Tag Archives: Progressives

The writing of Duane Goossen, a former Kansas budget director, requires decoding and explanation. This time, his vehicle is “Rise Up, Kansas.”

Duane Goossen was Kansas budget director from 1998 to 2010.¹ He is critical of the administration of Kansas Governor Sam Brownback and recent sessions of the Kansas Legislature. It’s useful to examine his writings so that Kansans may become aware of the ramifications of his recommendations, and how during his years as budget director he was unable to adhere to the principles he now advocates. Following, some language from his recent article Rise Up, Kansas.

Goossen: “This marks the beginning of a hopeful new chapter in the Kansas story. It also presents a desperately needed opening for comprehensive tax reform.”

Comprehensive tax reform. That sounds good, as “reform” has a positive connotation. It means change for the better. But in this case reform means raising taxes, and by a lot. In fact, advocates of tax increases generally won’t say by how much they want to raise taxes.

As an example, in May a coalition of spending groups called for what they termed “Option 4.” It would eliminate all tax cuts enacted since 2012. This action would reinstate the tax on pass-through business income — the so-called “LLC loophole.” But this would also raise income taxes wage income, as those tax rates also were reduced in 2012. For example, income tax rates for a married family earning up to $30,000 would rise to 3.50 percent from the current 2.70 percent. That’s an increase of 30 percent in the income tax rate. For other income levels the increase is greater.²

A spokesperson for the Option 4 coalition argued that rolling back the tax cuts could increase revenue to the state by $1 billion. By the way, the Option 4 coalition did not call for the rollback of the sales tax increase passed in 2015. I should qualify that with apparently, as no handouts explaining Option 4 can be found. In addition, an audio recording of the press conference has been removed.

Members of the Option 4 coalition included Shannon Cotsoradis of Kansas Action for Children, Bob Totten from the Kansas Contractors Association, Rebecca Proctor of the Kansas Organization of State Employees, and Mark Desetti from the Kansas National Education Association.³

With the exception of the pass-through business income tax, failing to be specific about whose taxes will be raised by how much is characteristic of spending groups. In fact, these spending groups generally shy away from using the term tax. Look at these examples of language from Goossen’s article:

damage to state finances
hemorrhage revenue
can’t start healing while still in triage mode
fix our structural revenue imbalance
broaden the tax base
means reviewing our entire tax code
modernizing all revenue sources
get our fiscal house back in order
begin with commonsense basics
new priorities
recover the opportunities we lost
senseless era of crisis
begin restoring those opportunities
rise above the political fray
find courage to make difficult decisions
imagine the possibilities

Commonsense basics. Who could be against that? Yet each of these terms is a call for more and higher taxes.

Goossen: “Three credit rating downgrades”

The Kansas credit rating has declined. In making this decision, Moody’s mentioned “revenue reductions (resulting from tax cuts) which have not been fully offset by recurring spending cuts.⁴ So Kansas has a decision: Offset revenue reductions with higher taxes or spending cuts. Moody’s doesn’t care which is chosen, but Goossen and the spending coalition does.

Of note, Moody’s mentions another problem: “an underfunded retirement system for which the state is not making actuarially required contributions.” This is an ongoing problem, as the nearby chart illustrates. The funding ratio of the Kansas retirement plan has deteriorated for many years, including the years when Duane Goossen was Kansas budget director. (Recently Kansas has improved the funding ratio of KPERS, but it did that by borrowing funds, which was an unwise decision. Because of the borrowing, Kansas has delayed schedule KPERS contributions, which effectively pays for current spending with long-term debt.⁵)

Moody’s also mentioned “In recent years the state has appropriated funds from or shifted costs to the State Highway Fund to help balance the general fund budget.” This too, is an ongoing problem.⁶ “Raiding the Bank of KDOT” has been a problem for many years, including the years when Duane Goossen was Kansas budget director.

Goossen: “It will likely take a generation to fully recover from this horrible experiment.”

Goossen is not specific as to the nature of the damage. Generally, a claim of slashed state spending is made. But it’s difficult to see the purported decline. Some programs may have been cut, but overall, spending is level or climbing, as can be seen in the nearby chart.⁷ Additionally, in comparison to other states Kansas spends a lot, and continues to.⁸

Goossen: “lifting the burden the Brownback plan forced onto our lowest-earning Kansans.”

Yes, we should sharply reduce or eliminate the sales tax on groceries. It affects low-income households most severly.⁹

Goossen: “And it means establishing a responsible state savings account.”

Kansas General Funding ending balance. Click for larger.

Kansas doesn’t have what some states have, which is a true rainy day fund that is governed by statute as to when contributions must be made and when the fund may be used. Instead, Kansas has a simple requirement for an ending balance of 7.5 percent, which the state has regularly ignored for decades. Low ending balances are a hallmark of Kansas government, including the years when Duane Goossen was Kansas budget director. In fact, in one year his budget had a negative ending balance.¹⁰

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Notes

Goossen, Duane. Kansas Budget Blog. http://www.kansasbudget.com/. ↩
Kansas Policy Institute. *Option 4: Soak the poor. https://kansaspolicy.org/option-4-soak-poor/. ↩
Hancock, Peter. Session resumes with call for total repeal of Brownback tax cuts. Lawrence Journal-World, April 27, 2016. http://www2.ljworld.com/news/2016/apr/27/session-resumes-call-total-repeal-brownback-tax-cu/. ↩
Moody’s Investors Service, Inc. Moody’s downgrades Kansas issuer rating to Aa2 from Aa1, notched ratings to Aa3 from Aa2 and KDOT highway revenue bonds to Aa2 from Aa1; outlook stable. April 30, 2014. https://www.moodys.com/research/Moodys-downgrades-Kansas-issuer-rating-to-Aa2-from-Aa1-notched–PR_298383. ↩
Weeks, Bob. This is why we must eliminate defined-benefit public pensions. https://wichitaliberty.org/kansas-government/we-must-eliminate-defined-benefit-public-pensions/. ↩
Weeks, Bob. Kansas transportation bonds economics worse than told. https://wichitaliberty.org/kansas-government/kansas-transportation-bonds-economics-worse-than-told/. ↩
Weeks, Bob. Kansas government spending. https://wichitaliberty.org/kansas-government/kansas-government-spending-2/. ↩
Weeks, Bob. Spending in the states, per capita. Interactive visualization. https://wichitaliberty.org/economics/spending-states-per-capita-2/. ↩
Weeks, Bob. Kansas sales tax has disproportionate harmful effects. https://wichitaliberty.org/taxation/kansas-sales-tax-has-disproportionate-harmful-effects/. ↩
Weeks, Bob. Kansas General Fund. https://wichitaliberty.org/kansas-government/kansas-general-fund-2/. ↩

Kansas state government

How would higher Kansas taxes help?

November 1, 2016 Bob Weeks 1 Comment

Candidates in Kansas who promise more spending ought to explain just how higher taxes will — purportedly — help the Kansas economy.

Are low taxes important to an economy, especially a state economy? When the Tax Foundation looked at the issue, it concluded this: “In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth.”¹

Per-capita tax collections, Kansas and nearby states. Click for larger.

Many of these studies concerned the national economy and taxes, but some looked at state taxes. When we look at Kansas, we see that Kansas already taxes and spends quite a lot, compared to other states. Nearby is a chart showing per-capita state tax collections in Kansas and Colorado.²

State and Local Government Employee and Payroll. Click for larger.

Looking at other data, I found that considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.³

State and local government employment and costs, selected states. Click for larger.

From another source of data, I found this: “In the visualization, you can see that Kansas spends quite a bit more than nearby states. Of special interest is Minnesota, which is often used as an example of a high-tax state, and a state with excellent schools and services. But Minnesota spends barely more than Kansas, on a per-person basis. What about Colorado? It seems that Kansans often look to Colorado as a state full of bounty. But Kansas outspends Colorado. Same for New Mexico, Wisconsin, Texas, and — especially — Missouri.”⁴

Please don’t argue that the economic health of a state is determined by its budget, that is, whether it is balanced or not. And if you want to argue that Kansas has borrowed money through the highway fund and spent it in the general fund: That’s true, and we should not do that. But that action allowed Kansas to keep spending, much like borrowing allows the federal government to keep spending more that it raises through taxes.

