October 20, 2020 by Dan Mitchell
Since Americans are not as sensible as the Swiss, I’m generally not a fan of direct democracy in the United States. Simply stated, I don’t like untrammeled majoritarianism, which occurs when 51 percent of voters can pillage 49 percent of voters. But I’ll admit that the level of my angst fluctuates depending on whether voters make wise choices. With that in mind, here are the six ballot initiatives that I’ll be closely watching on election day.
1. Proposed Amendment to the 1970 Illinois Constitution
The most important ballot initiative is the proposal by the hypocritical governor of Illinois to undo the state’s flat tax. I’ve already dedicated an entire column to this issue, so I’ll simply add some additional analysis from a Wall Street Journal editorial.
Illinois voters will decide next month whether to enact a progressive income tax, paving the way for a new top rate of 7.99%. …The Prairie State currently ranks 36th worst in overall tax burden because its flat individual rate of 4.95% offsets very high property and other taxes. …its proposed slate of new individual income tax rates, along with a corporate tax hike tied to the same ballot measure, would drop the state’s rank overall to 47th. That would move Illinois into Dante’s ninth ring of tax hell, ahead of only New Jersey, New York and California. …Iowa and Missouri have…slashed their top rates in recent years rather than jacking them up as Illinois Democrats intend. Kentucky lawmakers in 2018 replaced their progressive income tax with a flat rate of 5%. Heading in the opposite direction of neighboring states could push many of Illinois’s overburdened families and businesses across the border.
2. Arizona Proposition 208
There’s a class-warfare proposal to dramatically increase the top income tax rate in Arizona. Once again, the editors at the Wall Street Journal have spot-on analysis.
Arizona has long been a refuge for Americans seeking relief from high-tax California and states in the Northeast. But a tax referendum on the ballot Nov. 3 would whack job creators and make people rethink retirement in Scottsdale or a business move to Tucson. …The current top rate of 4.5% would rise to 8%, which would move the state to the 10th highest income-tax rate in the country, from 11th lowest today… Arizona would move closer to California (13.3% top rate) than Nevada (no income tax). …about half of the targets would be small businesses that pay taxes at the individual rate… They employ a huge chunk of Arizona workers, and the added tax costs would trickle down in lower pay and fewer jobs. …One definition of fiscal insanity would be to raise state taxes when the Biden Democrats may soon raise federal tax rates to heights not seen since the 1970s.
3. California Proposition 16
In California, politicians want the state to have to power to engage in racial and sexual discrimination. In pursuit of that goal, they are asking voters to repeal Proposition 209, adopted by voters in 1996. Gail Heriot, a law professor who also serves on the U.S. Civil Rights Commission, explains why this is a bad idea in a column for Real Clear Politics.
California’s deep-blue legislature has been itching to repeal Proposition 209 for years. …Proposition 209 amended California’s constitution to prohibit the state from engaging in preferential treatment based on race or sex. It was a rebuke to the identity politics obsessions of state and local governments. …By approving Proposition 209 by a wide margin, they aimed to end the race and sex spoils system. …The best reason for retaining Proposition 209 is…that the initiative has been good for Californians — of all races…the number of under-represented minority students in academic jeopardy collapsed. …in the years immediately following Proposition 209, it had three effects on under-represented minorities in the UC system. It increased (1) graduation rates, (2) GPAs, and (3) the number of science or engineering majors.
4. California Proposition 15
Since we just discussed one bad California proposition, we may as well mention another.There’s also a scheme to (again) raise taxes. The Wall Street Journal opines on this misguided initiative.
Sooner or later California’s public unions had to hit up the hoi polloi to pay for their pensions after soaking what’s left of the state’s millionaire class, and here they come. On Nov. 3, Californians will vote on a “split roll” ballot initiative (Prop. 15) that seeks to enact the biggest tax hike in state history. …Under current law, tax rates on residential and commercial property are capped at 1% of their assessed value—i.e., the purchase price—and can increase by no more than 2% annually. …This is the only balm in California’s oppressive tax climate and acts as a modest restraint on the government spending ratchet. Unions know that attempting to repeal this entirely would spur a homeowner revolt, so they are targeting businesses. …Facebook CEO Mark Zuckerberg is Prop. 15’s second biggest donor. Perhaps he’s trying to atone for his wealth, but as the NAACP and minority business groups explained in a letter to him in August: “Unlike Facebook, restaurants, dry cleaners, nail salons and other small businesses can’t operate right now and many may never open again. The last thing they need is a billionaire pushing higher taxes on them under the false flag of social justice.” …Prop. 15 would raise property taxes by $8.5 billion to $12.5 billion a year by 2025.
5. Colorado Proposition 117
Proponents of fiscal responsibility in Colorado want to strengthen TABOR (or, to be more accurate, stop the erosion of TABOR) by requiring a public vote for non-trivial efforts to increase government revenue. Here’s a summary from CPR.
Proposition 117..would add a new TABOR-like provision to state law, requiring the state government to get voter permission before it creates major new “enterprises,” which are partially funded by fees. Colorado voters already have authority over tax increases and rarely approve them. The state Supreme Court has held that a fee is different from a tax because it is reasonably connected to a specific purpose. And in the years that TABOR has been in effect, lawmakers have used them as a way to raise money without raising taxes. Critics see fees as an end-run around TABOR’s spending limits.
6. Colorado Proposition 116
Sticking with Colorado, there’s also a proposal to lower the state’s flat tax.
Once again, let’s use CPR as a source.
This initiative would cut the state’s income tax rate from 4.63 percent to 4.55 percent. …This change would reduce the state government’s revenue by an estimated $170 million in the next fiscal year. Supporters argue it would boost businesses and consumer spending, while opponents say it would weaken government services and social supports already severely cut by the downturn. The measure was originally intended to counter a progressive tax measure that failed to make the ballot.
Honorable Mention
There are many other ballot initiatives. Here are some that I care about, even if they were not important enough to be featured.
Proposition 21 for rent control in California. Bad idea.
Proposition 22 to penalize the gig economy in California. Also a bad idea. [Oops, got this backwards. Prop 22 would undo the legislation that penalizes the gig economy.]
Initiatives to legalize marijuana in Arizona, Montana, New Jersey, and South Dakota. The libertarian side of me is very supportive, but the fiscal side of me doesn’t like the fact that one of the motives is a desire to collect more tax revenue.
Ranked-choice voting in Alaska and Massachusetts. This is a system that requires voters rank all candidates and awards victory to whoever has the strongest support across all ballots. It is assumed that the impact will be more centrist candidates and more civil elections. I don’t have strong views, but it’s worth noting that Australia uses this approach and it’s one of my favorite nations.
13 initiatives in San Francisco. Lot of tax increases, as you might expect from that poorly governed city.
P.S. Voting for politicians who make bad decisions is unfortunate. Directly voting for bad propositions
One of the problems with state balanced budget requirements is that tax revenues are very sensitive to economic conditions.
Boom Years: When there’s robust economic growth, politicians collect unanticipated revenue because more people have good jobs and more businesses are earning money. And what do politicians do when this happens? They spend a big chunk of that unanticipated tax revenue
Bust Years: When there’s a recession and tax revenues unexpectedly decline, state politicians are in a tough position because they’ve made lots of promises to spend money, including for the extra spending that took place when the economy was growing. And what do politicians do when this happens? They usually respond with a combination of spending cuts and tax increases.
This boom-bust budgeting is unwise for many reasons, but I don’t like it because it leads to a long-run expansion in the size of government (the spending increases in the boom years almost always are greater than the cutbacks in the bust years). Indeed, one of the reasons why I prefer a spending cap instead of a balanced budget requirement is that you avoid this “ratchet effect.”
Now let’s look at some real-time data on why this matters. Given what’s happened with the coronavirus, we’re currently in a “bust year” and many governors and state legislators claim that they’re dealing with special conditions that necessitate a bailout from Washington.
In a column for the Wall Street Journal, and
Many governors now seek a federal bailout, but borrowing trillions more will only make matters worse for taxpayers… Every state provides the same basic services, but some do it at much lower cost, which allows them to have lower taxes. ……high-spending states are at the front of the line for a federal bailout. …Too many elected officials would rather have taxpayers submit to a tax increase now, or pay off bailout debt later, than do the hard work of eliminating unnecessary spending.
Their column includes plenty of hard data showing that the states clamoring for the bailouts wouldn’t be facing any fiscal problems if they weren’t spending so much money..........Earlier this year, I looked at state data, but also included spending by local governments. But slicing the numbers in a different way doesn’t change the fact that some states spend much more (and without delivering more and/or better services).
Some people portray this as a battle of red states vs. blue states, but I prefer to avoid the politics and simply compare big-spending states to modest-spending states. For instance, compare New York and Florida. If that’s not enough, also compare Texas and California..........To Read More.....
October 16, 2020 by Dan Mitchell
A pure democracy, where 51 percent of the people have the right to do anything they want, is not a desirable form of government. It means tyranny of the majority. That’s why America’s Founding Fathers instead created a constitutional republic, not only because they wanted to limit the power of the central government but also because they wanted certain rights to be inalienable – i.e., guaranteed and protected even if 99 percent of the population feel otherwise.
Some pundits and some lawmakers in Washington either don’t understand this part of American history or they want to pretend it doesn’t exist.
Fortunately, Senator Lee of Utah is not one of those people, as illustrated by this recent tweet..........To Read More.....
For a Competitive Tax System, the U.S. Should Copy Estonia Rather than Italy
October 15, 2020 by Dan Mitchell
Whether we’re examining Economic Freedom of the World, Index of Economic Freedom, World Competitiveness Ranking, the Global Competitiveness Report, or the World Bank’s Doing Business, publications that endeavor to give us apples-to-apples comparisons of economic policy provide useful measuring sticks.
- We can learn how Hong Kong compares to Singapore.
- We can determine the freest nation in Latin America.
- We can find a bright spot in Africa.
- We can assess whether any European nation is avoiding statism.
