Our federal system is aptly called the laboratory of democracy. Rather than learning everything from the school of hard knocks, states can look to the experience of others with initiatives like charter schools, right-to-work laws, and taxation levels. Unfortunately, there are some slow learners out there.
The IRS recently released its annual report of the net migration of people and money between states. Once again, the high tax-and-spend states lost out. California was the biggest income loser ($23.8 billion) in 2022, followed by New York (14.2), Illinois (9.8), New Jersey (5.3), and Massachusetts (3.9).
Florida gained $36 billion in migrating revenues. Texas realized $10.1 billion, followed by South Carolina, Tennessee, and North Carolina. Arizona gained $3.7 billion in gross adjusted income (AGI), mostly from the 57,857 people who migrated from California, compared to 25,677 moving from Arizona to California.
Who knew people prefer to live where housing is affordable, power is reliably available, and crime is taken seriously by authorities? California not only fails on these tests, but its gas taxes are the highest in the nation, which means gasoline costs $1 to $2 a gallon more and electricity bills are 2 to 3 times higher than states without California’s climate mandates. Temperatures don’t seem to be coming down much so far.
California’s median priced home is about double that of most states and the state tax on middle income earners is 9.3%, more than most states assess their millionaires. Governor Gavin Newsom can prattle on about the “California Dream” but Californians aren’t feeling it. They’re leaving if they can.
Moreover, it’s getting worse. California lost nearly 3 times as much income to other states in 2022 as it did in pre-COVID 2019. Even though housing costs discouraged many from moving, New York lost 1.8% of the total state AGI, 3.1% in 2021, and 2.5% in 2020.
Florida and Texas were among the beneficiaries, seeing 150 to 200% more income being transferred from high spending states than before the pandemic.
California, New York, Illinois, and other states have created a “doom loop” by their foolhardy fiscal policies. Fewer workers and less total income result in lower tax revenues. The tax-and-spenders must raise tax rates to maintain their social programs and promises to unions and to finance their rising debt. Rinse and repeat.
Most enterprises, faced with falling revenues and climbing expenses, would update their business model. But the high-tax states aren’t interested in changing their ways. California is moving forward with yet more climate mandates and boondoggles like the infamous “train to nowhere.” Illinois rejected fiscal discipline and instead passed a budget with $1.1 billion in tax increases. New Jersey, hemorrhaging jobs, went ahead anyway with reimposing a 2.5% surtax on corporate incomes.
Rather than pursuing modest reforms or spending cuts, the blue states are instead trying to force other states to help them pay for their high taxes. They love the state and local tax (SALT) deduction, which requires taxpayers from Florida, Arizona, and other frugal states to pay part of the state tax bill for high earners from high-tax states. They are insistent that Congress remove the $10,000 cap on the deduction, which would further incentivize their excessive spending.
The cap raises about $80 billion a year of relief for federal taxpayers. The Brookings Institution found that if the SALT cap were eliminated, 57% of the benefit would go to the top 1% of earners. Still, the tax-and-spenders claim Congress “screwed” them by instituting the cap, thereby supposedly creating much of their fiscal woes.
States have become more careless in managing their pension fund obligations also. Raising benefit levels is popular, while funding can be deferred. Unsurprisingly, the result is chronic underfunding. New York has assets that would fund only 48% of future legal obligations according to standard accounting procedures and New Jersey is at 29%.
Future shortfalls will eventually result in public bankruptcies and destitute pensioners. Still states resist reforms, apparently assuming the feds would not ultimately deny requests for bailouts in such desperate circumstances.
States must be accountable for their own actions. They should not be allowed to exploit each other to cover for their moral and financial shortcomings.
Dr. Thomas Patterson, former Chairman of the Goldwater Institute, is a retired emergency physician. He served as an Arizona State senator for 10 years in the 1990s, and as Majority Leader from 93-96. He is the author of Arizona’s original charter schools bill.
A strong economy is a key piece of the foundation for any society. But while the Biden administration has been busy doing anything it can to destroy the economic climate in America over the past four years, Arizona is set up for success—not just for today, but for decades to come.
Last month, the American Legislative Exchange Council (ALEC) released its latest “Rich States, Poor States” report, and the Grand Canyon State received the number three ranking for economic outlook among all 50 states. Such a high rank is impressive enough on its own, but when you consider that our state was ranked 13 back in 2021, Arizona’s dramatic rise up the chart especially shines. So, how did we get here?
