Voice For Liberty

Author: Guest Author

  • Sales tax increase isn’t necessary

    By Dave Trabert, Kansas Policy Institute.

    Tax

    What a difference a year makes. Last May, Governor Brownback signed historic tax reform legislation that would reduce state income taxes by roughly $800 million in its first full year. As the legislature returns this week, the debate is about how much of the last year’s tax reform will be wiped out. Instead of reducing the cost of government to implement tax reform this year, Governor Brownback and the Senate want to make the 6.3 percent sales tax permanent and eliminate the income tax deduction for home mortgage interest; they also propose 0.5 percent reduction in the income tax on the first $15,000 of taxable income in 2014 and a reduction in all marginal rates beginning in 2017 (after a billion dollar increase in sales taxes) with revenue growth above 4 percent being used to reduce rates thereafter and eventually eliminate income taxes.

    The House plan isn’t perfect but it’s better. It allows the sales tax rate to drop to 5.7 percent as promised, proportionally reduces income tax deductions, has more spending reductions and a formula that gradually eliminates the income tax altogether, using annual revenue growth above 2 percent to buy down rates.

    The goal of tax reform is to reduce the overall tax burden, not shift it. Consumption taxes are better than income taxes, but taxes will still be too high (and economic growth impaired) until we deal with the real problem of excess spending. But even some self-identified fiscal conservatives don’t want to reduce spending.

    Part of their resistance is that many people equate spending less with service cuts, but that doesn’t have to be the case. Per-resident spending varies greatly across all fifty states. Yet, every state has schools, highways, social programs, etc.; some simply do so more efficiently. States with an income tax spend 44 percent more per-resident than those without an income tax. States that spend less, tax less (and grow more). Done well, states can spend less and actually deliver the same or better services.

    In fact, Kansas would have spent $2.9 billion less last year if spending were at the same level as the average state without an income tax.

    Our “Legislator’s Guide to Delivering Better Service at a Better Price” shows legislators how to use existing cash reserves to ‘buy time’ and implement thoughtful efficiency measures to reduce costs over time. It can be done and it can be done now.

    The problem with implementing income tax reductions is one of politics, not economics. As Thomas Sowell says, “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

    Here’s hoping legislators make taxpayer-focused decisions based on sound economics when they return to Topeka this week.

    A version of this appeared in the Wichita Eagle.

    photo credit: 401(K) 2013 via photopin cc

  • In Wichita, community needn’t be government

    Wichita, Kansas logo

    Kansas Policy Institute offers commentary on the Wichita/Sedgwick County Community Investment Plan.

    In The Righteous Mind: Why Good People Differ on Politics and Religion, renowned psychologist Jonathan Haidt describes how the human mind is dual in nature: “We live most of our lives in the ordinary world, but we achieve our greatest joys in those brief moments of transit to the sacred world, in which we become ‘simply a part of a whole.’”

    A recent survey by the City of Wichita capitalized on this innate human tendency by equating community with government. Our natural desire to become “simply a part of a whole” manifests itself in our jobs, churches, softball leagues, clubs, dinner parties and recently pride in WSU’s success in the NCAA tournament. Our citizenship in Wichita is one of many communities that define us as individuals, one of many communities we make sacrifices for, one of many communities we call upon to solve problems.

    Wichita/Sedgwick County Community Investment Plan

    The survey respondents provide a list of wishes, all with the goal of improving our lives, many of which can and should be provided by city and county governments. Allowing businesses to openly compete to build water and street infrastructure, with competitive bidding for contracts, would strengthen the community by precluding any unfairness that weakens trust in the city.

    Survey respondents showed a plea for business formation and young talent. The city could promote a sense of community by creating a welcoming culture for all businesses, one that does not pick favorites. 71.8 percent of respondents do not have faith that most people are willing to put community interests above personal interest — perhaps because so often city hall is called upon to hand out special tax treatment.

    The survey also tries to identify challenges to the community; respondents were asked one question about Boeing and two questions about political divisions. Overwhelmingly respondents believe political divisions are negatively impacting our community’s ability to respond to global challenges.

    We live in the biggest city in the state which brings with it many challenges; solutions to those challenges come in many forms, giving rise to the vast diversity of opinion borne out in the survey. That diversity may be trying but we should not allow the aspiration for political unity to squelch debate. Ultimately it is our ability to engage and debate these issues that unites us as a community.

  • Tax policies are not tomfoolery

    By Kansas Representative Richard Carlson, Jonathan Williams, and Ben Wilterdink, both of American Legislative Exchange Council. A version of this appeared in the Wichita Eagle.