Some argue that if the state taxes more, it can spend more, and therefore the economy expands. But: The money taken from Kansans is money that they can’t spend. And if one wants to argue that government spends more carefully and efficiently than do private individuals spending their own money — well, give it a try. Empirically, not many people believe this.

And isn’t government spending the purpose of taxation? Nearby are figures showing Kansas general fund spending. You can see that for two years Kansas spent much more than it collected in revenue, using a large ending balance as the source of funds. If one believes in the Keynesian theory of fiscal effects — which most liberals and progressives do — this “deficit” spending spared spending cuts and therefore boosted the Kansas economy.

Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.

Regarding the spending cuts that some claim: Have there been severe spending cuts in Kansas? While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending), after accounting for population and inflation.⁵

Kansas revenue estimate errors. Click for larger.

We also hear that the Kansas economy is in bad shape because tax revenue has fallen short of estimates. This is not a good indicator of economic health. Instead, it illustrates the difficulty of economic forecasting. Moreover, the negative estimate variances — revenue shortfalls, in other words — in 2002 to 2003 and 2009 to 2010 were generally much larger in magnitude than those of recent years.⁶ Remember how the Obama administration told us that without the 2009 stimulus package unemployment would rise to a certain level? Well, the stimulus bill passed, we spent the money, and unemployment was higher than what the administration said it would be without the stimulus. And for a long time, too.⁷

We also hear that transfers from KDOT — the highway fund — have hurt Kansas, especially in construction jobs. Our state’s two largest newspapers recently editorialized on this matter.⁸ They correctly reported that Kansas construction jobs were down. But it wasn’t highway construction jobs that caused the loss of jobs, except for a very small portion.

KDOT spending on major road programs. Click for larger version.

Furthermore, the state has continued to spend on highway programs, without regard to transfers from the highway fund. When we look at actual spending on roads, we see something different from what is often told. KDOT’s Comprehensive Annual Financial Report shows spending in the categories “Preservation” and “Expansion and Enhancement” has grown rapidly over the past five years. Spending in the category “Maintenance” has been level, while spending on “Modernization” has declined. For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2015 totaled $932,666 million, up from a low of $698,770 in fiscal 2010.

We should not borrow money, place it in the highway fund, and then transfer the funds to the general fund, as the state has done for many years. But actual spending on highways has risen, nonetheless.

So: Just how will higher taxes help the Kansas economy?

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Notes

McBride, William. What Is the Evidence on Taxes and Growth? Tax Foundation, 2012. http://taxfoundation.org/article/what-evidence-taxes-and-growth. ↩
Weeks, Bob. Tax collections by the states. Interactive visualization. https://wichitaliberty.org/economics/tax-collections-states-2/. ↩
Weeks, Bob. State and local government employee and payroll. Interactive visualization. https://wichitaliberty.org/economics/state-local-government-employee-payroll/. ↩
Weeks, Bob. Kansas, a frugal state? Interactive visualization. https://wichitaliberty.org/economics/kansas-frugal-state/ ↩
Weeks, Bob. Kansas government spending. https://wichitaliberty.org/kansas-government/kansas-government-spending-2/. ↩
Weeks, Bob. Kansas revenue estimates. https://wichitaliberty.org/kansas-government/kansas-revenue-estimates/. ↩
Weeks, Bob. Brownback and Obama stimulus plans. https://wichitaliberty.org/economics/brownback-and-obama-stimulus-plans/. ↩
Weeks, Bob. Topeka Capital-Journal falls for a story. https://wichitaliberty.org/kansas-news-media/topeka-capital-journal-falls-story/. ↩

Wichita and Kansas schools

They really are government schools

June 13, 2016 Bob Weeks 1 Comment

What’s wrong with the term “government schools?”

A recent op-ed in the Wichita Eagle read: “Some have begun to call public schools ‘government schools,’ a calculated pejorative scorning both education and anything related to government.”¹

This is not the only time people have objected to the term “government schools.” Public schools bristle at use of the term. In a 2008 email from Wichita School Interim Superintendent Martin Libhart to Wichita school employees, he took issue with those who, using his words, “openly refer to public education as ‘government schools.'”² “Openly refer,” he writes, as though it should be kept a secret.

It’s surprising that liberals and progressives object to the term “government schools.” They like government, don’t they? They want more taxation and government spending, don’t they?

When we think about public schools, we find they have all the characteristics of government programs.

Public schools are owned by government.

Their funding comes almost totally from governmental sources, which is to say taxes. (Isn’t it strange that few will donate to public schools?) If you can’t use the services of public schools and don’t want to pay for them — even if you are also paying for other schools that meet your needs — the full weight of the government will come crashing down on you.

Through laws passed by government, public schools are guaranteed a stream of customers.

Public schools are regulated — heavily — by government.

The members of their “board of directors” (the local school board) are chosen through a governmental process — elections.

Public schools are welcoming to labor unions at the time the private sector is becoming less unionized. In fact, labor unions are becoming a hallmark of government, and government only.³

Accountability of public schools, like other forms of government, is weak.

In sum, public schools have all the negative attributes of government institutions and few or none of the positive characteristics that make markets the source of continuous improvement and innovation. So I guess it isn’t surprising that public school advocates like Merritt object to being lumped in with government in general. But public schools share all the characteristics of government, and government is the worst way to supply services except in a few special instances.

What’s also troubling is how Merritt equates using the term “government schools” with scorn for education. Turning over education to government — with its litany of troubles as listed above — is scornful for children.

Merritt and others want to have the benefits of governmental institutions without accepting the reality of what government means. That’s a shame for Kansas schoolchildren.

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Notes

Merritt, Davis. Can traditional conservatism save Kansas schools? Wichita Eagle, May 17, 2016. Available at www.kansas.com/opinion/opn-columns-blogs/article77969617.html. ↩
Weeks, Bob. Wichita School Superintendent Martin Libhart: What’s Wrong With “Government Schools?” Available at wichitaliberty.org/wichita-kansas-schools/wichita-school-superintendent-martin-libhart-whats-wrong-with-government-schools/. ↩
Bureau of Labor Statistics. Union Members Summary. January 28, 2016. Available at www.bls.gov/news.release/union2.nr0.htm. ↩

Politics

Intellectuals vs. the rest of us

August 16, 2015 Bob Weeks Leave a comment

Why are so many opposed to private property and free exchange — capitalism, in other words — in favor of large-scale government interventionism? Lack of knowledge, or ignorance, is one answer, but there is another. From August 2013.

At a recent educational meeting I attended, someone asked the question: Why doesn’t everyone believe what we (most of the people attending) believe: that private property and free exchange — capitalism, in other words — are superior to government intervention and control over the economy?

It’s question that I’ve asked at conferences I’ve attended. The most hopeful answer is ignorance. While that may seem a harsh word to use, ignorance is simply a “state of being uninformed.” That can be cured by education. This is the reason for this website. This is the reason why I and others testify in favor of free markets and against government intervention. It is the reason why John Todd gives out hundreds of copies of I, Pencil, purchased at his own expense.

But there is another explanation, and one that is less hopeful. There is an intellectual class in our society that benefits mightily from government. This class also believes that their cause is moral, that they are anointed, as Thomas Sowell explains in The vision of the anointed: self-congratulation as a basis for social policy: “What all these highly disparate crusades have in common is their moral exaltation of the anointed above others, who are to have their very different views nullified and superseded by the views of the anointed, imposed via the power of government.”

Murray N. Rothbard explains further the role of the intellectual class in the first chapter of For a New Liberty: The Libertarian Manifesto, titled “The Libertarian Heritage: The American Revolution and Classical Liberalism.” Since most intellectuals favor government over a market economy and work towards that end, what do the intellectuals get? “In exchange for spreading this message to the public, the new breed of intellectuals was rewarded with jobs and prestige as apologists for the New Order and as planners and regulators of the newly cartelized economy and society.”