Pro-Growth Policies Have Led the Way
Arizona’s high ranking is a direct result of significant pro-growth income and property tax reform that have supercharged our economy. In just the last decade, we have cut taxes on capital gains and drastically reduced the property tax burden on small businesses. Then, in July 2021, the Free Enterprise Club helped lead the charge as the Republican-led legislature passed a 2.5% flat tax, delivering historic tax cuts for every single Arizona taxpayer. And if that wasn’t enough, Republicans also included tax relief for Arizona’s families in last year’s state budget to help with the growing cost of gas, groceries, housing, and energy under the Biden administration.
Each of these pro-growth policies have set up Arizona as a leader in the country with many other states looking to mirror these reforms, but if the left had gotten its way, we never would have been here.
Friday’s jobs report is not the home run that Democrats and the mainstream media claim. In their rush to champion topline job creation, they overlook how the jobs report is actually made up of two surveys. And the other doesn’t look so good, though it’s far more reflective of the economic reality facing ordinary Americans and small businesses.
The Bureau of Labor Statistics surveys business establishments and households each month to generate its report on labor market conditions. The establishment survey of payrolls produces the monthly job creation number the media is quick to champion. Yet even the BLS admits the household survey is “more expansive” because it also measures self-employed workers and those employed privately in households. This survey produces the unemployment rate.
For years, these surveys have tracked each other in terms of employment growth, as you’d expect. However, beginning in mid-2022, they began to diverge, with the payroll survey showing far more job creation than the household survey. Over the last year, the payroll survey finds 2.9 million jobs have been created, while the household survey reveals only 1.1 million new jobs.
In stark contrast to the 353,000 jobs created in the payroll survey, the household survey shows employment actually declined by 31,000 last month. Full-time jobs declined by 63,000. That’s a far cry from today’s headlines about a booming economy.
These household survey numbers are in line with other anecdotal and empirical data. On Thursday, the job placement firm Challenger, Gray and Christmas reported a historic 82,300 layoffs in January. This week, UPS announced 12,000 layoffs. Major companies such as Zerox, Spotify, and Hasbro have recently laid off at least 15% of their workforce. There’s also a jobs bloodbath currently occurring in the media sector.
On Wednesday, ADP reported that only 107,000 private-sector jobs were created in January.
There are other technical problems with the jobs report. Seasonal adjustments and annual revisions to population estimates have made January jobs reports notoriously untrustworthy. I can’t understand why we need opaque “seasonal adjustments” to the job numbers at all. Americans are smart enough to understand that job creation will be higher in some months and lower in others for seasonal reasons. We don’t need green eyeshades smoothing them for us.
Bipartisan tax cut legislation passed this week in the House of Representatives can turbocharge job creation in both surveys in the months ahead. The legislation, brokered by House Ways and Means Chairman Jason Smith (R-MO), extends key tax cuts passed as part of the Tax Cuts and Jobs Act in 2017, making it easier for small businesses to invest, expand, and hire.
This legislation is overwhelmingly supported by Main Street, with small businesses calling the immediate expensing provision “a game-changer.” The Senate should quickly pass this legislation and send it to President Biden’s desk to be signed into law.
In the meantime, let’s see if the payroll and household surveys continue to diverge in the jobs reports ahead. If they do, it will be more confirmation that the economy is not out of the woods yet.
Alfredo Ortiz is a contributor to The Daily Caller News Foundation, president and CEO of Job Creators Network, author of “The Real Race Revolutionaries,” and co-host of the Main Street Matters podcast.
Critics of Donald Trump once counted tax evasion among his many faults. But it turned out that he wasn’t breaking any tax laws. He was simply utilizing the complex web of exemptions, deductions, and other rules available to reduce his tax bill to near zero.
It would be hard to imagine a worse tax system than our federal government’s. It is based on taxing economic productivity, which in a free-market system, benefits us all. Politicians use taxation not only to generate revenue but to pursue a grab bag of policies ranging from welfare programs to “climate change,” home ownership, and subsidization of state and local taxes.
The tax code is hopelessly complex and expensive to operate. Individuals and businesses spend around $37 billion and over 3 billion hours annually in tax compliance, up to 10 times as much as taxpayers in other wealthy countries.
