Voice For Liberty

Tag: Government spending

  • Pompeo at Pachyderm on economy, budget

    Last week U. S. Representative Mike Pompeo of Wichita addressed members and guests of the Wichita Pachyderm Club. As might be expected, major topics that members were interested in were the economy and budget issues.

    As an introduction, club vice-president John Todd played a video of a recent meeting of the House Energy and Commerce Subcommittee on Oversight where Pompeo interrogated a Department of Energy official concerning the loan guarantee made on behalf of Solyndra, a company that has ceased operations and filed for bankruptcy. That video may be viewed here.

    In his brief opening remarks, Pompeo described the Solyndra matter as just one example of the problems inherent when government — of either party, he added — tries to allocate capital. He described this problem as pervasive, existing throughout all areas of government.

    Pompeo said that President Obama’s policies are simply wrong and have been a disaster. He said the current Congress has made progress in stopping the worst of what the president wants to do.

    In response to a question, Pompeo said that while the House has been busy passing legislation, the Senate has not. The Senate has not passed a budget for three years.

    I asked a question about federal grants: If local governments refuse federal grants, could legislation already introduced by Pompeo be expanded so that all returned grant funds would be used for deficit reduction, rather than being spent by someone else? This is an important issue, as many officeholders rationalize the acceptance of grants by arguing that someone else will spend the money, and it’s our tax money.

    Pompeo said that anytime money from Kansas is returned to Washington, he will move to make sure it is used for deficit reduction, and not to go someplace else. He said these decisions are difficult ones for local officials.

    Pompeo said that citizens would “fall off their chair” to learn of the huge magnitude of grant monies that flow from Washington. Each grant comes with restrictions on the use of the funds. He mentioned the Economic Development Administration, an agency which has a budget of over $400 million per year in earmarks.

    On federal spending, Pompeo said that we think we’ve done good when we reduce the rate of growth of spending by an agency from eight percent to three percent. While it is possible to gain support for cutting grants and spending on projects in other Congressional districts, Congressmen soon find out that their constituents have benefited from federal spending programs. Support for cutting programs then fades.

    But he said that the idea of giving back grant funds for deficit reduction is an idea that might catch on. It’s an idea that is discussed everywhere, he said. The problem lies in Washington, in that the programs exist.

    On the need for tax reform, Pompeo said there is broad consensus that it is necessary. But it may not happen very quickly, especially under the current president. Tax reform under Obama, he said, would likely result in higher taxes. But when we tackle tax reform, he said everything will be impacted.

    On energy policy, he reiterated his position that government should not be trying to select which form of energy will succeed. He also repeated his opposition to the NAT GAS Act, formally known as H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, which would provide subsidies to use natural gas as a transportation fuel. If natural gas is destined to be a transportation fuel, the industry will be able to figure out how to make it work, he added.

    He declined to name who he favors among the Republican presidential candidates, but he implored the audience to work hard for the eventual nominee, saying we can’t tolerate four more years of the current president.

    On foreign trade, Pompeo said we need more trade, not less. On jobs lost to foreign producers, he said it is the federal government that has created policies that make investment more effective in foreign countries, and we should not fault companies for responding these policies and the realities of the global marketplace. He said that the Kansas fourth congressional district is the third most trade-dependent district in the country, with airplanes and agricultural products being the reason. “We are enormous beneficiaries of foreign trade,” he said.

    Pompeo explained his vote for raising the debt ceiling as realizing the necessity to pay the bills for money we had already spent. Once that was realized, the goal was to get the best deal possible. The two best things that emerged, he said, was the fact that there was no tax increase, and that there will be a vote on a balanced budget amendment in both the House and Senate before the end of the year.

    He mentioned that the budget plan developed by House Budget Committee Chairman Paul Ryan will take 20 years to balance the budget, and will require raising the debt ceiling seven times by then. Ryan also voted to raise the debt ceiling.

    The votes this summer affected discretionary spending, when it is entitlements that are the “true elephant in the room.” Pompeo said we must tackle the problems of Social Security, Medicare, and Medicaid.

    [powerpress]

  • Kansas and Wichita quick takes: Monday October 3, 2011

    Wichita City Council. Tomorrow the Wichita City Council considers these items: First, the council will have a do-over of a public hearing it held on September 21st. The need for this arises from a mistake regarding proper notification. Mistakes like this are not uncommon at Wichita city hall. … Then the council considers revising the development agreement for the Ken-Mar TIF district. More about that at Ken-Mar TIF district, the bailouts. … The council will be asked to approve an agreement with Service Employees International Union (SEIU) Local 513 providing for pay raises of 2.5 percent per year for the next two years. … As always, the agenda packet is available at Wichita city council agendas.

    What if the NFL Played by Teachers’ Rules? Writing in the Wall Street Journal, former NFL quarterback Fran Tarkenton explains the harm of teachers unions (What if the NFL Played by Teachers’ Rules? Imagine a league where players who make it through three seasons could never be cut from the roster.): “Teachers’ salaries have no relation to whether teachers are actually good at their job — excellence isn’t rewarded, and neither is extra effort. Pay is almost solely determined by how many years they’ve been teaching. That’s it. After a teacher earns tenure, which is often essentially automatic, firing him or her becomes almost impossible, no matter how bad the performance might be. And if you criticize the system, you’re demonized for hating teachers and not believing in our nation’s children. … Perhaps no other sector of American society so demonstrates the failure of government spending and interference. We’ve destroyed individual initiative, individual innovation and personal achievement, and marginalized anyone willing to point it out.”

