Tax rates matter, and people playing class warfare over the property tax bills of people in their town may be missing the way in which that drives up taxes on the working class.
The expansion deal that the state government of Rhode Island has just announced with Electric Boat at the quasi-public Quonset industrial park includes an understated feature:
As part of the deal with Rhode Island, Electric Boat has agreed to use union construction workers on the expansion and pay the prevailing wage.
Why would the government of the State of Rhode Island negotiate for the mandatory use of union labor? If state officials would rather have more money go to construction workers, rather than have it available for additional investment, the prevailing wage requirement would have been sufficient.
The likely answer sheds a different light on the component of the deal requiring “$14 million in state infrastructure spending at the Quonset industrial park.” If the state is negotiating on behalf of unions, this provision may have been requested by the state negotiators. That is, they were happy to tie taxpayers hands with a contract requiring new government spending for labor-union work.
Note, by the way, that the vast majority of the deal offered to Electric Boat is a targeted exemption from sales tax. Imagine how much more other companies would invest here if the state would eliminate or dramatically reduce the sales tax as a blanket measure. Of course, if people were investing their money in economic development on their own initiative, the government officials wouldn’t so often have a seat at the negotiating table to direct funds toward their friends and political supporters.
Investor’s Business Daily found striking correlations between tax burden, presidential vote, population loss/gain, and government fiscal condition. In general, high-tax states tended to vote for the Democrat in the last election, tend to be losing domestic population to other states, and tend not to be in great fiscal condition. As IBD suggests:
One way to look at all this is to conclude that poorly managed states are trying to force taxpayers to cover for their mistakes. But, taxpayers won’t stand for it. Which strongly suggests that high-tax states need to set a new course, toward lower taxes and less spending, if they want to stop their population losses.
Of course, that’s a big “if.” As long as they can keep the scheme going, population is only incidental… never mind that our governments are supposedly instituted to represent the people who actually live in an area. That isn’t any longer true in a fundamental sense.
In preparation for my weekly spot with John DePetro, this afternoon, I revisited Katherine Gregg’s Providence Journal article about the 7.5% in raises (actually 7.7%, compounded) state employees under Council 94 are expected to receive as part of a deal with Democrat Governor Gina Raimondo. Raimondo, you may have heard, is facing a tough election this year.
These paragraphs jump out:
… the events at Council 94 union headquarters coincided with the announcement by the Raimondo administration that year-to-date revenue collections are running $46.5 million ahead of the estimates adopted at the state’s official Revenue Estimating Conference last November, on which Governor Raimondo’s $9.3 billion budget proposal was based.
A statement issued by the Department of Revenue said: “The major contributors to this surplus are personal income tax revenues, $43.6 million more than expected; estate and transfer tax revenues, $5.3 million above expectations; departmental receipts revenues, $4.5 million more than expected; and public utilities gross earnings tax revenues, $5.4 million ahead of estimates.” A few smaller sources of revenue fell short of projections, yielding the net surplus of $46.5 million.
Gregg notes that the new raises will be competing with the pleas of other special interest groups in their annual “more money” dance (which, admittedly, sometimes means more than a budgeted reduction).
But have you noticed that an unexpected increase in revenue is never cited as an opportunity to lower tax rates? To the extent that it comes up, reduced taxes are typically handled in such a way as to make a special interest out of taxpayers, as with the specific elimination of the car tax.
In any event, time will tell whether Raimondo’s bid for the labor vote creates enough of a boost to save her job. Valley Breeze publisher Tom Ward is skeptical of her chances, generally:
My take on it: There is no amount of money that will save her candidacy. The unfixable UHIP that continues to cost taxpayers more millions, the now-late and already unpopular tolls that create a new budget shortage, the “scooping” of energy conservation monies – and now, grabbing 911 emergency funds for God knows what. She owns all of it! She will lose a two-way race soundly, and needs to keep independents like Joe Trillo in the race to save her.
We’ll see. The thing with full ballots is that a candidate can win with a small plurality, as Rhode Islanders keep learning… to our detriment.
This last week, one of America’s leading conservative thinkers, Arthur Brooks of the American Enterprise Institute, inspired over sixty local leaders at our Rhode Island Center for Freedom & Prosperity leadership luncheon. One guest said: “Every once in a while I get the opportunity to experience something that will change my life in such a profound positive way, that was exactly what happened to me yesterday as I listened to Mr. Arthur Brooks’ words of wisdom. I was further empowered and assured that together we all can and should make that needed difference!”