Phil Gramm was right 25 years ago to suggest that the best option would be to scrap our entire tax system and replace it with a single national sales tax. He didn’t succeed, of course, but the concept is so sound it still remains active in academia, think tanks, and government white papers.
Representative Buddy Carter introduced the Fair Tax Act of 2023 in Congress this year and was promised a floor vote. This bill would eliminate all personal and corporate income taxes, payroll taxes for Medicare and Social Security, estate and gift taxes, as well as the Internal Revenue Service itself.
Instead, there would be an effective 30 percent consumption tax, but households would get a tax rebate check each month adjusted for family size and income. The rebate would have the effect of exempting all purchases up to the poverty line from taxation. The tax rate and rebates could be adjusted to make the tax revenue neutral and roughly as progressive as our current structure.
Still, Democrats and their media buddies immediately attacked the proposal as “tax cuts for the rich, period” and a “Republican dream to build a wealth aristocracy.” Even the Wall Street Journal criticized it on political grounds, worrying that even though it “made sense,” it might hand Democrats a juicy campaign issue.
But its critics, perhaps intentionally, misunderstand the bill. Americans would not on the net pay more taxes. Nor would low-income earners be punished. The tax burden wouldn’t grow but only be redistributed.
Outsized deductions and other tax shelters would vanish, meaning the ultra-wealthy and the big spenders would pay taxes more appropriate to their incomes. Savers would obviously benefit. Investments could grow tax-free.
Some critics argue that tax evasion would be a problem. But that’s true of any tax scheme, including the one we have now. The IRS estimates that Americans underpay their taxes by $500 billion annually, in addition to the billions of fraudulent claims in programs like the Earned Income Tax Credit.
The Fair Tax wouldn’t have to be perfect to be more efficient and less cumbersome than our current system of self-reporting buttressed with audits. Avoiding the stressful hassles with the IRS would be a welcome relief to many Americans.
A more substantial concern is that future legislatures may try to augment the consumption tax by adding back income and other taxes so that we end up with the worst of both worlds. A constitutional amendment prohibiting an income tax would be preferable. Otherwise, careful consideration must be given to rigid self-activating safeguards to protect taxpayers.
The Fair Tax has never passed because of political opposition from groups that have too much to lose by giving up the status quo. Yet if government wants to subsidize things like housing, electric vehicles, or healthcare, it would be more transparent and accountable to appropriate the money rather than disguising it as a tax deduction or credit. Likewise, if Americans want to financially support charitable causes, and they do, they should do it with their own money, not a partial government subsidy that comes with strings attached.
Tax reforms are always opposed by those who benefit from the current structure. But the Fair Tax would be a far more equitable and transparent way to fund government. It deserves a look.
Dr. Thomas Patterson, former Chairman of the Goldwater Institute, is a retired emergency physician. He served as an Arizona State senator for 10 years in the 1990s, and as Majority Leader from 93-96. He is the author of Arizona’s original charter schools bill.
The Prop 400 package put together by the Maricopa Association of Governments (MAG) is in serious trouble at the legislature, and Katie Hobbs and the transit lobby knows it. So, in a desperate attempt to rescue their defective plan, they have phoned a friend to see if a little legacy media pressure will improve their flagging fortunes at the Capitol.
In recent weeks, the AZ Republic has unleashed a torrent of articles and opinion pieces attempting to scare the legislature into sending their transit slush fund package up to Hobbs’ desk. Most of their writings have been nothing more than recycled talking points from MAG and transit industry lobbyists attacking conservative lawmakers and critics (like the Club) for opposing a plan that slashes freeway funding and increases traffic congestion in the region.
A couple weeks ago it was in the form of an editorial that claimed to disprove our Prop 400 criticism by “relitigating” the merits of bus and light rail and proving its value in the region. And now over the weekend, their opinion writers couldn’t race out fast enough to promote the press release issued by Katie Hobbs and the transit lobby that the legislature needs to adopt a fake “compromise” MAG plan.
In short, their efforts to “relitigate” the merits of transit or to declare that there is any type of “compromise” only demonstrate how radical their position really is.
Here are just a few examples of how the Republic has veered from journalism to being nothing more than a lobbying arm of the transit lobby:
