, see Wichita new home tax rebate program: The analysis.
Wichita could innovate and gain attention by opting out of the harmful practice described in the following article.
By J.D. Harrison, Washington Post
If you can’t build your own, steal someone else’s.
That, one economist notes, has become the default strategy for state and city governments in their pursuit of rapidly growing businesses, with many offering increasingly lucrative incentive packages to encourage employers to move to and create jobs in their districts.
However, that’s hardly the most sustainable method to promote the country’s economic growth — and there’s new evidence that it’s not particularly effective at a local level, either.
Over the past two decades most large industrial countries have reduced their corporate income tax rates. Two countries, however, stand out from this trend: France and The United States.
In Abolish the Corporate Income Tax economist Laurence J. Kotlikoff writes “I, like many economists, suspect that our corporate income tax is economically self-defeating — hurting workers, not capitalists, and collecting precious little revenue to boot.”
High taxes in America cause companies to invest overseas in order to escape these high American taxes. For example, Apple takes steps to minimize the income tax it pays, as do most companies. In Calculating Apple’s True U.S. Tax Rate law professor Victor Fleischer explains and estimates what rate Apple pays:
The whole point of the Senate hearing was to show how Apple shifts substantial amounts of its economic profits from the United States to Ireland, where they are taxed at a rate close to zero. Those profits are then sheltered in Ireland and untaxed unless Apple decides to bring the cash back to the United States.
These overseas profits create deferred tax liabilities that will not be taxed until the cash is repatriated. But Apple is reluctant to repatriate its overseas cash; it would rather lobby for another tax holiday and bring the cash back tax-free. An added benefit of a tax holiday for Apple is that it would provide a quick jump in reported earnings when the accounting entry for the deferred tax liability is reversed. …
Thus, Apple’s “true U.S. tax rate,” according to my own calculation, was 8.2 percent.
The corporate income tax rate in the United States is 35 percent. So how does Apple pay such a lower rate to the U.S? It locates operations overseas. It earns profits overseas, and pays taxes there.
Using data gathered by Tax Policy Center at Brookings Institution, I’ve prepared an interactive visualization of corporate income tax rate trends over time. Click here to open the visualization in a new window.
Following, Sedgwick County Commissioner Karl Peterjohn explains something that the county could do to boost economic growth that doesn’t require government intervention, doesn’t need fleets of bureaucrats, reduces cronyism and corruption, increases economic freedom, respects property rights, reduces the power of government to control its subjects, and doesn’t give politicians opportunities to inflate their egos and boost their electoral prospects by being photographed at ground-breaking and ribbon-cutting ceremonies taking credit for spending your money on something you don’t want and which does not work to create jobs and prosperity. For these reasons — especially the latter — this won’t be popular with the political class.
I’ve gathered data from the property tax study that Peterjohn mentions and presented data specific to Wichita at Wichita property taxes compared. A version of this commentary appeared in the Wichtia Eagle.
By Karl Peterjohn
This community as well as our country is still in an economic crisis. Our community needs a boost, or a comparative growth advantage. Creating a one (1) cent city sales tax in Wichita won’t create economic growth.
In fact, raising taxes would put our community on the same path trail blazed by many other communities across our country. That is the path to fiscal perdition: Detroit.
This community can create a special and unique comparative advantage by eliminating one of the major disadvantages that this state in general, and Wichita and Sedgwick County face: high property taxes. The high property tax problem for Wichita was once again identified in a national study by the Lincoln Institute on Land Policy and the Minnesota Center for Fiscal Excellence’s, “50 State Property Tax Comparison Study,” issued in March. In this study it identified the fact that Wichita’s property tax on commercial property was 38% above the national average.
High taxes mean less economic growth. This is particularly true for property taxes.
The unique and special approach this community needs is instead of raising the sales tax to expand city spending, the focus should be on eliminating the county’s property tax. Currently the county imposes a 29.3 mill property tax county wide. This mill levy could be eliminated with about a 1.5 cent increase in the sales tax on a revenue neutral basis.
This type of property tax competitiveness would be beneficial on several levels. First, it would provide a unique selling proposition to help attract business to this county and Wichita.
Eliminating the county property tax would provide benefits to all property taxpayers and not just a select few getting special subsidies contained within the city’s sales tax hike plan. Eliminating the county’s property taxes would reduce most county taxpayers’ property tax bills by roughly 25 percent.
Let’s move away from the subsidy model whose odious examples include the failed Solyndra national subsidy boondoggle.
Instead of dangling subsides, which everyone else in the eco-devo game is doing, let’s try a unique incentive: Sedgwick County just eliminated its property tax! We should try this because it can work.
In 1995 Kansas eliminated its state unemployment tax because the fund had developed a large cash balance. This five year tax moratorium created a unique economic advantage for Kansas business. Within a couple of years, the Kansas economy enjoyed a substantial surge in economic growth. Kansas became a leader enjoying some of the fastest economic growth between 1997 to 1999. Eventually, the unemployment fund’s cash balance shrank. By 1999 the unemployment tax was restored. This unique tax advantage was eliminated.
As a county commissioner I am focused on creating a special advantage for everyone in Sedgwick County. Eliminating the county’s property tax is an idea whose time has come.
The states vary widely in levels of state government and local government employees and payroll costs, calculated on a per-person basis. Kansas ranks high in these costs, nationally and among nearby states.
Two states have annual payroll costs of over $4,000, calculated by taking the total payroll cost and dividing by population. Many states operate on little more than half that. Only ten states have total government employee payroll costs greater than Kansas, on a per-person basis. (This does not include federal government employees.)
When looking at a selection of nearby states, we see that only Nebraska has higher payroll costs for state and local government employees, when calculated on a per-person basis using the state’s population.
This data is from the U.S. Census Bureau for 2012, the most recent year available. Using Tableau Public, I created an interactive visualization. I show the full-time equivalent employees divided by the population for each state. Also, the annual payroll divided by population. (The Census Bureau supplies payroll data for only one month, the month of March, so I multiply by 12 to produce an approximation of annual payroll cost.)
By clicking on column headers or footers (“State,” “Annual payroll per person,” Full-time equivalent employees per person”) you can sort by these values.
Click here to open the visualization in a new window. Data is from United States Census Bureau, Government Employment & Payroll, released March 2014.