I’m especially interested in comparisons that focus on fiscal policy. So I was very interested to see that the Tax Foundation just released its annual International Tax Competitiveness Index, which measures the quality of tax policy of nations that are part of the Organization for Economic Cooperation and Development. Here are highlights from the report, starting with some background..........To Read More.....
Whitewashing East Germany’s Stalinist Dictatorship
October 10, 2020 by Dan Mitchell
In my lifetime, perhaps the greatest moment for human liberty took place 31 years ago when the corrupt socialist dictatorship of East Germany lost the will and ability to maintain the Berlin Wall. Almost overnight, there was hope for the long-suffering people of the so-called German Democratic Republic. In a spontaneous celebration that still brings tears to my eyes, they joined together with the free people of West Germany to tear down the ugly symbol of Marxist tyranny and oppression.
Even better, the fall of the Berlin Wall was a precursor to the total collapse of the Soviet Empire, thus liberating hundreds of millions of people from the horrific brutality of communism. But not everybody is happy that the communism wound up on the ash heap of history. In a column for Jacobin, Loren Balhorn wistfully remembers East Germany’s Stalinst regime.....To Read More...
Education Bureaucrat: Choice for Me, Equal Mediocrity for Thee
October 9, 2020 by Dan Mitchell
The Indonesian Version of Everything You Need to Know about Bureaucracy and Government
October 1, 2020 by Dan Mitchell
I have a “Bureaucrat Hall of Fame” to acknowledge individuals who go above and beyond the call of duty. As measured by sloth and waste, of course. But maybe I also need a “Bureaucracy Hall of Fame” for examples that capture the self-serving nature of departments, bureaus and agencies. I already have several examples.
- In 2014, I wrote we learned “everything you need to know about government bureaucracy” when discussing how senior bureaucrats at the Veterans Administration got big bonuses while they were putting veterans on secret waiting lists.
- The following year, I wrote that we learned “everything you ever wanted to know about bureaucracy and government” when discussing how governments have dramatically increased the number of firefighters even though there are now far fewer fires.
- In 2016, I wrote about “the Italian version of everything you need to know about bureaucracy and government” when discussing rampant absenteeism, featherbedding, and fraud by local bureaucrats in a town in southern Italy.
Let’s augment this collection by taking a virtual trip to the Pacific Ocean. The Economist has a sobering report about how many people in Indonesia aspire to become overpaid bureaucrats........To Read More....
Keynesian Economics Is Wrong…Again
September 27, 2020 by Dan Mitchell
I’ve previously written that Keynesian economics is like Freddy Kreuger. No matter how many times it is killed off by real-world evidence, it comes back to life whenever a politician wants to justify a vote-buying orgy of new spending.
And there will always be Keynesian economists who will then crank up their simplistic models that churn out results predicting that a bigger burden of government spending somehow will produce additional growth.
They never bother to explain why they think draining funds from the private sector is good for growth, of course, or why they think politicians supposedly spend money more wisely than households and businesses. Nonetheless, there are some journalists who are willing to act as stenographers for their assertions.
In a September 25 story for the Washington Post, Tory Newmyer gives free publicity to Keynesian predictions that the economy will grow faster if Biden wins and then imposes his profligate agenda – which they underestimate to include $7.3 trillion of new spending and $4.1 trillion of new taxes over the next 10 years............To Read More....
America’s Fiscal Problem Is Spending, not Red Ink
September 22, 2020 by Dan Mitchell
The Congressional Budget Office released it’s 2020 Long-Term Budget Outlook yesterday. Almost everybody has focused on CBO’s projections for record levels of red ink. And it is worrisome that debt is heading to Greek/Japanese levels (especially if the folks who buy government bonds think American politicians are more like Greek politicians rather than Japanese politicians).
But what should really have us worried, both in the short run and the long run, is that the burden of government spending is on an upward trajectory. CBO has some charts showing that federal government spending will consume more than 30 percent of GDP by 2050, assuming the budget is left on autopilot. But I dug into CBO’s database and created my own chart because I think it does a much better job of illustrating our problem.........To Read More....
Socialism Humor
October 18, 2020 by Dan Mitchell @ International Liberty
Like beauty, socialism is in the eye of the beholder.
- The technical definition of socialism is an economic system based on government ownership, central planning, and price controls).
- The commonplace definition of socialism is an economic system with a bigger welfare state financed by lots of class-warfare taxes.
In either case, though, you get ugly results. You’ll wind up somewhere between Venezuela and Greece. But we’re not going to add to the already voluminous research on the failures of socialism in today’s column. Instead, we’re going to laugh at this evil ideology. For starters, I shared a satirical video in 2018 that showed the nations where socialism doesn’t work. This Amy Coney Barrett meme takes the reverse approach. It lists the examples of where socialism is successful.
Next, we have some mockery of some protesters who mistakenly think big government is how you save the planet.
Last but not least, here’s some helpful advice for vapid millennials.
To be fair, you can see someone who became rich from socialism if you scroll to the bottom of this column.
P.S. You can enjoy the entire collection of socialism and communism humor by clicking here.
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