    Across the country, states like Kansas are looking for ways to become more economically competitive and grow their economy. Fortunately, Kansas appears to be on the right track. Contrary to a recent column by H. Edward Flentje (H. Edward Flentje: State budget high jinks, February 24 2013 Wichita Eagle), the evidence presented in the American Legislative Exchange Council’s economic competiveness guide Rich States, Poor States is well-researched and empirically supported. In fact, the criticisms of the report that Flentje mentioned are severely lacking in research and substance and have been debunked by several economists quite a few times, including the former research vice-president for the San Francisco Federal Reserve Bank. By choosing to rely less on income taxes and more on consumption based taxes (such as the sales tax), Kansas is on firm footing for real economic growth.

    Mainstream economists agree that taxes represent a net drag on an economy. Furthermore, not all taxes are equally as bad for an economy. A study done by the Organization for Economic Cooperation and Development ranked taxes in terms of most distortionary and damaging to an economy. The study found that taxes on capital and income were the most damaging, while taxes on consumption and property were the least damaging.

    In just the last decade, the nine states that avoid a personal income tax greatly outperformed the nine states with the highest personal income tax rates. The population in states with no income tax has grown 149 percent faster than their high tax counterparts. While states with high income tax rates have lost jobs over the past decade, no income tax states have seen a healthy 5.4 percent growth in jobs. Even state revenue has grown 82 percent faster in no income tax states versus their high tax counterparts.

    Lowering income taxes and broadening the sales tax base while keeping rates low is a key pillar of pro-growth tax reform. These points are well-documented in Rich States, Poor States while the conclusions from the referenced “Snake Oil” critique are based on measuring a state’s growth in per-capita income from 2007-2011 alone (the worst economic downturn in recent history). This is a deceiving metric because it penalizes states that have a high rate of population growth and rewards states for losing citizens (and their incomes). Low tax states are booming with people and businesses flocking into them, mainly coming as refugees from their high tax counterparts.

    For example, California gained no congressional seats in 2010 for the first time in its history; Texas, by contrast, picked up four more seats this census. As people flee high tax states for opportunity and jobs, the population decreases, which can substantially spike the per-capita income of the state. This point is especially relevant when unemployed people leave a state with high taxes to find a job in another (commonly low tax) state. Their $0 of income is no longer calculated into the per-capita measures and neither is their unemployment status. The state they left now has higher per-capita income growth and even a lower unemployment rate, but the state has lost a citizen, a worker, and potential future revenue they would have received, shrinking the overall economy. This is exactly the trend that we are seeing when it comes to migration data and IRS tax return statistics.

    Put simply, efforts to lower taxes on personal income and reform the tax code to keep tax rates low while broadening the base are anything but tomfoolery. The evidence is clear that these tax reform efforts help to grow the economic pie for everyone and will help Kansas achieve greater economic prosperity.

    For an example of how per-capita statistics can mask underlying trends, see In Kansas, more debunking of the benefit of high taxes. Also, see States that Spend Less, Tax Less — and Grow More.

  • Electing Kansas legislators: Education issues

    By Dr. Walt Chappell
    Member, Kansas State Board of Education

    Before Kansas voters can decide who should represent them in the state Legislature, we must have accurate information. This is especially important when it comes to which candidates will make responsible decisions about how to improve our schools.

    Some campaign mailers and editorials claim that student achievement has improved and funding for Kansas schools has been drastically cut. Neither is true.

    To give the impression that more students are “proficient” in reading and math, the State Department of Education lowered cut scores in 2005. Since then, high school students only have to answer 50 percent of the state math questions correct to be labeled “proficient.” They also claim that any student who gets 40 percent on the state science test “Meets Standard.”

    As anyone who has gone to school knows, getting 40 or 50 percent on a test is failing. Yet, by lowering the bar so low that nearly all students appear to be “proficient,” the state education staff have mislead the legislature, voters, and parents into thinking that our students are learning what they need to know to compete for jobs in the global economy.

    But, this spring’s results on the ACT test show that only 29 percent of Kansas students are ready for college. On the national NAEP test, less than 40 percent are proficient. Even though Kansas scores on these national tests have stayed low for 15 years, state bureaucrats claim 86 percent of our K-12 students are now “proficient.” Education lobbyists then repeat just the inflated state test scores to demand more funding for schools.

    Due to the economic recession, the base state aid for schools was cut some under governors Sebelius and Parkinson but federal stimulus money made up the difference in most districts. Under Governor Brownback, the Legislature added money back into school budgets.

    However, over the past 10 years, school districts have spent $2.7 billion more to teach the same number of students. That is an increase of 56 percent. They also held back $874 million in their bank accounts last year. With more of our tax dollars being spent and kept each year to educate Kansas students while test scores remain flat, why are lobbyists claiming that schools need more money?

    Significant changes must be made to prepare our students for 21st century jobs. But using taxpayer money to sue the state to increase funding and repeating false claims about student achievement will not get Kansans where we need to be.

    So, it is up to the voters to elect responsible legislators, judges and school board members who will ask tough questions, demand honest answers and make the hard decisions needed to improve our public schools.

  • Free will and government charity

    Those who call on government intervention to take care of the less fortunate and who rely on Christian teachings to support such government action, often conveniently forget that government is based on coercion, not the free will that God created us with. As P.J. O’Rourke wrote: “There is no virtue in compulsory government charity, and there is no virtue in advocating it. A politician who portrays himself as ‘caring’ and ‘sensitive’ because he wants to expand the government’s charitable programs is merely saying that he’s willing to try to do good with other people’s money. Well, who isn’t? And a voter who takes pride in supporting such programs is telling us that he’ll do good with his own money — if a gun is held to his head.” Below, Jason Karber elaborates.

    Jesus did encourage people to help the less fortunate. What I don’t recall from Sunday school is any instance where Jesus implored the government to use force to transfer resources from one group to another.

    Indeed the Christian belief system is not exclusive of free-market capitalism. Free-will in Christianity, and free markets in economies appear complimentary to me. While the citizens of government planned economies starve, the poor in the United States are threatened more by obesity than starvation. Many people who are on record as staunch free-market capitalists are generous donors of time and money on their own accord. Freedom provides better lives for everyone, and less freedom via a bigger government will ultimately reduce the quality of life for all.

    While I understand that not everyone within a political group think alike, I do chuckle a bit when the policies embraced by liberals include removing any religious ideology and prayer from public schools, while calling our leaders hypocritical for not mandating Biblical principals using public policy.

    Jason Karber

  • Pompeo: Wind production tax credit should expire

    U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, and U.S. Senator Lamar Alexander contribute the following article on the harm of the wind power production tax credit (PTC). The NorthBridge Group report referenced in the article is available at Negative electricity prices and the production tax credit.

    Puff, the Magic Drag on the Economy
    Time to let the pernicious production tax credit for wind power blow away

    By Lamar Alexander And Mike Pompeo

    As Congress works to reduce spending and avert a debt crisis, lawmakers will have to decide which government projects are truly national priorities, and which are wasteful. A prime example of the latter is the production tax credit for wind power. It is set to expire on Dec. 31 — but may be extended yet again, for the seventh time.

    This special provision in the tax code was first enacted in 1992 as a temporary subsidy to enable a struggling industry to become competitive. Today the provision provides a credit against taxes of $22 per megawatt hour of wind energy generated.

    From 2009 to 2013, federal revenues lost to wind-power developers are estimated to be $14 billion — $6 billion from the production tax credit, plus $8 billion courtesy of an alternative-energy subsidy in the stimulus package — according to the Joint Committee on Taxation and the Treasury Department. If Congress were to extend the production tax credit, it would mean an additional $12 billion cost to taxpayers over the next 10 years.

    There are many reasons to let this giveaway expire, including wind energy’s inherent unreliability and its inability to stand on its own two feet after 20 years. But one of the most compelling reasons is provided in a study released Sept. 14 by the NorthBridge Group, an energy consultancy. The study discusses a government-created economic distortion called “negative pricing.”

    This is how it works. Coal- and nuclear-fired plants provide a reliable supply of electricity when the demand is high, as on a hot summer day. They generate at lower levels when the demand is low, such as at night.

    But wind producers collect a tax credit for every kilowatt hour they generate, whether utilities need the electricity or not. If the wind is blowing, they keep cranking the windmills.

    Why? The NorthBridge Group’s report (“Negative Electricity Prices and the Production Tax Credit”) finds that government largess is so great that wind producers can actually pay the electrical grid to take their power when demand is low and still turn a profit by collecting the credit — and they are increasingly doing so. The wind pretax subsidy is actually higher than the average price for electricity in many of the wholesale markets tracked by the Energy Information Administration.

    This practice drives the price of electricity down in the short run. Wind-energy supporters say that’s a good thing. But it is hazardous to the economy’s health in the long run.

    Temporarily lower energy prices driven by wind-power’s negative pricing will cripple clean-coal and nuclear-power companies. But running coal and nuclear out of business is not good for the U.S. economy. There is no way a country like this one — which uses 20% to 25% of all the electricity in the world — can operate with generators that turn only when the wind blows.

    The Obama administration and other advocates of wind power argue that the subsidy provided by the tax credit allows the wind industry to sustain American jobs. But they are jobs that exist only because of the subsidy. Keeping a weak technology alive that can’t make it on its own won’t create nearly as many jobs as the private sector could create if it had the kind of low-cost, reliable, clean electricity that wind power simply can’t generate.

    While the cost of renewable energy has declined over the years, it is still far more expensive than conventional sources. And even the administration’s secretary of energy, Steven Chu, calls wind “a mature technology,” which should mean it is sufficiently advanced to compete in a free market without government subsidies. If wind power cannot compete on its own after 20 years without costly special privileges, it never will.

  • Obama: I inherited this crisis

    23 million Americans can’t be wrong
    By Rick Manning, Americans for Limited Government

    The faces of Labor Day are different in 2012 than they have been in the past, all 23 million of them.

    The traditional end of summer is greeted with cookouts, last splashes in the swimming pool, and final trips to the beach, but it is something much more in this election year.

    Labor Day is a reminder of the unemployed, underemployed and those who don’t even bother looking for a job anymore because they don’t believe any are available.

    Read more at NetRightDaily.com.

  • Governor Romney is right: End the wind production tax credit

    U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, contributes the following article on the harm of government involvement in energy markets, wind power specifically. Pompeo has written extensively on energy; see Pompeo on energy tax simplification, Era of energy subsidies is over, and Free market energy solutions don’t jeopardize national security. He has also introduced legislation to end all tax credits for energy, H.R. 3308: Energy Freedom and Economic Prosperity Act.

    There’s been a steady drumbeat from those seeking an extension of the wind production tax credit. For many reasons, including some that former Massachusetts Gov. Mitt Romney has carefully highlighted in his opposition, this is a bad idea.

    First, an extension continues this unsettling policy trend in which citizens are asked to bear all the risks and gain none of the rewards. This socialization of risks and privatization of profits guarantees disasters, for corporate boards and even their federal overseers can become careless and, in some instances, reckless. This fact was clearly demonstrated by the Solyndra debacle — when a company with close ties to the Obama administration lost more than a half billion dollars of taxpayers’ money. At the heart of that fiasco was both the company and the administration’s indifference to the taxpayers.

    Solyndra also revealed something else damaging about federal involvement in markets: the potential for political corruption. It’s clear that the Obama administration became emotionally, and inappropriately, invested in the fortunes of one company and one sector. When that happens, the system is compromised, cronyism flourishes and corruption is inevitable.

    President Barack Obama talks about the need to “invest” in alternative energy sources. But the reality is that he is not investing his money — he’s spending yours. I’m not sure that too many Americans would choose the president to manage their retirement accounts. His record — a jobless and exceedingly shallow recovery — is not good.

    With this production tax credit extension, the wisdom of the investment is especially dubious. Wind companies and their lobbyists have, for the last year, been telling all who would listen that the expiration of the tax credit could spell doom for their industry. Obama repeats this claim regularly on the campaign trail.

    But what does that say about the industry? If you need a tax credit to compete, you are probably not that competitive.

    Moreover, the tax credit is not de minimis for either taxpayers or companies that are lobbying for it. It will cost the taxpayers more than 12 billion dollars inside the budget window. Worse, the credit is set at 2.2 cents per kilowatt hour. Just to compare, the national average for produced power is around 6 cents per kilowatt hour. That means that the wind industry gets an almost 40 percent subsidy for each unit it produces. How many companies would like that?

    You also have to remember that wind power enjoys a mandate in more than 30 states. That is, regardless of cost — or price to ratepayers — utilities must use wind or other renewables for specific amounts of power generation. So, the wind companies enjoy not only a tax credit, but a must-use mandate as well — regardless of cost.

    It would be one thing if we were running out of natural gas and confronted a real national requirement to use alternative energy. But it’s the reverse. The United States has more traditional energy resources than anywhere else on Earth, according to the Congressional Research Service. With the surge in production from the shale formations, a new Barclays report just concluded, natural gas will likely dominate wind in the marketplace for the foreseeable future.

    Even now, in places like Williston, N.D., companies are hiring everyone who can get there to work on rigs or in ancillary jobs. If the president is genuinely worried about jobs, maybe he should visit the Bakken in North Dakota, or the Marcellus in Pennsylvania or the Eagle Ford in Texas.

    Using wind power to generate electricity is not a new idea. The first windmills used to generate electricity went up in the 19th Century. The production tax credit is also not a new idea. It is now about 20 years old.

    Romney’s opposition to continuing the wind subsidy is absolutely correct. At some point, an industry has to either succeed or fail on its own merits.

    For wind companies, we are at that point now.

  • Charles Koch: The importance of economic freedom

    Charles Koch, chairman of the board and CEO of Wichita-based Koch Industries, contributes the following article on the importance of economic freedom and the harm of cronyism. Another article written by him on this topic is Charles Koch: Why Koch Industries is speaking out. Koch is also the author of the book The Science of Success: How Market-Based Management Built the World’s Largest Private Company. More about the importance of economic freedom may be found at www.economicfreedom.org, a project of the Charles Koch Institute, and also at Perspectives.

    In 1990, the year before the collapse of the Soviet Union, I attended an economic conference in Moscow.

    Like my father during his visits to the U.S.S.R. in the early 1930s, I was astonished and appalled by what I saw.

    Simple necessities, such as toilet paper, were in short supply. In fact, there was none at all in the airport bathroom stalls for fear it would be stolen. Visitors using the facilities had to request a portion of tissue from an attendant beforehand.

    When I walked into one of Moscow’s giant department stores, there was next to nothing on the shelves. For those shoppers who were lucky enough to find something they actually wanted to buy, the purchase process was maddening and time-consuming.

    Although the government provided universal healthcare, I never met anyone who wanted to stay in a Soviet hospital. Medical services might have been “free,” but the quality of care was notoriously poor.

    Reality check
    My experiences in the Soviet Union underscore why economic freedom is so important for all of us.

    Nations with the greatest degree of economic freedom tend to have citizens who are much better off in every way.

    No centralized government, no matter how big, how smart or how powerful, can effectively and efficiently control much of society in a beneficial way. On the contrary, big governments are inherently inefficient and harmful.

    And yet, the tendency of our own government here in the U.S. has been to grow bigger and bigger, controlling more and more. This is why America keeps dropping in the annual ranking of economic freedom.

    Devil’s bargain
    Citizens who over-rely on their government to do everything not only become dependent on their government, they end up having to do whatever the government demands. In the meantime, their initiative and self-respect are destroyed.

    It was President Franklin Roosevelt who said: “Continued dependence on [government support] induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.”

    Businesses can become dependents, too. If your struggling car company wants a government bailout, you’ll probably have to build the government’s car — even if it’s a car very few people want to buy.

    Repeatedly asking for government help undermines the foundations of society by destroying initiative and responsibility. It is also a fatal blow to efficiency and corrupts the political process.

    When everyone gets something for nothing, soon no one will have anything, because no one will be producing anything.

    Cronyism
    Under the Soviet system, special traffic lanes were set aside for the sole use of officials in their limousines. This worsened driving conditions for everyone else, but those receiving favored treatment didn’t care.

    Today, many governments give special treatment to a favored few businesses that eagerly accept those favors. This is the essence of cronyism.

    Many businesses with unpopular products or inefficient production find it much easier to curry the favor of a few influential politicians or a government agency than to compete in the open market.

    After all, the government can literally guarantee customers and profitability by mandating the use of certain products, subsidizing production or providing protection from more efficient competitors.

    Cronyism enables favored companies to reap huge financial rewards, leaving the rest of us — customers and competitors alike — worse off.

    One obvious example of this involves wind farms. Most cannot turn a profit without the costly subsidies the government provides. Meanwhile, consumers and taxpayers are forced to pay an average of five times more for wind-generated electricity.

    We see far too many legislative proposals that would subsidize one form of energy over another, penalize certain emissions from one industry but not another, or place protective tariffs that hurt consumers.

    Legacies
    Karl Marx famously said: “From each according to his abilities, to each according to his needs.”

    The result of this approach is not equality, but rather a lowering of everyone’s standards to some minimal level.

    Some people worry about the disparity of wealth in a system of economic freedom. What they don’t realize is that the same disparity exists in the least-free countries.

    The difference is who is better off.

    Under economic freedom, it is the people who do the best job of producing products and services that make people’s lives better.

    On the other hand, in a system without economic freedom, the wealthiest are the tyrants who make people’s lives miserable.

    As a result of this, the income of the poorest in the least-free countries is one-tenth of what it is in the freest.

    Elected officials are often asked what they would like as their legacy. I’m never going to run for office, but I can tell you how I would answer that question.

    I want my legacy to be greater freedom, greater prosperity and a better way of life for my family, our employees and all Americans. And I wish the same for every nation on earth.