There it is: Planners and regulators. We have plenty of these at all levels of government, and these are prime examples of the intellectual class. Is it any wonder that the locus of centralized planning in south-central Kansas — sustainable communities — is at a government university?

As Rothbard explains, intellectuals have cleverly altered the very meaning of words to suit their needs:

One of the ways that the new statist intellectuals did their work was to change the meaning of old labels, and therefore to manipulate in the minds of the public the emotional connotations attached to such labels. For example, the laissez-faire libertarians had long been known as “liberals,” and the purest and most militant of them as “radicals”; they had also been known as “progressives” because they were the ones in tune with industrial progress, the spread of liberty, and the rise in living standards of consumers. The new breed of statist academics and intellectuals appropriated to themselves the words “liberal” and “progressive,” and successfully managed to tar their laissez- faire opponents with the charge of being old-fashioned, “Neanderthal,” and “reactionary.” Even the name “conservative” was pinned on the classical liberals. And, as we have seen, the new statists were able to appropriate the concept of “reason” as well.

We see this at work in Wichita, where those who advocate for capitalism and free markets instead of government intervention are called, in the case of Wichita Mayor Carl Brewer and Wichita Eagle editorial writer Rhonda Holman, “naysayers.”

The sad realization is that as government has extended its reach into so many areas of our lives, to advocate for liberty instead of government intervention is to oppose many things that people have accepted as commonplace or inevitable. To advocate that free people should trade voluntarily with other free people — instead of forming a plan for them — is to be dismissed as “not serious.”

Rothbard further explains the role of intellectuals in promoting what they see as the goodness of expansive government:

Throughout the ages, the emperor has had a series of pseudo-clothes provided for him by the nation’s intellectual caste. In past centuries, the intellectuals informed the public that the State or its rulers were divine, or at least clothed in divine authority, and therefore what might look to the naive and untutored eye as despotism, mass murder, and theft on a grand scale was only the divine working its benign and mysterious ways in the body politic. In recent decades, as the divine sanction has worn a bit threadbare, the emperor’s “court intellectuals” have spun ever more sophisticated apologia: informing the public that what the government does is for the “common good” and the “public welfare,” that the process of taxation-and-spending works through the mysterious process of the “multiplier” to keep the economy on an even keel, and that, in any case, a wide variety of governmental “services” could not possibly be performed by citizens acting voluntarily on the market or in society. All of this the libertarian denies: he sees the various apologia as fraudulent means of obtaining public support for the State’s rule, and he insists that whatever services the government actually performs could be supplied far more efficiently and far more morally by private and cooperative enterprise.

The libertarian therefore considers one of his prime educational tasks is to spread the demystification and desanctification of the State among its hapless subjects. His task is to demonstrate repeatedly and in depth that not only the emperor but even the “democratic” State has no clothes; that all governments subsist by exploitive rule over the public; and that such rule is the reverse of objective necessity. He strives to show that the very existence of taxation and the State necessarily sets up a class division between the exploiting rulers and the exploited ruled. He seeks to show that the task of the court intellectuals who have always supported the State has ever been to weave mystification in order to induce the public to accept State rule, and that these intellectuals obtain, in return, a share in the power and pelf extracted by the rulers from their deluded subjects.

And so the alliance between state and intellectual is formed. The intellectuals are usually rewarded quite handsomely by the state for their subservience, writes Rothbard:

The alliance is based on a quid pro quo: on the one hand, the intellectuals spread among the masses the idea that the State and its rulers are wise, good, sometimes divine, and at the very least inevitable and better than any conceivable alternatives. In return for this panoply of ideology, the State incorporates the intellectuals as part of the ruling elite, granting them power, status, prestige, and material security. Furthermore, intellectuals are needed to staff the bureaucracy and to “plan” the economy and society.

The “material security,” measured in dollars, can be pretty good, as shown by these examples: The Wichita city manager is paid $185,000, the Sedgwick county manager is paid $175,095, and the superintendent of the Wichita school district is paid $224,910.

Sedgwick county government

Wichita Eagle editorial board on county budget

July 27, 2015 Bob Weeks 1 Comment

When someone invokes “ideology” in their criticism of you, you know that they’ve either run short of actual arguments based on fact, or they don’t know what ideological means.

In its op-ed this Sunday, the Wichita Eagle editorial board blasts the Sedgwick County Commission for cuts to various programs, mentioning “Sedgwick County Zoo, Exploration Place, the Arts Council and Greater Wichita Economic Development Coalition” specifically.

I might invite the Eagle editorialists to revisit the county’s recommended budget for 2013, prepared under the leadership of then-chairman Tim Norton, the body’s sole Democrat, both then and now. According to county documents, Norton’s recommended budget made these cuts:

Zoo: $255,889
Exploration Place: $112,405
Arts Council: $0
GWEDC: $0

So this is not the first time the zoo and Exploration Place have been cut.

Additionally, Norton’s recommended budget cut 113.80 employees from the county payroll. Of these, 60.75 were from the closure of the Judge Riddel Boys Ranch Juvenile Detention Program, leaving 53.05 in cuts from other county programs. The 2016 recommended budget calls for cuts of 10.00 employees.

I wonder: Did the Eagle editorial writers rail against commissioners Norton, Unruh, and Skelton for the cuts in the 2013 recommended budget? Yes, there was criticism of budget cuts then, but no ideological bashing.

This year the Eagle editorial board also criticizes the commission majority for its plan to eliminate routing borrowing for county roads and bridges. Last year the Eagle recommended Wichitans vote in favor of a sales tax. One of its components, viewed favorably by the city and the Eagle, was the avoidance of borrowing for a large public works project.

But now that conservatives on the county commission propose avoiding debt — some debt, not all debt — the Eagle is opposed.

The shifting sands underlying the Eagle editorial board’s criticism is evidence of an ideology, and a rather shallow one. Cuts made by conservatives? Bad. There will be damage, says the headline.

Much larger cuts made by progressives? The editorial board acknowledges “the county needs to tighten its belt and prioritize its services.”

That’s quite a contrast.

Here are excerpts from the 2013 and 2016 Sedgwick County recommended budgets showing recommended cuts.

Taxation

Tax rates and taxes paid

June 22, 2015 Bob Weeks Leave a comment

Those who call for a return to 90 percent tax rates should be aware that few people actually paid tax at those rates.

Progressives are calling for higher income tax rates on the rich. The top marginal tax rate — that’s the rate that applies to high income earners on most of their income — was above 90 percent during most of the 1950s. From 2003 to 2012 it was 35 percent, and is now 39.6 percent. Some see that as a lost opportunity. If we could return to the tax rates of the 1950s, they say, we could generate much more revenue for government.

The top marginal tax rate is the rate that applies to income. It’s not the same as what is actually paid. This fact is unknown or ignored by those who clamor for higher taxes on the rich.

The mistake the progressives make is equating tax rates with the tax actually paid. For many people, there is a direct relationship. For workers who earn a paycheck, there’s not much they can do to change the timing of their income, find tax shelters, or shift income to capital gains. When income tax rates rise, they have to pay more. But people with high incomes can use these and other strategies to reduce the taxes they pay. In fact, there is an entire industry of accountants and lawyers to help people reduce their tax. Often — particularly in the past — investments and transactions were made solely for the purpose of avoiding taxes, not for any other economic benefit.

But: High tax rates make the middle class feel better about paying their own taxes. With top tax rates of 90 percent, they may believe that the rich are paying a lot of tax. The middle class may take comfort in the fact that someone else is worse off. But that is based on the misconception that high tax rates mean rich people actually pay correspondingly higher tax.

Top tax rates and taxes actually paid

Figure 1. The top marginal income tax rate has varied widely, but since World War II, tax revenue collected as a percent of GDP is remarkably constant.

A series of charts illustrate the lack of a relationship between the top marginal income tax rate and the income taxes actually paid. (Click charts for larger versions.)

Figure 1 shows that that top marginal tax rate has varied widely. But since World War II, the taxes actually collected, expressed as a percentage of gross domestic product, has been fairly constant. In 1952 the top tax rate was 92.0 percent, and income taxes paid as a percent of GDP was 13.5 percent. In 2012 the top rate was 35.0 percent, and income taxes paid as a percent of GDP was 11.2 percent.

Figure 2. The top marginal income tax rate has varied widely, but the average federal tax rates paid by top earners has varied less.

Figure 2 shows how the top marginal income tax rate has varied widely, but the average federal tax rates paid by top earners has varied less. Data for this series is available only back to 1979.

Figure 3. The top marginal income tax rate has varied widely and has mostly fallen, and the share of federal taxes paid by top income earners has risen.

Figure 3 shows how the top marginal income tax rate has varied widely and has mostly fallen, and the share of federal taxes paid by top income earners has risen.

Sources of data for these charts are the Internal Revenue Service, Bureau of Economic Analysis, and Congressional Budget Office.

Hauser’s Law

In 2010 W. Kurt Hauser explained in The Wall Street Journal: “Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this ‘Hauser’s Law.'”

Incentives matter, economists tell us. People react to changes in tax law. As tax rates rise, people seek to reduce their taxable income. A common strategy is to make investments in economically unproductive tax shelters. There is less incentive to work, to save and build up capital stocks, and invest. These are some of the reasons why tax rate hikes usually don’t generate the promised revenue.

The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.” Figure 1 illustrates. The top line, the top marginal tax rate in effect for each year, varies widely. The other two lines show total taxes and federal income taxes as a percent of gross domestic product. Since World War II, these lines are fairly constant, even as the top marginal tax rate varies.

Taxation

The purpose of high tax rates

February 24, 2015 Bob Weeks Leave a comment

From February 2014.

“The purpose of high taxes on the rich is not to get the rich to pay money, it’s to get the middle class to feel better about paying high taxes.”

This is what Jim Pinkerton, the journalist, Fox News contributor, and co-founder of the RATE (Reforming America’s Taxes Equitably) Coalition told an audience at a conference titled “The Tax & Regulatory Impact on Industry, Jobs & The Economy, and Consumers” produced by the Franklin Center for Government and Public Integrity.

Pinkerton was referring to the economist F.A. Hayek. Others have also noted that changes to marginal tax rates often have little impact on the amount of taxes actually paid. The top marginal tax rate — that’s the rate that applies to high income earners on most of their income — was above 90 percent during most of the 1950s. From 2003 to 2012 it was 35 percent, and is now 39.6 percent.

The top marginal tax rate is the rate that applies to income. It’s not the same as what is actually paid. This fact is unknown or ignored by those who clamor for higher taxes on the rich. They often cite the rising prosperity of the 1950s as caused by the high marginal tax rate in effect at the time.

The mistake the progressives make is equating tax rates with the tax actually paid. For many people, there is a direct relationship. For workers who earn a paycheck, there’s not much they can do to change the timing of their income, find tax shelters, or shift income to capital gains. When income tax rates rise, they have to pay more. But rich people can use these and other strategies to reduce the taxes they pay.

But as Pinkerton told the conference attendees, the high tax rates make the middle class feel better about paying their own taxes. They may take comfort in the fact that someone else is worse off, at least based on the misconception that high tax rates mean rich people actually pay correspondingly higher tax.

The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.” The nearby chart illustrates. The top line, the top marginal tax rate in effect for year year, varies widely. The other two lines show total taxes and federal income taxes as a percent of gross domestic product. Since World War II, these lines are fairly constant, even as the top marginal tax rate varies.

Data is from Bureau of Economic Analysis (part of the U.S. Department of Commerce) along with my calculations.

Wichita city government

Blubaugh, Mayor vote for licenses for undocumented workers to drive to their illegal jobs

January 12, 2015 Bob Weeks Leave a comment

The Wichita city council voted to recommend that the Kansas Legislature create drivers permits for undocumented workers so they could drive to their jobs.

In December the Wichita City Council voted to include drivers permits for undocumented workers in its legislative agenda. The item as presented to council members read: “RECOMMEND: The Wichita City Council supports legislation that provides a driver’s permit to undocumented workers for the sole purpose of obtaining vehicle insurance for work-related transportation.”

In his remarks, as presented in the meeting minutes, Wichita Mayor Carl Brewer stated “he has given this a lot of thought and he is the one who has asked for it because he believes it is the right thing to do.”

Wichita City Council Member Jeff Blubaugh

The measure passed four to three, with Council Member Jeff Blubaugh (district 4, south and southwest Wichita) voting along with the council’s progressive members.

No matter what one believes about our immigration laws, it is illegal for undocumented workers to hold their jobs. Yet, the city wants to make it legal for them to drive to their illegal jobs.

This also illustrates the problem with resolving our nation’s issues with immigration. We’ve shown that we’re not willing to enforce the laws we have. Here, the Wichita City Council takes steps to help illegal immigrants break our laws. Why do we expect people to respect and obey them?

Kansas state government

Kansas minimum wage hike would harm the most vulnerable workers

January 8, 2015 Bob Weeks Leave a comment

A bill to raise the minimum wage in Kansas will harm the most vulnerable workers, and make it more difficult for low-skill workers to get started in the labor market.

Legislation introduced by Representative Jim Ward of Wichita would raise the minimum wage in Kansas by one dollar per hour each year until it reaches $10.25 per hour in 2018. The bill is HB 2012, captioned “enacting the Kansas working families pay raise act.”

The caption of the bill, referencing “working families,” hints at the problem, as seen by progressives. The minimum wage does not generate enough income to raise a family. While the bill calls for raising the minimum wage, it makes no reference of whether workers are raising a family, or working part-time for pin money while in high school.

But aside from that, there is the important question to consider: Will raising the minimum wage help or harm low-wage earners? And are the policy goals — taken in their entirety — of the groups pressing for a higher minimum wage in the best interest of workers? The answer to these questions is that higher minimum wages harm low-wage workers and low-skilled people who would like to work.

The great appeal of a higher minimum wage mandated by an act of the legislature is that it seems like a wonderfully magical way to increase the wellbeing of low-wage workers. Those who were earning less than the new lawful wage and who keep their jobs after the increase are happy. They are grateful to the lawmakers, labor leaders, newspaper editorialists, and others who pleaded for the higher minimum wage. News stories will report their good fortune.

That’s the visible effect of raising the minimum wage. But to understand the entire issue, we must look for the unseen effects.

The not-so-visible effect of the higher wage law is that demand for labor will be reduced. Those workers whose productivity, as measured by the give and take of supply and demand, lies below the new lawful wage rate are in danger of losing their jobs. The minimum wage law says if you hire someone you must pay them a certain amount. The law can’t compel you to hire someone, nor can it compel employers to keep workers on the payroll.

The difficulty is that people with lose their jobs in dribs and drabs. A few workers here; a few there. They may not know who is to blame. Newspaper and television reporters will not seek these people, as they are largely invisible, especially so in the case of the people who are not hired because of the higher wage law.

In the real world, business owners have many things they can do when labor becomes more expensive. Some things employers do to compensate for higher labor costs include these:

Reduce non-wage benefits such as health insurance.
Eliminate overtime hours that many employees rely on.
Substitute machines for labor. We might see more self-service checkout lanes at supermarkets, more automated ordering systems at fast food restaurants, and more use of automated telephone response systems, for example.
Use illegal labor. Examples include paying employees under the table, or requiring work off-the-clock.
Some employers may be more willing to bear the risks of using undocumented workers who can’t complain that they aren’t being paid the minimum wage.
Some employers may decide that the risks and hassles of being in business aren’t worth it anymore, and will close shop. Others simply can’t afford the higher wages and close. The Wall Street Journal reported on a nonprofit restaurant that couldn’t survive under Michigan’s higher minimum wage, reporting “These unintended consequences of a minimum wage hike aren’t unique to small towns in south-central Michigan. Tragically, they repeat themselves in locales small and large each time legislators heed the populist call to ‘raise the wage.'”