With “life entrepreneurship” as his central theme, Brooks encouraged the lawmakers and civic leaders in the audience to advance a “start up your life” attitude among the people of Rhode Island. Brooks said that by taking the risk of investing love, time, and commitment to the important people and self-improvement opportunities in one’s life, that this “start up your life” attitude will bring happiness, prosperity, and overall returns on that investment many times over.
The feedback from the bipartisan attendees, whether liberal or conservative, was overwhelmingly positive. As only Arthur Brooks can do, he challenged us intellectually to consider the kind of moral, family, and work culture we want to have in our state. Click here now to see pictures of the event.
Whether it’s removing market signals with a value-added tax or creating incentive to block new children through zoning, public policy shouldn’t remove its red flags and should seek to address original problems, not symptoms.
Yesterday on NBC 10’s Connect to the Capitol, Dan Jaenig asked Governor Gina Raimondo, among other topics, how the state dropped the UHIP ball. The governor started her response by taking a swipe at former Governor Lincoln Chafee, saying he signed a terrible contract with Deloitte. She then continued,
Under my watch, we hit the go button before it was ready. But I will say the real problem here is the company sold us a product that didn’t work.
This is not to defend Deloitte, which apparently has a mixed record with regard to such systems. But let’s be clear. It was you, Governor Raimondo, who gave the catastrophic order, for your own selfish political reasons, to launch an unready system. Accordingly, DO NOT BLAME FORD MOTORS FOR DELIVERING A DEFECTIVE CAR WHEN YOU ORDERED THEM TO REMOVE IT FROM THE ASSEMBLY LINE ONLY HALF WAY DOWN. And similarly for the aspersions you cast at Governor Chafee: the contract, good, bad or indifferent, is completely irrelevant if the manager who takes over the contract inexplicably orders production to be shut down well before the product is finished.
Everyone else – taxpayers and UHIP clients – but you, Madame Governor, is paying the high price for your catastrophic action. Please at least stop casting blame for it in desperate and absurd directions.
Reporting about the budget’s change in payments to hospitals for uncompensated care raises more questions than it answers, pointing to the complexity of government spending and the vulnerability of taxpayers.
Add the Tax Foundation‘s Morgan Scarboro to the list of people observing that state-based estate taxes are on their way out:
In addition to the federal estate tax of 40 percent, some states impose an additional estate or inheritance tax. Twelve states and the District of Columbia impose an estate tax while six states have an inheritance tax. Maryland is the only state in the country to impose both. …
Recently, states have moved away from these taxes or raised the exemption levels:
- Indiana repealed its inheritance tax in 2013
- Tennessee repealed its estate tax in 2016
- New York raised its exemption level to $5.25 million this year and will match the federal exemption level by 2019
- The District of Columbia is set to conform to the federal level this year after meeting its revenue triggers
- New Jersey will fully phase out its estate tax by 2018
- Delaware repealed its estate tax this year
Rhode Island is holding on to its estate tax for the time being, and it’ll probably take something like a political earthquake to shake it loose.
Doesn’t it always seem that government spending goes up and up, and yet officials always claim it’s not enough? Andrew Malcolm notes that… umm… paradox on HotAir:
According to the Census Bureau, last year alone state and local governments collected a record $573 billion just in property taxes. That’s about $1,759 for each one of the estimated 326 million Americans.
Add to that another record — $386.2 billion — in sales and gross receipts taxes.
And another $405 billion in income taxes.
That’s almost $1.4 TRILLION. Quite a haul for governments. And yet, as the Wall Street Journal reports (subscription), state and local governments are hiking taxes and fees even more, claiming budget crunches.
The bottom line, I’d say, is that we’re just trying to undertake too much of our society’s activity using government. Even if they are supremely capable and well meaning, those in the public sector are given broad goals and also have to factor in institutional sclerosis and corruption.
Because the goals are both mandated by law and generally unbound by targets or metrics, resources will always be drawn away from their intended use. And because the people who supply the resources aren’t typically the first beneficiaries of the programs and don’t really have a choice on an individual basis, the business model must be to find ways to pry out more. The paying customer isn’t being persuaded that he or she should spend more for something, but rather, is being told that government has no choice but to take it.
It’s difficult to imagine an activity in which these features would actually make things happen more efficiently, so they should be considered an inevitable drag outweighed by some other problem, like free riding when it comes to national defense. At this point, our sense of that balance is way out of whack.
Regular readers know I put a lot of emphasis on incentives as a way to understand events and a key consideration when crafting policies. The $250 million school bond proposed for the November ballot is a good example.
On the front end, the incentive is very strong for school districts and municipalities to let facilities deteriorate. First, the law is structured to give advantages to labor unions organized at the state and even federal level, creating incentive for them to manipulate the political structure. Then, elected officials have incentive to tilt budgets toward organized labor, drawing money to compensation. Next, having learned from that experience over time, taxpayers have incentive to squeeze money out of budgets so that even higher taxes aren’t paying again for things like maintenance that they thought were already included and that might be diverted again if available.
On top of it all, the near certitude of passing bonds for dire repairs creates disincentive for regular maintenance from the start. This mechanism creates incentives for financial interests and investors, and the bias toward big projects brings in the incentive that got me thinking of these things. As Dan McGowan reports for WPRI:
Fix Our Schools R.I., a 501(c)4 nonprofit formed last week, will spend the coming months “educating communities across the state about what this plan is and how it would affect them,” Haslehurst told Eyewitness News. …
The organization lists its address as 410 South Main St., the same building as the Laborer’s International Union of North America. Haslehurst said it will share space with the Occupational and Environmental Health Center of Rhode Island, a nonprofit that has an office inside the building.
A quick look at the health center’s IRS filing shows that it’s a labor union organization, with AFL-CIO poobah George Nee as the treasurer.
‘Round and ’round the incentives go, to the point that running things efficiently — in the way people run their households, planning ahead and all that — seems almost to be an impossible task. Be skeptical of anybody who tells you that this is a “once in a generation” investment that fixes a problem. After all, when the debt payments subside, the incentive will be to find more projects in need of debt or to build the payment amount into regular budgets.
A recent editorial in the Providence Journal lauding the Rhode Island Convention Center deserves some push-back. The writers applaud those who “invested” in the center back in the ’90s for their “courage and imagination on the basis of eye-popping numbers:
The analysis, conducted by Conventions, Sports & Leisure International of Plano, Texas, found that the Rhode Island Convention Center, the Dunkin’ Donuts Center and the Veterans Memorial Auditorium generated $838 million in total economic impact for the State of Rhode Island from fiscal year 2013 through 2017.
That far exceeds the costs of running the facilities, including $23 million a year in state bonding costs.
This isn’t a reasonable number to proclaim for these purposes. A quick search turns up the iteration of the report from 2015, which tells pretty much the same story, and it shows that the great majority of traffic in the three venues considered (the Convention Center, the Dunkin’ Donuts Center, and Veterans Memorial) is local. As the report puts it, “It is appropriate to assume that much of the spending from attendees that are from the local area is “displaced”, or would have taken place somewhere in the local economy if the event had not been held.”
This is compared with the result if we switched out the venues for three holes in the ground. The $838 million of economic impact assumes that none of the customers would have spent their money locally, that none of the employees would have had jobs, and that none of contractors would have found other clients. The study makes no attempt to estimate how much additional impact the center has over any likely alternatives if it weren’t there. If the land remained in private hands, the owners would have had incentive to sell it, the buyers would have had incentive to develop it, and the developers would have had incentive to figure out the most efficient things to develop.
The study also doesn’t consider that the government spending that has bolstered the center could have been used for something else, like leaving money in people’s pockets to spend and invest in the ways that they considered most important.
In short, the Convention Center hasn’t been a scandalous disaster, but proclaiming “guts and vision” for investing other people’s money seems a bit overstated.
The governments of Fall River and Tiverton are utilizing their property for reasons that show shifting property to government doesn’t ensure that it will always remain sacrosanct.
This story out of Seattle provides a teachable moment on the craziness of the progressive approach to tax policy:
The Seattle City Council will once again consider an employee hours tax that’s being recommended by its Progressive Revenue Task Force, after having rejected such a proposal last November.
Rather than approving the proposal last year, which was projected to generate about $25 million annually by taxing businesses grossing more than $10 million annually 6.5 cents per employee per hour, the council decided to create the PRTF to further explore an employee hours tax, or head tax, and other possible new revenue streams.
The PRTF provides three options for an employee hours tax (EHT) in its recently published final report for generating $75 million in new revenue for creating affordable housing and providing emergency services. It provides several more recommendations for the city council to consider for generating another $75 million in new revenue for $150 million total, which the task force states is still grossly inadequate when dealing with the city’s homelessness crisis, but is a “solid start.”
Even on the progressives’ own terms, this is crazy. So, a city has a problem with homelessness, and this “task force” thinks the solution is to increase the cost of employing people in the city by up to $150,000,000.
Employment and prosperity are the answers. Incentives function by making it easier for people to do the thing you want while making it more difficult for them to do the things you don’t. Now, we can certainly argue about the appropriate amount of meddling for government at each tier (local, state, and federal), but we should at least agree that incentive structures should point in the correct direction.
This would be like taxing gym memberships in order to fund obesity programs or taxing vaping products in order to fund smoking cessation activities.
It’s difficult not to conclude that progressives don’t much care how they get money for government; they just want more of it. They may not even care all that much about what government does with its windfalls, as long as it’s government that gets to do the doing.
In the Providence Journal this week, Wendy P. Warcholik and J. Scott Moody write, “This growing number of children in Rhode Island without a solid familial foundation should give us all pause. This is not a problem that is going to just go away, and we must find ways to help these children before tragedy strikes, perhaps in your own neighborhood.”
Rachel Sheedy reports for Kiplinger that the state-level estate tax continues to evaporate from the United States of America:
Delaware is one of the latest states to bury its estate tax, which snared estates exceeding $5.49 million last year but has completely disappeared. New Jersey, too, has ditched its estate tax altogether, after hiking its exemption to $2 million in 2017 from its notoriously low, longtime exemption of $675,000.
That leaves 12 states (plus the District of Columbia) with state estate taxes on the books. And many of them are hiking exemptions for 2018, sparing more families from a tax bill when a loved one pass
So, the question on the table has become: Will Rhode Island be the last state to slough off this relic of political philosophy that stands in the way of Americans who wish to improve their families’ lot and keep wealth churning throughout society?
— Michael Napolitano (@RepublicanRI) March 14, 2018
@taxfoundation What option do states have as the traditional the sales tax base shrinks? The first option might be controlling the growth in spending and reform Medicaid before searching for new revenue sources. https://t.co/CFRgUz9yDc
— gary sasse (@gssasse) March 14, 2018
— RI Center for Freedom⚓️ (@RICenterFreedom) March 14, 2018
The tax program of many progressive Democrats is for Americans giving their pay checks to the government, and the government giving them back what they chose not to use. Does @GinaRaimondo support this big government philosophy? https://t.co/DsJDCqAX2c
— gary sasse (@gssasse) March 14, 2018
A $95 fine can cause undo hardship on Rhode Islanders. This is a money grab by Mayor Elorza and Democrats on Smith Hill.
Are you getting it YET, Rhode Island? #November2018@NewportLost @TrussElise @DonnaHoyle2 @DavidAHolley @pissedoffinri @MakeNEGrrAgain @gebr71 @wendy_hail pic.twitter.com/6LjlmgeFwZ
— RIRepublicans.us (@RIRepublicans) March 11, 2018
Rhode Island licenses 72 of 102 occupations studied by the Institute for Justice, far more than most states. Such burdensome licensing mandates hurt lower-income families most and harm economic growth.
I’m sure this has nothing to do with the fact that the state has imposed a new tax on these properties, with a cut going to the relevant municipalities:
The city is looking to hire a contractor to monitor short-term house rentals in the city to see whether they are complying with zoning ordinances and other regulations, Mayor Scott Avedisian announced.
A check of available short-term house and apartment rentals on Airbnb and VRBO, two major short-term rental websites, showed each had about 200 listings in Warwick. Avedian said the city building department doesn’t have the resources to check each property and monitor them for compliance, but a contractor would. …
Avedisian said the city’s plan is based on a similar effort by the City of Newport, which hired a firm called Host Compliance LLC, to track short-term leasing within its borders. Newport Mayor Henry F. Winthrop said the company’s first effort produced a list of about 235 properties listed online for short-term leases that appeared to either be unregistered as businesses or in violation of a city regulation.
Such stories contribute to the impression that government in Rhode Island doesn’t see itself as serving the people, so much as the people serve the government. Give it financial incentive, and it will go after the citizens. We’re here as a bank for officials to collect money for their own favored parties, which mainly means labor unions, but also covers compliant corporations, dependent constituencies, and the occasional relative of somebody connected.
Crashing the speed camera system is simply accomplished by everyone demanding a trial.
— Rep. Blake Filippi (@Blake_Filippi) March 6, 2018
Rich liberals want your taxes to go up.
They think the government can spend your money better than you can.
Do they send their extra cash to Washington? No.
They set up foundations they control.
Because they can spend their money better than gov.
But not YOU. https://t.co/GojAPnryL0
— Grover Norquist (@GroverNorquist) February 25, 2018
Great idea! Many years ago, when on active duty in Germany traffic speed cameras were ubiquitous, I said to myself Americans would never tolerate such a loss of freedom – yet here we are. I say #banthem https://t.co/OhTH5QLTt6
— LoughlinRI1 (@LoughlinRI1) March 5, 2018
NH economy surges after reducing corporate tax burden, as our Center and conservatives have been promoting for years. Yet RI Progressives want to raise corporate taxes! Who is really looking out for you?https://t.co/XpiZLhodJ4
— RI Center for Freedom⚓️ (@RICenterFreedom) March 5, 2018