    Do-nothing Hoover? A new briefing paper from the Cato Institute (Herbert Hoover: Father of the New Deal) challenges the commonly-held view of President Herbert Hoover as doing nothing to prevent or fix the Great Depression. “Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation — all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt’s advisers knew that Hoover had started the New Deal. One of them wrote, ‘When we all burst into Washington … we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself.’ Hoover’s big-spending, interventionist policies prolonged the Great Depression, and similar policies today could do similar damage. Dismantling the mythical presentation of Hoover as a ‘do-nothing’ president is crucial if we wish to have a proper understanding of what did and did not work in the Great Depression so that we do not repeat Hoover’s mistakes today.” … Well worth reading.

    Kansas school cash. “A new report this month shows that cash reserves in Kansas’ 286 school districts grew 9 percent during the year ending June 30, even as schools statewide made plans to trim staff and cut programs because of reductions in basic state aid to education. The cash reserve increase is the sixth in as many years.” See Kansas Reporter, “Lawmakers question Kansas schools’ stashes of cash.”

    John Locke to appear in Wichita. This week’s meeting (October 7th) of the Wichita Pachyderm Club presents John Locke — reincarnated through the miracle of modern technology — speaking on “Life, Liberty, and Property.” This promises to be informative and entertaining. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club … Upcoming speakers: On October 14th, Lieutenant Governor Jeff Colyer, M.D. Speaking on “An update on the Brownback Administration’s ‘Roadmap for Kansas’ — Medicaid Reform” … On October 21st, N. Trip Shawver, Attorney/Mediator, on “The magic of mediation, its uses and benefits.” … On October 28th, U.S. Representative Tim Huelskamp, who is in his first term representing the Kansas first district, speaking on “Spending battles in Washington, D.C.”

  • Sedgwick County considers a planning grant

    This week the Sedgwick County Commission considered whether to participate in a HUD Sustainable Communities Regional Planning Grant.

    A letter from Sedgwick County Manager Bill Buchanan to commissioners said that the grant will “consist of multi-jurisdictional planning efforts that integrate housing, land use, economic and workforce development, transportation, and infrastructure investments in a manner that empowers jurisdictions to consider the interdependent challenges of economic prosperity, social equity, energy use and climate change, and public health and environmental impact.”

    The budget of the grant is $2,141,177 to fund the three-year plan development process, with $1,370,000 from federal funds and $771,177 of “leveraged resources” as a local match. These leveraged resources are in the form of in-kind contributions of staff time, plus $60,000 in cash.

    While Sedgwick County will be the grant’s “fiscal agent,” the work will be done by Regional Economic Area Partnership (REAP), an umbrella organization with the mission of, according to its website: “Guide state and national actions that affect economic development in the region and adopt joint actions among member governments that enhance the regional economy.”

    REAP’s members include city and county governments in a nine-county area in south-central Kansas. One of its duties is to administer the Kansas Affordable Airfares Program, the program that pays subsidies to airlines to provide service to the Wichita airport. In 2011, Sedgwick County paid $15,272 in “assessments” for its membership in REAP, while the City of Wichita paid $27,192. Governments pay smaller amounts as part of REAP’s water resources program.

    The counties that are considering participating in this planning grant are Reno, Harvey, Sedgwick, Sumner, and Butler.

    County documents specify the county’s in-kind contribution as $120,707. That consists of portions of the salary and benefits for four existing employees, plus $85,800 in “indirect administration costs.” There is no cash match at this time.

    John Schlegel, Director of Planning for the Wichita-Sedgwick County Metropolitan Area Planning Department, told commissioners that the end product of this grant would be the development of a regional plan for sustainable development. He said that we don’t know what the plan would contain, but that the purpose of the grant program is to get regions to work together on sustainability issues. The target area of the grant is a five-county area around Sedgwick County.

    He said that examples of issues would be economic development, workforce development, fiscal sustainability such as balanced budgets and spending priorities, and working together to create efficiencies in the region like joint purchasing and cost sharing.

    Commissioner Richard Ranzau asked to see a copy of the completed application, but the application is not complete.

    In his remarks, Ranzau described the application process, reading from the application document: “The applicant must show a clear connection between the need that they have identified within the region, the proposed approach to address those conditions, and the outcomes they anticipate the plan will produce.” He said that it appears that REAP will do these within the application, but the commission is being asked to approve and commit to these items without having seen them, which he described as irresponsible. He made a motion that action on the grant be delayed until these things are known.

    Joe Yager, chief executive officer of REAP, said that last year’s grant application is available on the REAP website, and that is the closest thing to a draft application that is available today. This year’s application is a second year of the program. Last year the commission voted not to participate in the grant by a 3 to 2 vote.

    Commissioner Karl Peterjohn wondered if the new planning consortium is a duplication of existing regional authorities. He listed seven different groups, besides REAP, that are involved in planning for the region.

    In further remarks, Peterjohn was concerned that smaller counties will have the same voting representation as Sedgwick County, which is many times larger than the small counties.

    In response to a question from Peterjohn, Yager said that the current application is for category 1 funds only, which are for planning purposes. If REAP is successful in the application, it could apply for category 2 funds, which are for implementation of a plan.

    Answering another question, Yager said that “livability principles,” which applicants must be committed to advance, are providing more transportation choices, promoting equitable and affordable housing, enhancing economic competitiveness, supporting existing communities, coordinating policies and leveraging investments, and valuing communities and neighborhoods. Peterjohn said these principles were not supplied in the information made available to commissioners.

    Peterjohn said these principles sound innocuous on their face, but when details are examined, he said he could not support a “Washington-driven agenda” that could not pass the present Congress. He described this effort as part of an “administrative end-around,” baiting us with a federal grant, that will allow Washington, HUD, and EPA to “drive what we do in our community.”

    The motion on deferring the item failed on a 2 to 3 vote, with Peterjohn and Ranzau voting for it.