If we are truly concerned about the plight of low-wage workers we can face some harsh realities and deal with them openly. The simple fact is that some people are not able to produce output that our economy values very much. They are not very productive. Passing a law that requires employers to pay them more doesn’t change the fact that their productivity is low. But there are ways to increase productivity.

One way to increase workers’ productivity is through education. Unfortunately, there is ample evidence that our public education system is failing badly.

Capital — another way to increase wages — may be a dirty word to some. But as the economist Walter E. Williams says, ask yourself this question: who earns the higher wage: a man digging a ditch with a shovel, or a man digging a ditch using a power backhoe? The difference between the two is that the man with the backhoe is more productive. That productivity is provided by capital — the savings that someone accumulated (instead of spending on immediate consumption or taxes) and invested in a piece of equipment that increased the output of workers and our economy.

Education and capital accumulation are the two best ways to increase the productivity and the wages of workers. Ironically, the people who are most vocal about raising wages through legislative fiat are also usually opposed to meaningful education reform and school choice, insisting on more resources being poured into the present system. They also usually support higher taxes on both individuals and business, which makes it harder to accumulate capital. These organizations should examine the effects of the policies they promote, as they are not in alignment with their stated goals.

If it were possible to increase the prosperity of everyone by simply passing a law, we should do it. But that’s not the way the world works regarding minimum wage laws.

Who is harmed?

Walter Williams explains who is most harmed by minimum wage laws, and also the politics:

How about the politics of the minimum wage? In the political arena, one dumps on people who can’t dump back on him. Minimum wages have their greatest unemployment impact on the least skilled worker. After all, who’s going to pay a worker an hourly wage of $10 if that worker is so unfortunate as to have skills that enable him to produce only $5 worth of value per hour? Who are these workers? For the most part, they are low-skilled teens or young adults, most of whom are poorly educated blacks and Latinos. The unemployment statistics in our urban areas confirm this prediction, with teen unemployment rates as high as 50 percent.

The politics of the minimum wage are simple. No congressman or president owes his office to the poorly educated black and Latino youth vote. Moreover, the victims of the minimum wage do not know why they suffer high unemployment, and neither do most of their “benefactors.” Minimum wage beneficiaries are highly organized, and they do have the necessary political clout to get Congress to price their low-skilled competition out of the market so they can demand higher wages. (Politics and Minimum Wage)

The role of labor unions

Labor unions favor higher minimum wages laws. Why? Here’s what one union said in making its argument: “However, not only is $9/hour a step in the right direction, it is also good for union members, who stand to seek even greater wage increases in their contracts, if they make more than the current minimum wage of $7.25.” ( United Food and Commercial Workers International Union (UFCW).)

For more on this, see Why Unions Want a Higher Minimum Wage: Labor contracts are often tied to the law — and it reduces the competition for lower-paying jobs.

Minimum wage as competitive weapon

We also need to examine the motivations of business firms that support a higher minimum wage. Sometimes they see a way gain a competitive advantage.

In 2005 Walmart came out in favor of raising the national minimum wage. Providing an example of how regulation is pitched as needed for the common good, Walmart’s CEO said that he was concerned for the plight of working families, and that he thought the current minimum wage of $5.15 per hour was too low. (“Working families.” That’s in the caption of the proposed Kansas law. It’s no coincidence.) If Walmart — a company progressives love to hate as much as any other — can be in favor of increased regulation of the workplace, can regulation be a good thing? Had Walmart discovered the joys of big government?

The answer is yes. Walmart discovered a way of using government regulation as a competitive weapon. This is often the motivation for business support of regulation. In the case of Walmart, it was already paying its employees well over the current minimum wage. At the time, some sources thought that the minimum wage could be raised as much as 50 percent and not cause Walmart any additional cost — its employees already made that much.

But its competitors didn’t pay wages that high. If the minimum wage rose very much, these competitors to Walmart would be forced to increase their wages. Their costs would rise. Their ability to compete with Walmart would be harmed.

In short, Walmart supported government regulation in the form of a higher minimum wage as a way to impose higher costs on its competitors. It found a way to compete outside the marketplace. And it did it while appearing noble.

Kansas state government

Kansas personal income grows

October 1, 2014 Bob Weeks Leave a comment

A recent spurt of growth of personal income in Kansas is welcome, considering the history of Kansas in this regard.

Kansas personal income grew in the quarter ending in June, with the Wichita Business Journal reporting “Kansas ranked 14th among states for second-quarter personal income growth.” The article also noted “According to data released Tuesday by the Bureau of Economic Analysis, personal income grew by 1.7 percent in the second quarter of 2014, faster than the national growth rate of 1.5 percent.”

Strong growth in personal income is good. But strong growth is not the norm for Kansas. The nearby chart shows cumulative growth of personal income in the states since 1990, with Kansas highlighted. Total growth for Kansas is 190 percent. For the entire county, it is 198 percent. For Plains states, 196 percent.

This is relevant to the decision Kansans will make in November when deciding their vote for governor. Progressive voices urge a return to the policies of Kathleen Sebelius and her successor (2003-2011), and Bill Graves (1995-2003). Sebelius, a Democrat, and Graves, a Republican, are seen by Progressives as paragons of “moderate,” “common-sense” leadership that is now — they say — missing.

An interactive visualization of personal income data is available for use here. You may select different time periods and any grouping of states. One of more states may be highlighted. There are similar charts in the visualization that show change in personal income year-over-year, and change from previous quarter.

Personal Income Growth in the States, Kansas highlighted. Click for larger version.

Economics

Labor unions have harmed our standard of living

September 1, 2014 Bob Weeks Leave a comment

This Labor Day, as progressives promote their protection and advancement of workers, let’s become aware of the harm that labor unions have caused. George Reisman summarizes:

Far from being responsible for improvements in the standard of living of the average worker, labor unions operate in more or less total ignorance of what actually raises the average worker’s standard of living. In consequence of their ignorance, they are responsible for artificial inequalities in wage rates, for unemployment, and for holding down real wages and the average worker’s standard of living. All of these destructive, antisocial consequences derive from the fact that while individuals increase the money they earn through increasing production and the overall supply of goods and services, thereby reducing prices and raising real wages throughout the economic system, labor unions increase the money paid to their members by exactly the opposite means. They reduce the supply and productivity of labor and so reduce the supply and raise the prices of the goods and services their members help to produce, thereby reducing real wages throughout the economic system.

The full article is Labor Unions Are Anti-Labor.

Politics

Meet ALICE. Who knew?

May 1, 2014 Bob Weeks Leave a comment

Progressives criticize “bill mills,” but the movement has its own. Criticism of policies based simply on their sources is a weak form of argument. But this is the substance of criticism leveled against ALEC, or American Legislative Exchange Council.

Opponents of ALEC say it is a “bill mill” that “pushes” legislation upon unsuspecting state legislatures. Since the goal of ALEC, according to its website, is to “advance limited government, free markets, and federalism at the state level,” it’s good that legislators are being advised by an organization with these goals. There are, of course, forces on the other side that seek, on a daily basis, to grow government at the expense of freedom.

It’s not uncommon for states to look to other states for legislation. A few years ago, a bill appeared for consideration in the Kansas Senate that would add taxes to sugary soft drinks. I found that the Kansas bill contained large sections of statutory language taken word-for-word from a California bill. (See Tax law imported to Kansas from California.) While this bill was introduced in a Senate controlled by Republicans — President Steve Morris and Vice President John Vratil — neither were friends of limited government or taxpayers.

While ALEC has model bills, it’s not the only organization that does. Meet ALICE, or American Legislative and Issue Campaign Exchange. Its website says “The American Legislative and Issue Campaign Exchange, or ALICE, is a one-stop, web-based, public library of progressive state and local law on a wide range of policy issues.”

In more detail, ALICE describes some of its content as “Models = Generalizable framework laws that can serve as the basis for actual legislation.” Also, “Exemplary = Actual laws that were enacted or introduced somewhere that represent good progressive local or state legislation.”

Does this sound like a “bill mill?” According to ALEC critics, bill mills are bad.

I could present to you the list of people and organizations that fund ALICE. You might realize that many of them work in favor of big expansive government instead of individual liberty, limited government, economic freedom, and free markets. But I think we’d be better off if we examined ALICE proposals based on their merits, just as we should judge ALEC proposals in the same way.

Kansas state government

CBPP misleading Kansans on revenue

April 28, 2014 Guest Author Leave a comment

From Kansas Policy Institute.

Debunking CBPP on tax reform and school funding (Part 1)

By Dave Trabert

If Ronald Reagan were alive and saw the latest piece from the Center on Budget and Policy Priorities (CBPP), he would say, “Well, there they go again … not letting the facts get in the way of the story they want you to believe.”

The premise of their March 27 piece is that “Kansas’ huge cuts have left … schools and other public services stuck in the recession, and declining further — a serious threat to the state’s long-term economic vitality.” That’s not true, of course, but it’s what the way-left-leaning CBPP wants you to believe … and what the big-government interests in Kansas are only too happy to repeat.

CBPP and their allies seem to believe that government needs an unlimited supply of taxpayer money and could not possibly operate with a penny less. It’s a classic entitlement mentality and the premise is laughably false.

The volume of falsehoods and misleading statements in “Lessons for other States from Kansas’ Massive Tax Cuts” is so great that we will address each of their five “lessons” in separate blog posts this week. Today’s post will focus on their claim about state revenues.

This isn’t the first time we’ve debunked CBPP tales about Kansas and sadly, probably won’t be the last.

CBPP claim #1 — Kansas’ revenue loss will rise to 16 percent in five years if the tax cuts are not reversed.

As is typical for CBPP, they don’t explain how they arrive at their 16 percent figure but it probably has something to do with their entitlement focus (what government could/should have rather that what it needs). Regardless, the facts from Kansas Legislative Research (KLRD) show otherwise.

KLRD estimates that General Fund revenue will be 9.6 percent higher in five years.¹ FY 2014 is the first full year of income tax reform; revenue is 7.1 percent lower this year than the record-setting level of 2012 but it is actually 1.3 percent higher than three years ago! Even more remarkable, a new revenue record is predicted to be set in FY 2018 — just four years after historic tax reform was fully implemented.

I dare you to find one media outlet in Kansas reporting these remarkable facts. To the contrary, most media and their big-government allies cling to versions of CBPP’s “sky is falling” mentality.

CBPP is flat out lying when they say Legislative Research “… estimates that Kansas received $803 million less revenue this year because of the 2012 tax cuts…” It should be noted here that CBPP provides no citation for their outrageously false claim. Here’s the truth. KLRD did predict that much of a loss in personal income tax revenue (not total revenue as claimed by CBPP) two years ago when tax reform was being discussed but they did so on a static basis using the parameters of a particular proposal. Changes to that proposal have since been implemented and consensus revenue estimates have dramatically improved. CBPP wants you to believe that an outdated, static estimate is current despite having access to information that contradicts their claim.

The November 2013 Consensus Revenue estimate for FY 2014 was $5.857 billion or just $484 million below last year’s total revenue.² Tax revenue (which comprises the vast majority of General Fund revenue) was predicted to be down $466 million and Other Revenue was projected to be $18 million lower.

But tax revenue has been running well ahead of November projections so official revenue estimates were increased in April (after the CBPP publication) by $103.3 million for FY 2014 and $74.3 million for FY 2015.³ Later years were not adjusted upward but that’s just a function of the Consensus Revenue process; we will hopefully an even brighter revenue forecast soon from Legislative Research.

Whenever you see CBPP’s false claims repeated by media, legislators or others who are opposed to tax reform, ask them why they are spreading false claims in light of these facts from Kansas Legislative Research:

FY 2014 revenue will be 1.3 percent greater than just three years ago.
Revenues will hit an all-time high in FY 2018, just four years after full implementation of tax reform (and maybe sooner, if revenues continue to run ahead of projection).

Tomorrow’s post will deal with their fairy tales about education and other state spending.

^1. Kansas Legislative Research, General Fund Profile published by KLRD on April 6, copy in author’s possession. Actual revenue for FY 2011 and FY 2012 and estimated revenue for FY 2016 through FY 2019; FY 2014 and FY 2015 revised per April Consensus Revenue at http://skyways.lib.ks.us/ksleg/KLRD/Publications/2014_CRE_ShortMemo-4-17-14.pdf.
^2. Kansas Legislative Research, http://skyways.lib.ks.us/ksleg/KLRD/Publications/2013_CRE_ShortMemo-11-6-13.pdf
^3. Kansas Legislative Research, http://skyways.lib.ks.us/ksleg/KLRD/Publications/2013_CRE_ShortMemo-11-6-13.pdf

Wichita and Kansas schools

After Gannon, will Kansas public school spending boosters still love courts and constitutions?

March 30, 2014 Bob Weeks Leave a comment

Will Kansas Progressives’ expressed love for courts and constitutions hold up in light of the school finance decision?

In January Paul Davis, a prominent Kansas Democrat and candidate for governor, tweeted “With the school ruling due any day now, will Brownback comply w/the court order or try & rewrite the KS constitution?” These words were followed by a link to Davis’ website that copies an article from the New York Times. (That article has its own host of problems, explained in New York Times on Kansas schools, again and More about the New York Times on Kansas school finance.)

This mantra — that the Kansas Constitution requires the legislature to spend more on public schools — has been the drumbeat of Kansas Progressives. Their reverence for and deference to the Kansas Constitution is curious in light of their opinion of the United States Constitution.

The Kansas Supreme Court’s decision in Gannon v. Kansas contains something that Kansas Progressives support: A ruling that Kansas schools are not funded equitably. It’s thought by many that $129 million in extra spending is needed to fix the discrepancy.

But the Supreme Court stopped there, sending the issue of adequate funding back to the lower court along with a few instructions. It’s these instructions that will test Kansas Progressives’ belief in the wisdom of courts and their reverence for the Kansas Constitution.

Kansas public school spending supporters — that right there gives away their main motivation — want more school spending. Whatever distortions of facts they make, well, it’s all for the kids, don’t you know?

So right away the public school spending supporters want to deflect attention away from the performance of Kansas schools. Spending is easier to talk about, and the facts about Kansas school performance is not nearly as pretty as the education establishment wants you to believe. Two things to know: When evaluated in the light of the demographic differences between Kansas and other states, the performance advantage of Kansas largely disappears (see Kansas school test scores must be evaluated considering demographics. Further, Kansas has weak standards for its schools, and further weakened them not long ago (see Why are Kansas school standards so low?).

The Court had something to say about this in its opinion: “Regardless of the source or amount of funding, total spending is not the touchstone for adequacy in education required by Article 6 of the Kansas Constitution.” So perhaps we will see a court consider the results of Kansas schools rather than just the inputs.

Then, when we consider spending, the public school spending establishment performs a slight of hand, directing attention to only a portion of spending on schools: base state aid per pupil. That measure of spending has declined. But it’s a narrow measure. In the last school year base state aid per pupil was $3,838. That’s the figure often used as the level of school spending. But in that year total Kansas state spending per pupil $6,984, or 1.82 times base state aid.

Adding local and federal sources, spending was $12,781 per student, or 3.33 times base state aid.

This is important, as the Court issued some instructions in its remanding of the case to the lower court. All funding sources are to be considered: “In the panel’s assessment, funds from all available resources, including grants and federal assistance, should be considered.”

Also, the public school spending establishment has argued that spending on teacher retirement shouldn’t be included in school spending. It doesn’t make it into the classroom, they say. (One wonders if teachers would continue to work if schools did not provide a retirement program.) But the Court has a different opinion: “Moreover, state monies invested in the Kansas Public Employees Retirement System (KPERS) may also be a valid consideration because a stable retirement system is a factor in attracting and retaining quality educators — a key to providing an adequate education.”