    The commission heard from three citizens. In his remarks, John Todd referenced a slide titled “Common Concerns” from a presentation given by REAP. Todd listed these concerns, which include: “A method of Social Engineering to restrict residence in the suburbs and rural areas and force Americans into city centers; a blueprint for the transformation of our society into total Federal control; will enforce Federal Sustainable Development zoning and control of local communities; will create a massive new ‘development’ bureaucracy; will drive up the cost of energy to heat and cool your home; will drive up the cost of gasoline as a way to get you out of your car; and will force you to spend thousands of dollars on your home in order to comply.”

    Susan Estes of Americans for Prosperity challenged the attitude of some commissioners, particularly Jim Skelton, which is that approving the planning grant does not commit us to implementing the plan. She told the commissioners “If you know you don’t like the federal government coming in and planning for you, say so now. Let’s get it over with and be upfront and honest to those involved,” referring to the other cities and counties that may participate in the grant and planning process.

    She characterized the language that appears in the grant materials as meaning “more control and less liberty.”

    In his remarks, Ranzau asked Schlegel what problem we will solve by participating in the grant. Schlegel answered that the purpose of the grant is to “build the greater regional capacity for regions to better compete in what is really becoming a global marketplace.” This is the end product, he said.

    Ranzau said that we don’t need more planning, that we have more than enough planning at the present time. This grant, he said, would create another consortium that is unaccountable to the people, as no one is elected to them. The organizations receive tax dollars, and while some elected officials serve on these bodies, it is not the same as being directly accountable to the people. The fact that the grant requires a new consortium to be formed is evidence that the agenda is to circumvent the will of the people, he said.

    Ranzau also said that Schlegel told him that “acceptance of this grant will take REAP to another level, because right now they are struggling, and this will help plot the course for REAP.” He said that REAP, which is housed at the Hugo Wall School of Public Affairs at Wichita State University, needs to expand its role and authority in order to give it “something to do.” He said the grant will promote the “progressive agenda” of the Obama administration in this way.

    Later Commission Chair Dave Unruh disputed the contention regarding the workload of REAP.

    Ranzau also questioned whether we want the federal government to be a “source of solutions” for our local communities. He also questioned one of the stated goals of the program, which is to reduce cost to taxpayers. It’s a new program, he said, and would not reduce the cost to taxpayers.

    He further questioned the ability of the grant program to help teach local communities to be fiscally responsible. With federal spending out of control, he said the federal government is not in a position to help in this regard.

    He further said that talking in generalities sounds benign, and that he wanted to know what he is committing the county to this year. Repeating the concerns of Peterjohn, Ranzau said that accepting this grant would be accepting the policies of the Obama Administration as our own. He said that in the 2010 elections the people repudiated the agenda of the president, and this grant program is an example of the type of programs people have said they don’t want. It is concern with the agenda behind this grant program that is his greatest concern, he later explained.

    Continuing, Ranzau questioned the ability of the federal government to create conditions for sustainable growth: “You’ve got to be kidding me. Look at the vision they now have for growth in this county. It’s a disaster. And now they want to take the same policies that have created and made our current economic situation worse — they want to bring them to our local communities by these sorts of grants.”

    Both Ranzau and Peterjohn questioned the ability of this grant to produce affordable housing, citing the government’s role in the ongoing housing crisis.

    Ranzau, who has voted against many grants, added that this is the “the worst and most troublesome grant” he’s seen in his time in office, adding that the grant is clearly an agenda created by President Obama. He said there are politicians who ran for office on platforms of limited government and fiscal responsibility, and this grant is an opportunity for them to “act on those values.”

    In further discussion, it was brought out that each region makes its own definition of what sustainability means to it, but Yager provided this definition of sustainability: “Meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

    In his remarks, Unruh said that Sedgwick County has been involved in sustainability thinking and planning for at least two years. He said this is a strategy that helps the county plan for the future. He asked manager Buchanan if the county had a definition of sustainability. Buchanan replied the County has taken a similar approach to the International City/County Management Association, which he said involves four factors: Economic stability — sufficient jobs and economic development; ensuring that local governments are fiscally healthy so that they can provide quality services; social equity, which he said ensures that the delivery of services in communities is equitable; and the environment, which he said was not about global warming, but rather making sure we’re not wasting natural resources.

    Unruh said that we are not opposed to these principles, that these are reasonable activities for elected officials. He added that regionalism is the “whole measuring stick.” We must consider communities close to us when planning, he added. It is reasonable to get these people together on a voluntary and non-binding basis. While he said he didn’t like excess spending at the federal level, it is his money that the federal government is spending, and we should take advantage of this program, adding that we need to plan. If the plans are not acceptable, he said we could simply not adopt them. He disagreed with the contention of Ranzau and Peterjohn that this process causes the county to yield to any master plan developed by the federal government. He again mentioned that we are using our money to develop this plan, and asked our federal officeholders to stop spending money in this way.

    He added that he believes in limited government and fiscal responsibility, and that accessing these resources does not make him “hypocritical, insincere, or untruthful.”

    In rebuttal to Buchanan, Ranzau said that the grant funding document says that one of the goals is to reduce greenhouse gas emissions, which are believed by many to be a cause of global warming or climate change. The document does mention helping regions “consider the interdependent challenges of … energy use and climate change.” This language was transmitted to commissioners in a letter from Buchanan. Ranzau again said it is important not to downplay the agenda that is associated with the grant funds. In earlier remarks, Ranzau had described how applications would be scored or ranked, and that winning applications would need to conform to the goals of HUD.

    The commission voted to approve the grant, with Unruh, Norton, and Skelton voting in favor, and Ranzau and Peterjohn voting against.

    Commentary

    Discussions such as these, where the role of government and the nature of the proper relationship between the federal government and states, counties, and cities, are a regular feature at Sedgwick County Commission meetings, due to the concerns of Peterjohn and Ranzau. These discussion do not often take place at the Wichita City Council, unless initiated by citizens whose testify on matters.

    The remarks of chairman Unruh illustrated one of the important conundrums of our day. Many are opposed to the level of federal (and other government) spending. Polls indicate that more and more people are concerned about this issue. Yet, it is difficult to stop the spending.

    In particular, the grant process is thorny. The principled stand of Ranzau, and sometimes Peterjohn, is that we should simply refuse to participate in the spending — both federal and local — that grants imply, and in the process also accepting the strings attached to them. Others, Unruh and Skelton in particular, have what they believe is a pragmatic view, arguing that it is our money that paid for these grant programs, and so by participating in grants we are getting back some of the tax funds we send to Washington. This reasoning allows Unruh to profess belief in limited government and fiscal responsibility while at the same time participating in this spending.

    But there is no doubt that accepting federal money such as these grant funds means buying in to at least parts of the progressive Obama agenda, something that I think conservatives like Unruh and Skelton would not do on a stand-alone basis. This is an example of the power and temptation of what appears to be “free” federal money, and Ranzau and Peterjohn are correctly concerned and appropriately wary.

    It is even more troublesome to realize that this power over us is exercised using our own money, as Skelton and Unruh rightly recognize, but nonetheless go along.

    There may be a legislative solution someday. First, we can elect federal officials who will stop these programs. But the temptation to bring money back to the home district, either through grant programs or old-fashioned pork barrel spending, is overwhelming. Just this week U.S. Senator Jerry Moran, who voted against raising the debt ceiling in August, pledged to find more federal funds to pay for Wichita’s aquifer storage and recovery program.

    An example of legislation that may work is a bill recently introduced by U. S. Representative Mike Pompeo of Wichita and others. The bill is H. R. 2961: To amend the Patient Protection and Affordable Care Act to have Early Innovator grant funds returned by States apply towards deficit reduction. The purpose of the bill is to direct the early innovator grant funds that Kansas Governor Sam Brownback returned towards deficit reduction, rather than being spent somewhere else.

    The fiscal conservatives who vote to accept federal grant funds should be aware of research that indicates that these grants cause future tax increases. In my reporting on such a study I wrote: This is important because, in their words, “Federal grants often result in states creating new programs and hiring new employees, and when the federal funding for that specific purpose is discontinued, these new state programs must either be discontinued or financed through increases in state own source taxes.” … The authors caution: “Far from always being an unintended consequence, some federal grants are made with the intention that states will pick up funding the program in the future.”

    The conclusion to this research paper (Do Intergovernmental Grants Create Ratchets in State and Local Taxes?) states:

    Our results clearly demonstrate that grant funding to state and local governments results in higher own source revenue and taxes in the future to support the programs initiated with the federal grant monies. … Most importantly, our results suggest that the recent large increase in federal grants to state and local governments that has occurred as part of the American Recovery and Reinvestment Act (ARRA) will have significant future tax implications at the state and local level as these governments raise revenue to continue these newly funded programs into the future. Federal grants to state and local governments have risen from $461 billion in 2008 to $654 billion in 2010. Based on our estimates, future state taxes will rise by between 33 and 42 cents for every dollar in federal grants states received today, while local revenues will rise by between 23 and 46 cents for every dollar in federal (or state) grants received today. Using our estimates, this increase of $200 billion in federal grants will eventually result in roughly $80 billion in future state and local tax and own source revenue increases. This suggests the true cost of fiscal stimulus is underestimated when the costs of future state and local tax increases are overlooked.

    The situation in which we find ourselves was accurately described by economist Walter E. Williams in his recent visit to Wichita. As I reported: “The essence of our relationship with government is coercion,” Williams told the audience. This, he said, represents our major problem as a nation today: We’ve come to accept the idea of government taking from one to give to another. But the blame, Williams said, does not belong with politicians — “at least not very much.” Instead, he said that the blame lies with us, the people who elect them to office in order to get things for us. A candidate who said he would do only the things that the Constitution authorizes would not have much of a chance at being elected.

    The further problem is that if Kansans don’t elect officials who will bring federal dollars to Kansas, it doesn’t mean that Kansans will pay lower federal taxes. The money, taken from Kansans, will go to other states, leading to this conundrum: “That is, once legalized theft begins, it pays for everybody to participate.”

    We face a moral dilemma, then. Williams listed several great empires that declined for doing precisely what we’re doing: “Bread and circuses,” or big government spending.

  • Pompeo announces reelection bid

    In what he described as an informal setting before a small group of supporters on Tuesday, U. S. Representative Mike Pompeo announced his bid for reelection to represent the fourth district of Kansas. Kansas Governor Sam Brownback appeared beside Pompeo and offered his endorsement.

    In his endorsement, Brownback praised Pompeo’s work on sensible federal regulations and controlling federal spending. Brownback said the upcoming election is very important, with the budget and the economy being the most important issues.

    In his remarks, Pompeo said that top-down direction of the economy from Washington hasn’t worked, citing high unemployment numbers specifically. He said that the good ideas he’s seen have come from governors. The requirements of states to have balanced budgets — a constraint not in effect at the federal level — is a factor, he said.

    Pompeo said he’s been doing the things that he promised to do when he campaigned for office — working for small government and controlling regulation, mentioning the Environmental Protection Agency specifically.

    Pompeo has been critical of President Barack Obama for his criticism of corporate jet owners not paying their fair share of taxes. Asked if Obama is getting the message, Pompeo said no, the president’s not getting the message. “I don’t think this president understands that just his rhetoric alone is doing tremendous damage to the aviation industry and its suppliers.”

    On the tone in Washington, Pompeo said the dialogue in Washington has changed. In the past, he said the thought was: “Can we take this agency, and instead of growing it by eight percent, grow it by three. That talk is gone. It is now about does this agency have any usefulness? Is there a functionality that remains? Should we keep it, keep it at a smaller level, can we make it more efficient, or is it something that we ought to get rid of? We have truly changed the discourse. We are now talking, for the first time in a very long time, about the proper role of our federal government, and what Americans can afford.”

    He said this change in attitude was not just his own, but that the large incoming class of new conservative representatives elected last year has shifted the conversation in this way.

    Pompeo said it it is important for voters to elect people who are willing to be specific in their plans for shrinking government. Too often candidates run on a platform of smaller government, but won’t specify the methods they will use to cut government, he said, adding that changes in the role of the federal government will affect us all.

    On Governor Brownback returning the grant for the formation of a Kansas health insurance exchange, Pompeo said that he voted to overturn Obamacare in its entirety, so he’s not in favor of spending money to implement it. He also said he’d like to see the returned money used for deficit reduction, and that he has introduced legislation that would require this.

    Pompeo’s announcement was not unexpected — photos of organizational meetings for 2012 campaign volunteers have been spotted on Facebook and he’s been successful in fundraising — so the real news will be the announcement (or rumors) of opponents. The filing deadline is in June, with the primary election in August followed by the general election in November.

  • Research on state taxes: Kansas should cut

    As Kansans prepare to debate whether to reduce our state’s income taxes, there will be those, such as Rhonda Holman of the Wichita Eagle, who will urge caution before proceeding with reducing taxes. Others will claim that government taxation and spending is what makes the state’s economy grow. Two research papers illustrate the need to reduce taxes, finding that high taxes are associated with reduced income and low economic growth. Research such as this rebuts the presumption of government spending advocates that reducing taxes will kill jobs in Kansas.

    One paper is The Robust Relationship between Taxes and U.S. State Income Growth by W. Robert Reed, published in the National Tax Journal in March 2008. The abstract to this paper states:

    I estimate the relationship between taxes and income growth using data from 1970 – 1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five-year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state-specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship. (emphasis added)

    In his introduction, Reed writes that previous studies had found: “To the extent a consensus exists, it is that taxes used to fund transfer payments have small, negative effects on economic activity.” His paper found a stronger relationship.

    Reed issues a caution on the use of his conclusions: “It needs to be emphasized that my claim for robustness should be understood as applying only within the context of U.S. state income growth. It should not be interpreted as being more widely applicable to other contexts, such as employment growth, manufacturing activity, plant locations, etc., or to the relationship between taxes and income growth outside the U.S.”

    This illustrates one of the ways we focus on the wrong measure of growth. Politicians focus on jobs. But to business, jobs are a cost. One of the better goals to seek, as Art Hall specifies in his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, is income growth, along with population density and population migration, productivity growth, capital investment, gross business starts and expansions, and customer service and throughput measures of state economic development agencies. Hall writes: “If Kansas performs well in the measures provided, it will also perform well in terms of job count.”

    Another example of research finding a negative impact of taxation is State Taxes and Economic Growth by Barry W. Poulson and Jules Gordon Kaplan, published in the Winter 2008 Cato Journal. In the introduction to the paper, the authors write: “The analysis reveals a significant negative impact of higher marginal tax rates on economic growth. The analysis underscores the importance of controlling for regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states.” (emphasis added)

    In its conclusion, the paper states:

    The analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis also shows that greater regressivity had a positive impact on economic growth. States that held the rate of growth in revenue below the rate of growth in income achieved higher rates of economic growth.

    The analysis underscores the negative impact of income taxes on economic growth in the states. Most states introduced an income tax and came to rely on the income tax as the primary source of revenue. 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. (emphasis added)

  • Kansas and Wichita quick takes: Friday September 23, 2011

    Downtown Wichita site launched. As part of an effort to provide information about the Douglas Place project, a proposed renovation of a downtown Wichita office building into a hotel, a group of concerned citizens has created a website. The site is named Our Downtown Wichita, and it’s located at dtwichita.com.

    Keystone pipeline hearing, bus trip. On Monday the United States Department of State will hold hearings in Topeka concerning a proposed petroleum pipeline. Says Americans for Prosperity: “Our great country has an opportunity to complete a project that would provide billions of dollars in economic activity, create thousands of high-paying manufacturing and construction jobs, and at the same time take a significant step toward providing for greater U.S. energy security and independence. … Because the project originates in Canada and would provide a pipeline extension to the Gulf Coast, through Kansas, the project requires State Department approval. TransCanada owns the Keystone pipeline, which currently runs from Canada to Oklahoma. … It has finally received tentative approval from the Environmental Protection Agency and now sits before the State Department. The State Department is holding a hearing in Topeka on Monday, September 26th from noon to 3:30pm and 4:00pm to 8:00pm at the Kansas ExpoCentre, located at the corner of Topeka Blvd. and 17th Street South.” … To help citizens attend this unusual hearing, AFP has organized a free bus trip from Wichita. The bus will load from 7:30 am to 8:00 am at the Lawrence Dumont Stadium Parking Lot. It will return to Wichita around 7:00 pm. Lunch is provided. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

    Health care reform. “Lt. Governor Jeff Colyer spent nearly two hours with the Legislature’s Joint Committee on Health Policy Oversight Monday explaining the imperative and complexity of solving problems with government health care he likened to a Rubik’s Cube. The challenge of the 1974 puzzle and the current Medicaid and health care debate is finding a way to align multiple facets of each side without upsetting another side.” More from Kansas Watchdog at Public Health Care System Reform a Governmental Rubik’s Cube .

    Pompeo defends against Obama’s attack on aviation. “Rep. Mike Pompeo (KS-04) spoke on the floor of the U.S. House of Representatives in defense of the general aviation community, which is so important to job sustainability and job growth in South Central Kansas.” Video from C-Span is at Pompeo House speech on aviation.

    Wichita corporate welfare opposed. This week the Wichita City Council granted another forgivable loan. Thank you to John Todd for appearing and offering testimony opposing the loan. In his remarks, Todd said: “Over the past few months, I have watched a majority of this council fall into the trap of trying to buy customer business with free-money economic development schemes out of the public treasury. This program might work if the public treasury held unlimited funds and the public gifts were offered to every business owner on an equal basis. … In 1887 President Grover Cleveland vetoed a bill that would have given $10,000 for seed to farmers in drought-stricken Texas saying something to the effect that he could not be a party to taking money out of the treasury to benefit one group of people at the expense of another group, no matter how worthy the cause, stating that it is the responsibility of citizens to support the government and not the responsibility of government to support the people. Cleveland further issued a challenge for private charitable giving for the farmers. A number of newspapers adopted the relief campaign and in the end Americans voluntarily donated not $10,000 but $100,000 to the afflicted farmers. I would suggest a similar publicly driven voluntary relief campaign in lieu of the forgivable loan you are considering today to see if there is public sentiment to charitably fund this local economic development project.” … I’ve been told what the target company really needs is relief from a regulatory trap.

    The trap of job creation. Today on C-SPAN’s Washington Journal program, Rhone Resch of the Solar Energy Industries Association appeared. He promoted solar energy as great for creating jobs, telling viewers that solar energy creates more jobs per megawatt than any other form of power generation. This illustrates the trap that politicians and those who benefit from government subsidy usually fall into: that more jobs is a good thing. Wouldn’t it be much better if we could generate all the electricity we wanted using fewer jobs? Then these surplus employees could be put to work on something else — or simply enjoy leisure. … A few years ago an editorial written by a labor union official appeared in Kansas, praising the job-creating power of wind energy. In response, I wrote “After all, if we view our energy policy as a jobs creation program, why not build wind turbines and haul them to western Kansas without the use of machinery? Think of the jobs that would create.” … In a video produced by the Cato Institute, Caleb Brown explains the problems with relying on government and its spending for jobs: “Politicians and entrepreneurs face different problems. Entrepreneurs care about creating wealth, both for their customers and themselves. This means getting more output with fewer inputs. Politicians often care more about maximizing inputs like labor, even when that job creation could make all of us materially worse off. It would be easy for the president and Congress to create new jobs: They could simply ban the use of computers, farm machinery, or any other labor-saving device. But that would clearly raise prices … It’s hard to see how that improves anyone’s standard of living.”

  • Walter Williams: Government must stick to its limited and legitimate role

    Walter E.
    Williams

    At two events in Wichita today, economist Walter E. Williams spoke on the legitimate role of government in a free society, touching on the role of government as defined in the Constitution, the benefits of capitalism and private property, and the recent attacks on individual freedom and limited government.

    The evening lecture was held in the Mary Jane Teall Theater at Century II, and all but a handful of its 652 seats were occupied. It was presented by the Bill of Rights Institute and underwritten by the Fred and Mary Koch Foundation.

    Williams said that one of the justifications for the growth of government — far beyond the visions of the founders of America — is to promote fairness and justice. While these are worthy goals, Williams said we must ask what is the meaning of fairness and justice, referring to the legitimate role of government in a free society.

    In the Constitution, Williams said the founders specified the role of the federal government in Article 1 Section 8. This section holds a list that enumerates what Congress is authorized to do. If something is not on the list, Williams said Congress is not authorized to do it.

    The Article 8 powers that Williams mentioned are to lay and collect taxes, duties, imposts, and excises; to pay the debts and provide for the common defense and general welfare of the United States; to borrow money on the credit of the United States; to coin money; to establish post-offices and post-roads; and to raise and support armies. It is regarding these powers, plus a few others, that Congress has taxing and spending authority. “Nowhere in the United States Constitution to we find authority for Congress to tax and spend for up to two-thirds to three-quarters of what Congress taxes and spends for today.”

    Farm subsidies, handouts to banks, and food stamps are examples Williams gave of programs that are not authorized by the Constitution. “I think that we can safely say that we’ve made a significant departure from the constitutional principles of individual freedom and limited government that made us a rich nation in the first place.”

    The institutions of private property and free enterprise are the embodiment of these principles, Williams said. But there have been many successful attacks on private property and free enterprise. Thomas Jefferson, Williams said, anticipated this when he wrote “The natural progress of things is for government to gain ground, and for liberty to yield.”

    Taxation and spending are the ways government has gained ground. Taxes represent government claims on private property.

    But an even better measure of what government has done is to look at spending. From 1787 to 1920, federal spending was only three percent of gross domestic product, except during wartime. Today, that figure is approaching 30 percent, Williams said: “The significance is that as time goes by, you and I own less and less of our most valuable property, namely ourselves and the fruits of our labor.”

    In the realm of economics, Williams said that the founders thought that free markets and capitalism was the most effective social organization for promoting freedom, with capitalism defined as a system where people are free to pursue their own objectives as long as they do not violate the property rights of others. An often-trivialized benefit of capitalism and voluntary exchange is that it minimizes the capacity of one person to coerce another, he told the audience. This applies to the government, too.

    But for the last half-century, Williams said that free enterprise has been under unrelenting attack by the American people. Whether they realize it or not, people have demonstrated a “deep and abiding contempt” for private property rights and individual liberty.

    Williams said that ironically, capitalism is threatened not because of its failure, but because of its success. Capitalism has eliminated things that plagued mankind since the beginning of time — he mentioned disease, gross hunger, and poverty — and been so successful that “all other human wants appear to us to be at once inexcusable and unbearable.”

    So now, in the name of ideals other than freedom and liberty, we pursue things like equality of income, race and sex balance, affordable housing, and medical care. “As a result of widespread control by our government in order to achieve these higher objectives, we are increasingly being subordinated to the point where personal liberty in our country is treated like dirt.”

    This ultimately leads to tyranny and totalitarianism, he said. To those who might object to this strong and blunt conclusion, Williams asked this question: “Which way are we headed, tiny steps at a time: towards more liberty, or towards more government control of our lives?” He said that the answer, unambiguously, is the latter.

    It is the tiny steps that concern Williams, as they ultimately lead to their destination. Quoting Hume, he said “It is seldom that liberty of any kind is lost all at once.” Instead, Williams said it is always lost bit by bit. If anyone wanted to take away all our liberties all at once, we would rebel. But not so when liberties are taken bit by bit, which is what is currently happening.

    It is people’s desire for government to do good — helping the disadvantaged, elderly, failing businesses, college students — that leads to the attack on private property and economic freedom. But Williams explained that government has no resources of its own, meaning that for government to give one person money it must first — “through intimidation, threats, and coercion” — confiscate it from someone else.

    Williams told the audience that if a private person used coercion to take money from someone and give it to another person, that would universally be considered theft and a crime. It doesn’t matter how needy or deserving the recipient, it would still be theft. But Williams asked if there is any conceptual difference between that act and when agents of the government do the same. Williams says no, except that in the second act, where Congress takes the money, the theft is legal.

    But mere legality doesn’t not make something moral. Slavery was legal in America for many years, but not moral. The purges of Stalin and Mao were legal under the laws of those countries. So legality does not equate to morality, Williams explained, and he said he cannot find a moral case for taking what belongs to one person and giving it to another to whom it does not belong.

    Charity is “praiseworthy and laudable” when it is voluntary, but it is worthy of condemnation when government reaches into others’ pockets for charity. Those who accept the forced takings are guilty, too, he explained.

    “The essence of our relationship with government is coercion,” Williams told the audience. This, he said, represents our major problem as a nation today: We’ve come to accept the idea of government taking from one to give to another. But the blame, Williams said, does not belong with politicians — “at least not very much.” Instead, he said that the blame lies with us, the people who elect them to office in order to get things for us. A candidate who said he would do only the things that the Constitution authorizes would not have much of a chance at being elected.

    The further problem is that if Kansans don’t elect officials who will bring federal dollars to Kansas, it doesn’t mean that Kansans will pay lower federal taxes. The money, taken from Kansans, will go to other states, leading to this conundrum: “That is, once legalized theft begins, it pays for everybody to participate.”

    We face a moral dilemma, then. Williams listed several great empires that declined for doing precisely what we’re doing: “Bread and circuses,” or big government spending.

    But there is a note — only one — of optimism, Williams believes. The first two years of the Obama administration, along with the Democratic Senate and House of Representatives, has been so brazen in their activities in “running roughshod over our liberties” that people are starting to argue and debate the Constitution. State attorneys general are bringing suits against the federal government over Obama’s health care plan. State legislatures are passing tenth amendment resolutions. The tea party and other grassroots movements give him optimism, too.

    We must also ask ourselves if we are willing to give up the benefits we get from government, he said. But most people want cuts in spending on other people, not ourselves, as “ours is critical and vital to the national interest.” With all of us feeling this way, Williams said the country is in danger.

    Young people have the greatest stake in the struggle for limited government and economic freedom, as the older generations have benefited from a relatively free country and the economic mobility that accompanied it. He said he’s afraid we’re losing that: “I’m hoping that future generations will not curse us for bequeathing to them a nation far less robust, far less free, than the nation that our parents and our ancestors bequeathed us.”

    In answering a question from the audience, Williams said he would be afraid of a constitutional convention to be held today, as some are advocating. We wouldn’t be sending people like John Adams. Instead, he said we’d be sending people like Barney Frank and others who have “deep contempt” for personal freedom.

    In response to a question on regulation, Williams said that regulations like health care and uncertainty over taxation cause businesses to be afraid to commit money to long term investments. Uncertainty “collapses the time horizon” causing firms to look for investments that pay off in the short term rather than the long term. This contributes to unemployment, he said.

    Williams also talked about the economic history of America. From its beginning to 1930, there were recessions and depressions, but there were not calls for the federal government to intervene and stimulate the economy. It wasn’t until the Hoover administration and the New Deal that the federal government intervened in the economy in order to “fix” the economy. Williams said that what should have been a “sharp two or three-year downtown” was turned in to the Great Depression — which was not over until after World War II — by government intervention. The measures being taken today are similarly postponing the recovery, he said. He added that most serious economic downturns are caused by government. It’s also futile for the government to spend the country out of a recession, which he likened to taking water from the deep end of a pool to the shallow end in order to raise the level of the shallow end. Government taking money from one person, giving it to another, and expecting the economy to rise is similarly futile.

    A question about mainstream media and their representation of the issues of today brought this response: “You have to make the assumption, I believe implied in your question, that those people are ignorant, and if only they knew better, they would change their behavior. Human ignorance is somewhat optimistic, because ignorance is curable through education. I’m very sure that many of these people want government control. The elite have always wanted government control, and the media was very responsible in getting President Obama elected.”

    In an interview, I asked what President Obama should say in his jobs speech tonight. Williams recommended the president should reduce regulation and lower taxes, especially capital gains and corporate income taxes. The spending programs of the past will not help. But Obama’s constituency will not favor this approach. The spending on roads and bridges benefits labor unions, for example.

    On those who accept who accept and benefit from government spending, Williams said that “one of the tragedies of our nation” is that the growth of government has turned otherwise decent people into thieves, because they participate in the taking of what belongs to someone else. But because of the pervasiveness of government, sometimes this is unavoidable.

    I asked do we need better politicians — ones who will work to limit government — or do we need different rules such as a balanced budget amendment or spending constraints? Williams said that the bulk of the blame lies with the people, as politicians are simply doing what voters ask them to do. “The struggle is to try to convince our fellow Americans on the moral superiority of liberty and its main ingredient, limited government.” Politicians will then follow, he added.

    I asked if we’ve passed some sort of tipping point, where people look first to government rather than voluntary exchange through markets. He said perhaps so, and mentioned another problem: Close to 50 percent of Americans pay no federal income tax. These people become natural constituents for big-spending politicians. As they pay no taxes — “no stake in the game” — they don’t care if taxes are raised or lowered.

    On the issue of the subsidy being poured into downtown Wichita, Williams said the issue is an example of the “seen and unseen” problem identified by Frederic Bastiat. We easily see the things that government taxation and intervention builds, such as a convention center. But what is not easily seen is what people would have done with the money that was taken from them through taxation. While the money taken from each person may be small, it adds up.

    On government funding for arts, an issue in Kansas at this time, Williams said that it ought to be an insult to artists that their work has to be funded through government forcing people to pay, as opposed to voluntary payments.

    Born in Philadelphia, Pennsylvania, Dr. Walter E. Williams holds a B.A. in economics from California State University, Los Angeles, and M.A. and Ph.D. degrees in economics from UCLA. He has served on the faculty of George Mason University in Fairfax, Virginia, as John M. Olin Distinguished Professor of Economics, since 1980. His website is Walter Williams Home Page.

  • Obama: Not enough spending on schools

    Andrew J. Coulson notes that President Barack Obama says we’re not spending enough on schools and presents evidence of just how much we are spending on schools. His article is Obama Jobs Plan to Push More K-12 Bloat?

    Take a look at the chart that Coulson prepared, showing the growth rate of public school employment compared to the growth in students.

    Changes in public school employment and enrollment.Changes in public school employment and enrollment.

    Considering that personnel costs are the largest portion of school spending, it’s pretty hard to make the case that we haven’t been spending on schools. Coulson’s article also compares the trend in student achievement compared to spending.

    Looking at the numbers a different way, I computed the ratio of staff to students, with the following result: There are many more teachers and staff for each student.

    K-12 Education Staff Per Student Ratio

  • In Wichita, historic preservation tax credits an inefficient form of developer welfare

    As part of the subsidy plan for Douglas Place, a downtown Wichita hotel being proposed, developers plan to make extensive use of historic preservation tax credits to fund their project. This form of developer welfare, besides being inefficient, is largely hidden from public view.

    According to Allen Bell, Wichita’s Director of Urban Development, the project’s team, which is lead by David Burk, plans to tap $3.8 million in state tax credits and $3.5 million in federal tax credits, for a total of $7.3 million in this form of subsidy.

    Tax credits may be a mystery to many, but there is no doubt as to their harmful effect on state and federal budgets. When using tax credits, the government, conceptually, issues a slip of paper that says something like “The holder of this document may submit it instead of $500,000 when making a tax payment.”

    This is a direct cost to the government, according to both reason and the Kansas Division of Legislative Post Audit. Last year, after conducting an audit of Kansas tax credit programs, auditors explained: “Tax credits, which the government offers to try to induce certain actions by the taxpayer, reduce income tax revenues because they are subtracted directly from the amount of taxes due.” (emphasis added)

    The audit found that in 2001, when the Kansas historic preservation tax credit program was started, the anticipated cost to the state was about $1 million per year. By 2007, the actual cost to the state was reported at almost $8.5 million.

    Further, the audit found what many already knew: tax credit aren’t an efficient way of transferring subsidy to developers. Most of the time, the developers sell the credits to someone else at a discount, as the audit explains: “The Historic Preservation Tax Credit isn’t cost-effective. That credit works differently than the other three because the amount of money a historic preservation project receives from the credit is dependent upon the amount of money it’s sold for. Our review showed that, on average, when Historic Preservation Credits were transferred to generate money for a project, they only generated 85 cents for the project for every dollar of potential tax revenue the State gave up.”

    The audit concluded this is not efficient: “That’s not a cost-effective means of generating funds for these projects because 15% of the money gets pulled out and never actually goes for preservation activities.”

    (Besides this efficiency problem the audit also found that the Kansas Department of Revenue was not accurately tracking the tax credits after their issue. See Kansas historic preservation tax credits audit reveals inefficiency, data problems.)

    In the case of the Douglas Place project in Wichita, the inefficiencies that Legislative Post Audit found are present. According to Bell, the developers plan to sell the tax credits for 87 cents on the dollar. So they’re doing a bit better than the average project.

    Still, Kansas taxpayers will give up $3.8 million in tax revenue in order to give Burk and his team about $3.3 million cash. Federal taxpayers will give up $3.5 million in order to give Burk $3 million.

    And it is a gift. It’s not an exemption from paying property or sales taxes, or letting a hotel keep 75 percent of the guest tax it generates, or tax increment financing for a garage, or the state charging customers extra sales tax that the hotel keeps, or sweetheart lease deals. Burk and his partners are getting all that, too.

    The tax credits stand out as a direct transfer of money from taxpayers to private parties. But being accomplished through the tax system shrouds the process in mystery. And, no direct action is required by any legislative body. The tax credit program is in place. The developer applies, and if accepted, the credits are granted. No one — at least no one elected by and accountable to voters — votes to grant the specific credits.

    The historic preservation tax credit program, in a short time, has grown from a program designed to help spruce up a few old buildings here and there to a developer welfare program on steroids. The Drury Plaza Hotel Broadview in downtown Wichita benefited from this program too, costing Kansas taxpayers over $4 million to pay for its tax credits, and that’s on top of other forms of subsidy.