The Court gave the public school spending establishment a little hope for relief. Often that establishment says that a multitude of rules and regulations prevent funds from being spent in the way they want. The Court said these restrictions may be considered: “The panel may consider the restrictions on the use of these federal, pension, and other funds and determine that even with the influx of these additional monies the school districts are unable to use them in the manner necessary to provide adequacy under Article 6. But regardless of the source or amount of funding, total spending is not the touchstone for adequacy.”

There again the Court issued the instruction regarding spending as a measure of an adequate education.

Taxation

The relevance of income tax rates

February 25, 2014 Bob Weeks Leave a comment

Jim Pinkerton, the journalist, Fox News contributor, and co-founder of the RATE (Reforming America’s Taxes Equitably) Coalition told an audience this: “The purpose of high taxes on the rich is not to get the rich to pay money, it’s to get the middle class to feel better about paying high taxes.”

Pinkerton was speaking last week at a conference titled “The Tax & Regulatory Impact on Industry, Jobs & The Economy, and Consumers” produced by the Franklin Center for Government and Public Integrity. His remarks, as he told the conference attendees, were based on the work of economist F.A. Hayek. Others have also noted that changes to marginal tax rates often have little impact on the amount of taxes actually paid. The top marginal tax rate — that’s the rate that applies to high income earners on most of their income — was above 90 percent during most of the 1950s. From 2003 to 2012 it was 35 percent, and is now 39.6 percent.

A common mistake is equating tax rates with the tax actually paid. For many taxpayers, there is a direct relationship. For those who earn a paycheck, there’s not much they can do to change the timing of their income, find tax shelters, or shift income to capital gains. When income tax rates rise, they have to pay more. But rich people can use these (and other) strategies to reduce the taxes they pay.

In The purpose of high tax rates on the rich I showed that despite wide fluctuations in the top marginal tax rate, the tax revenue collected since World War II is remarkably constant, when measured as a percent of gross domestic product.

This is not the only way to consider the effect of tax rates. Using data from the Internal Revenue Service and Congressional Budget Office, I developed two charts. One shows the share of total federal taxes paid by top income earners, in this case the top five percent and the top one percent. For the range of years for which CBO provides data, the top marginal income tax rate has varied widely and has mostly fallen, and the share of federal taxes paid by top income earners has risen slightly.

A second chart shows the average federal tax rate for these two groups of top earners. The average federal tax rates paid by top earners has varied much less than the variation in tax rates.

As Pinkerton told the Franklin Center conference attendees, high tax rates make the middle class feel better about paying their own taxes. They may take comfort in the fact that someone else is worse off — that rich people are paying higher tax rates. But as the data shows, it’s a misconception that high tax rates mean rich people actually pay taxes at correspondingly higher rates.

Taxation

The purpose of high tax rates on the rich

February 24, 2014 Bob Weeks Leave a comment

“The purpose of high taxes on the rich is not to get the rich to pay money, it’s to get the middle class to feel better about paying high taxes.”

Data is from Bureau of Economic Analysis (part of the U.S. Department of Commerce) along with my calculations.

Wichita and Kansas schools

Kansas school test scores, a hidden story

September 23, 2013 Bob Weeks 1 Comment

We hear a lot about how Kansas shouldn’t strive to become more like Texas, especially regarding schools. Defenders of high school spending in Kansas portray Texas as a backwater state with poor schools. This video takes a look at Kansas and Texas school test scores and reveals something that might surprise you. (Click here to view in high definition at YouTube.) Narrative explanation follows.

Superficially, it looks like the Kansas school spending establishment has a valid point. Scores on the National Assessment of Education Progress, a test that is the same in all states, has Kansas scoring better than Texas (with one tie) in reading and math, in both fourth and eighth grade.

That makes sense to the school spending establishment, as Kansas, in 2009, spent $11,427 per student. Texas spent $11,085, according to the National Center for Education Statistics. Considering only spending deemed by NCES to be for instruction, it was Kansas at $6,162 per student and Texas at $5,138.

Texas also has a higher pupil/teacher ratio. Texas has 14.56 students for each teacher. In Kansas, it’s 13.67. (2009 figures, according to NCES.)

So for those who believe that school spending is positively correlated with student success, Kansas and Texas NAEP scores are evidence that they’re correct in their belief.

But let us take another look at the Kansas and Texas NAEP scores. Here’s a table of 2011 scores.

Notice that when reporting scores for all students, Kansas has the highest scores, except for one tie. But when we look at subgroups, all the sudden the picture is different: Texas has the best scores in all cases, except for two ties. Similar patterns exist for previous years.

Kansas students score better than Texas students, that is true. It is also true that Texas white students score better than Kansas white students, Texas black students score better than Kansas black students, and Texas Hispanic students score better than or tie Kansas Hispanic students. The same pattern holds true for other ethnic subgroups.

How can this be? The answer is Simpson’s Paradox. A Wall Street Journal article explains: “Put simply, Simpson’s Paradox reveals that aggregated data can appear to reverse important trends in the numbers being combined.”

The Wikipedia article explains: “A paradox in which a trend that appears in different groups of data disappears when these groups are combined, and the reverse trend appears for the aggregate data. … Many statisticians believe that the mainstream public should be informed of the counter-intuitive results in statistics such as Simpson’s paradox.”

In this case, the confounding factor (“lurking” variable) is that the two states differ greatly in the proportion of white students. In Kansas, 69 percent of students are white. In Texas it’s 33 percent. This large difference in the composition of students is what makes it look like Kansas students perform better on the NAEP than Texas students.

But looking at the scores for ethnic subgroups, which state would you say has the most desirable set of NAEP scores?

Kansas progressives and those who support more spending on schools say we don’t want to be like Texas. I wonder if they are aware of Simpson’s Paradox and how it conceals important facts about Kansas school performance.

Politics

For Kansas progressives, it’s all about school spending, not performance

July 21, 2013 Bob Weeks 1 Comment

Once again, Kansans are subjected to a rant by Kansas House of Representatives Democratic Leader Paul Davis. On Facebook, he continually complains about the lack of funding for Kansas schools, recently writing “What do you think is more important: tax cuts for millionaires or funding for your local school?”

Here are some concepts I wish Davis would explain to his Facebook fans. This might be good practice as he considers a run for the Kansas governorship.

First, Kansas schools have increased employment.

Second, Kansas schools don’t spend all the money they’ve been given, and the pile of unspent cash continues to grow far beyond what is needed for cash flow management.

Third, everyone’s taxes have been cut in Kansas.

But here’s the worst thing Kansas has done. It’s a fact that Paul Davis won’t tell you, and it’s something that is very harmful for Kansas schoolchildren: At a time when Kansas was spending more on schools due to an order from the Kansas Supreme Court, the state lowered its standards for schools.

This is the conclusion of the National Center for Education Statistics, based on the most recent version of Mapping State Proficiency Standards Onto the NAEP Scales.

This project establishes a relationship between the tests each state gives to assess its students and the National Assessment of Education Progress, a test that is the same in all states. As explained in Kansas school standards and other states, Kansas standards are relatively low, compared to other states.

For Kansas, here are some key findings. First, NCES asks this question: “How do Kansas’s NAEP scale equivalent scores of reading standards for proficient performance at grades 4 and 8 in 2009 compare with those estimated for 2005 and 2007?”

For Kansas, the two answers are this (emphasis added):

“Although no substantive changes in the reading assessments from 2007 to 2009 were indicated by the state, the NAEP scale equivalent of both its grade 4 and grade 8 standards decreased.”

Also: “Kansas made substantive changes to its reading grade 8 assessment between 2005 and 2009, and the NAEP scale equivalent of its grade 8 standards decreased.”

In other words, NCES judged that Kansas weakened its standards for reading performance.

$naep-math-changes-2009-kansas$

A similar question was considered for math: “How do Kansas’s NAEP scale equivalent scores of mathematics standards for proficient performance at grades 4 and 8 in 2009 compare with those estimated for 2005 and 2007?”

For Kansas, the two answers are this (emphasis added):

“Although no substantive changes in the mathematics assessments from 2007 to 2009 were indicated by the state, the NAEP scale equivalent of its grade 8 standards decreased (the NAEP scale equivalent of its grade 4 standards did not change).”

Also: “Kansas made substantive changes to its mathematics grade 4 assessment between 2005 and 2009, but the NAEP scale equivalent of its grade 4 standards did not change.”

For mathematics, NCES judges that some standards were weakened, and some did not change.

In its summary of Kansas reading standards, NCES concluded: “In both grades, Kansas state assessment results showed more positive changes in achievement than NAEP results.” For mathematics, the summary reads: “In grade 4, Kansas state assessment results showed a change in achievement that is not different from that based on NAEP results. In grade 8, state assessment results showed a more positive change.”

In other words: In three of four instances, Kansas is claiming positive student achievement that isn’t apparent on national tests.

Kansas is not alone in weakening its standards during this period. It’s also not alone in showing better performance on state tests than on national tests. States were under pressure to show increased scores, and some — Kansas included — weakened their state assessment standards in response.

What’s important to know is that Kansas school leaders are not being honest with Kansans as a whole, and with parents specifically. In the face of these findings from NCES, Kansas Commissioner of Education Diane M. DeBacker wrote this in the pages of The Wichita Eagle: “One of the remarkable stories in Kansas education is student achievement. For 10 years straight, Kansas public school students have shown improvement on state reading and math assessments.” (Thank teachers for hard work, dedication, May 27, 2011.)

A look at the scores, however, show that national test results don’t match the state-controlled tests that DeBacker touts. She controls these states tests, by the way. See Kansas needs truth about schools.

A year later a number of school district superintendents made a plea for increased funding in Kansas schools, referring to “multiple funding cuts.” (Reverse funding cuts, May 3, 2012 Wichita Eagle.) In this article, the school leaders claimed “Historically, our state has had high-performing schools, which make Kansas a great place to live, raise a family and run a business.”

These claims made by Kansas school leaders are refuted by the statistics that aren’t under the control of these same leaders.

I wonder why Paul Davis doesn’t write about these topics on Facebook.

Politics

Inside the progressive mindset

June 28, 2013 Bob Weeks Leave a comment

When I read this opening paragraph of a letter from the leaders of Media Matters, I double-checked that this wasn’t a story from The Onion, the humorous and satirical news source:

Five years ago, Media Matters was founded with a few staffers dedicated to a singular, and daunting, goal: restoring accountability and integrity to American journalism after both had been systematically eroded by decades of conservative attacks. Until then, no progressive organization had been solely dedicated to this crucial task, allowing the right-wing media machine to run roughshod over one of our democracy’s most vital institutions. The consequences were obvious, as lies, smears, and misinformation proved instrumental in electing George W. Bush not once but twice, and in building public support for his radically conservative agenda.

What’s astonishing is that there are those who believe that American journalism has been controlled or influenced to any significant degree by conservatives, or ruined by conservatives. I would encourage readers to look at a list of “slant quotients” of news media outlets.

Further, it was realized fairly on in the presidency of George W. Bush that he was a big spender.

Nonetheless, Media Matters is committed to its efforts. Here’s the Daily Caller reporting in Inside Media Matters: David Brock’s enemies list:

An internal Media Matters For America memo obtained by The Daily Caller reveals that the left-wing media watchdog group employs an “opposition research team” to target its political enemies. Included in the list of targets are right-leaning websites, conservative think tanks, prominent financiers and donors, and more than a dozen specific Fox News Channel and News Corporation employees.

“We will conduct extensive public records searches and compile opposition books on individuals,” declares the memo, likely written in late 2009. Investigations, it says, “will focus on the backgrounds, connections, operations and political and financial activities of the individuals.” (RELATED: Media Matters sources, memos reveal erratic behavior, close coordination with White House and news organizations)

Kansas state government

Kansas needs to focus on growth when wrapping up session

May 8, 2013 Bob Weeks 1 Comment

As the Kansas Legislature prepares to end its 2013 session, budgetary and taxation issues remain to be resolved. It’s important that the legislature resolve these issues in a way that positions Kansas for economic growth, rather than retaining the policies that have led to stagnation compared to other states.

First, let’s stop talking about the need to “pay for tax cuts.” The only way in which tax cuts have a cost is if you believe that your income belongs first to government, and then to you. While that schema is preferred by Kansas Progressives, it’s contrary to freedom and destructive to jobs and prosperity. Kansas will be better off if Kansans are able to control more of their own spending, rather than having government spend it for them.

Second, we must remember that the projected “holes in the budget” or deficits have two moving parts: Income and spending. Any deficit or surplus is produced equally by both factors. A reduction in income to the government produces a deficit only if government chooses to keep spending.

Third, let’s stop talking about “irresponsible tax cuts” and how cutting taxes is an “experiment.” To proceed as Kansas has — that would be irresponsible, as we know that Kansas has been underperforming relative to other states. No experimentation is needed. We know that Kansas has not done well.

Fourth, we need to make sure that everyone is starting from the same set of facts. Here’s one example: While critics of the new Kansas tax policy focus on the elimination of state income taxes on certain forms of business organization, marginal tax rates were lowered for everyone. Additionally, the standard deduction was increased for everyone, meaning that zero tax is paid on a larger share of everyone’s income.

But one tax was raised. Kansas had a program that rebated sales tax paid on food. This was limited to those with modest incomes or over a certain age. It is generally recognized that the sales tax is a regressive tax, meaning that those with low incomes pay a larger share of their income in tax. Reducing this perceived inequity was the goal of the credit program.

In recognition of this, Kansas should eliminate the sales tax on food, especially if we keep the current high sales tax rate. This eliminates the clunky tax credit program and lets everyone save on food taxes every day, not just at tax filing time.

Critics also say that taxes were raised on some low income families. This argument is based on some tax credit programs that were eliminated, such as the tax credit for child and dependent care expenses, and another tax credit for child day care expenses. It’s important to remember that these programs were implemented as a tax credits, and they are properly categorized as welfare spending accomplished through the tax system. If we want to keep this welfare spending, let’s do it some other way. Spending through the tax system complicates the understanding of government finances.

What Kansas should do

Here’s what the Kansas Legislature needs to do: Keep the current sales tax rate, eliminate sales tax on food, and reduce individual income and corporate income tax rates. Reduce the income tax rates by an amount that would be revenue-neutral, so that state spending does not grow. This moves us towards more of a “Fair Tax” model, which many economists agree is better than taxing income. Elimination of the sales tax on food removes much of the regressivity of the sales tax.

To the extent that the legislature believes it needs other funds, take it from transportation funding. We’ve spent a lot on roads and highways in recent years. It’s enough for now.

Another important thing the legislature needs to do is get serious about reducing government spending. Kansas lost an important chance to save money — although a relatively small amount — when school choice programs failed to pass. These programs, across the country, save state and local governments money. Unfortunately, Kansas legislative leaders did not use this argument.

More ways to save: In 2011 the Kansas Legislature lost three opportunities to save money and improve the operations of state government. Three bills, each with this goal, were passed by the House of Representatives, but each failed to pass through the moderate-controlled Senate, or had its contents stripped and replaced with different legislation.

Each of these bills represented a lost opportunity for state government services to be streamlined, delivered more efficiently, or measured and managed. These goals, while always important, are now essential for the success of Kansas government and the state’s economy.

One bill was called the Kansas Streamlining Government Act, another would have created the Kansas Advisory Council on Privatization and Public-Private Partnerships, and another would have created performance measures for state agencies and report that information to the public. More information on these bills is at Kansas budget solution overlooked.

We have to wonder why these bills — or similar measures — were not introduced and advanced this year when the opposition in the Senate is weaker. These are the types of measures we need to take as a state.

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Top tax rates and taxes actually paid

Hauser’s Law

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Who is harmed?

The role of labor unions

Minimum wage as competitive weapon

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Debunking CBPP on tax reform and school funding (Part 1)

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What Kansas should do

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Individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas