The Hayride

Bob Mann vs. Economic Reality

Bob Mann vs. Economic Reality
February 26
13:59 2013

(There’s more to all this, which you can find here after you’re done reading this post.)

Yesterday, former Kathleen Blanco media flack and current Manship Chair of the Manship School of Mass Communication at LSU, posted a rather lengthy broadside on his blog (which he styles “Something Like The Truth”) attempting to expose as a canard the idea that reducing or eliminating Louisiana’s state income tax will lead to economic growth.

Mann would have you believe that the opposite is true. And to buttress this claim, he offers a report last year put forth by the a pair of unobtrusive-sounding organizations, Good Jobs First and the Iowa Policy Project, which offers what it says is evidence the theory that low taxes produce economic growth (most recently put forth in a report by Art Laffer called Rich States, Poor States detailing the long-term growth in low-tax states as opposed to places like California and Illinois) is false…

That scrutiny comes in the form of a November 2012 report by Good Jobs First and the Iowa Policy Project, “Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity.” The report, written by Greg LeRoy and Philip Mattera, concludes:

A hard look at the actual data finds that the Alec-Laffer recommendations not only fail to predict positive results for state economies—the policies they endorse actually forecast worse state outcomes for job creation and paychecks. That is, states that were rated higher on ALEC’s Economic Outlook Ranking in 2007, based on 15 “fiscal and regulatory policy variables,” have actually been doing worse economically in the years since, while the less a state conformed with ALEC policies the better off it was.

Read the report for yourself. It’s a treasure-trove of evidence debunking the whole wacky supply-side economic theories that have long governed the Republican Party.

Here are a few helpful excerpts that are particularly relevant to those of us who live in states, like Louisiana, with governors totally beholden to the corporate interests that are selling this economic snake oil.

ALEC-Laffer claim that lowering state and local taxes produces much greater job growth; in actuality, such taxes are such a tiny cost factor for businesses, and come with higher taxes on others or lower quality public services, that such a strategy fails

ALEC-Laffer claim that a low top personal income tax rate is a key to small business success; in actuality, property and sales taxes—ignored by ALEC-Laffer—are far more important issues

ALEC-Laffer claim that high top personal income tax rates and the presence of estate and inheritance taxes cause large-scale out-migration of high-income individuals; in reality, migration has little to do with taxes, and there is no plausible case for state estate taxes affecting job-creating investment

The ALEC report asserts that state tax rates in many instances approach “Laffer Curve” territory, where tax cuts would actually increase tax revenue; in reality, tax cuts reduce revenue and result in the defunding of public goods such as education and infrastructure, which really do matter for economic development [emphasis added]

But here’s the remarkable finding in the Iowa Policy Project: states that swallowed ALEC’s economic snake oil and lowered or abolished their income taxes have done worse than states that did not.

. . . actual results are the opposite of the ALEC claim. The more a state’s policies mirrored the ALEC low-tax/regressive taxation/limited government agenda, the lower the median family income; this is true for every year from 2007 through 2011. . . . The relationship is not only negative each year, it also became worse over time: the better a state did on the ALEC Outlook Ranking, the more family income declined from 2007 to 2011. . . . The more a state followed the Alec-Laffer policies, the higher its poverty rate, every year from 2007 to 2011.

The last two lines of this argument deserve the most scrutiny. The study Mann touts begins in 2007, which was the last year of a good economy nationally, and ends in 2011, smack dab in the middle of the Obama depression.

We’re looking at a four or five year window in this study as a measure of economic performance.

No economist worth his salt would agree that’s a viable sample with which to analyze data.

And that is why the IPP study picked it. From American Legislator, the blog of the much-demonized American Legislative Exchange Council (gasp!), comes a nice debunking of these claims

The report largely reads as a “how-to” manual for misleading with statistics by cherry-picking data and relying on faulty metrics to create “evidence” that advances a specific high tax, forced union agenda. The report uses, almost exclusively, a snapshot of data from 2007 to 2011 for the basis of its economic measurements. It claims that many of the Rich States, Poor States variables do not correlate to economic growth based on the time period that coincides with the worst economic recession in recent memory, a point unmentioned and seemingly overlooked by the authors. Furthermore, an upcoming academic report from ALEC will demonstrate why the statistical methods used in the IPP report are deeply flawed in theory and in practice.

The strongest claims to support the high tax model are supported by measuring a state’s growth in per-capita income over the narrow time frame. This is a deceiving metric because it penalizes states that have a high rate of population growth and rewards states for losing citizens (and their incomes). Low tax states are booming with people and businesses flocking into them, mainly coming as refugees from their high tax counterparts. Recent census data is clear on this point. For example, California gained no congressional seats in 2010 for the first time in its history; Texas, by contrast, picked up four more seats this census. As people flee high tax states for opportunity and jobs, the population decreases, which can substantially spike the per-capita income of the state. This point is especially relevant when unemployed people leave a state with high taxes to find a job in another (commonly low tax) state. Their $0 of income is no longer calculated into the per-capita measures and neither is their unemployment status. Voila! The state they left now has higher per-capita income growth and even a lower unemployment rate, but the state has lost a citizen, a worker, and potential future revenue they would have received, shrinking the overall economy.

Serious observers will normally consider 10 years, at minimum, when measuring economic trends and will examine total Gross State Product (GSP) growth. As the facts actually demonstrate, over the past 10 years, states without a personal income tax outperformed the highest tax states by a wide margin in total GSP growth, absolute domestic migration, growth in tax revenue, and non-farm payroll employment (job) growth. When discussing these measurements, the authors of the report simply dismiss them as “crude measures.” The thousands of state legislators who read Rich States, Poor States would disagree.

The Kansas Policy Institute did a nice job of explaining the population-drain phenomenon in terms even Bob Mann should understand by taking apart a similar study to the IPP one Mann cites – this one by a more familiar left-wing outfit, the Institute for Taxation and Economic Policy…

The study’s result runs contrary to findings by the Organization for Economic Co-operation and Development (OECD), a Paris-based organization comprised of 34 developed countries, including the United States.  The OECD study concluded:Growth-oriented tax reform measures include tax base broadening and a reduction in the top marginal personal income tax rates.

ITEP comes to their counter-intuitive conclusion by carefully choosing three measures: Per Capita Real Gross State Product (GSP) Growth, Real Median Household Income Growth and Average Annual Unemployment rate. One needs only a simple drawing to see why these variables are inappropriate measures.

In the first scenario our state has nine individuals; seven earning an income and two unemployed.  GSP per capita is $3, Real Median Household Income is also $3, the Unemployment Rate is 22 percent and our overall wealth is $28.  Now suppose the four low-income individuals decide to seek opportunities in another state.  Now our state looks like this:

Our GSP per capita and Real Household Median Income rose to $5, the Unemployment Rate decreased to 0 and our overall wealth declined to $25. The out migration of low income earners caused our GSP per capita and Real Household Median Income to grow 66 percent and our Unemployment rate to drop 100 percent.  Although, not one person’s wealth increased and in fact our state is worse off, we have fewer jobs and less wealth.

This is precisely what the IRS’ Adjusted Gross Income (AGI) data suggests is happening. From 2000 to 2009 the average AGI for each tax return leaving the nine states with the highest-income taxes was $59,502 (2010 dollars), which is $5,000 lower than the average AGI for all tax returns in those nine states, over the same period.  Now we see why ITEP carefully chose those measures.

It shouldn’t be an earth-shaking conclusion that they’re cooking the books to make the economies of California, New York and Illinois look better compared to that in Texas or Florida.

But KPI presses the case even further…

Thanks to this map, put together by the Tax Foundation, we can see that the nine states without-an-income tax gained $117.6 billion from interstate migration whilst the nine high-income tax states lost $105.8 billion between 1999 and 2009.  Data from the Census Bureau shows that during this time nearly 4 million fled the high-income tax states, while nearly 3 million found a new home in the states without-an-income tax.  Just as the pictures above illustrate; ITEP’s chosen measures can go up, even as wealth leaves.

The juxtaposition of dark-brown Louisiana with light-turquoise (or whatever you want to call it) Texas is basically all you need to know about why lots of us want to do away with Louisiana’s income tax.

Naturally, Bob Mann would howl that anything coming out of ALEC or a “far right think tank” like the Kansas Policy Institute would have to be a lie. He’s using objective data from the Iowa Policy Project and Good Jobs First, after all, and those are “non-partisan” sources.

Of course they are.

Another “far right think tank,” the Oklahoma Council of Public Affairs, did a bit of due diligence on who Bob Mann’s economics teachers are and found…nothing surprising…

According to its website, IPP is a nonprofit organization, the previous funders of which include the Iowa Finance Authority and the United States Department of Labor. According to the IPP website:

“IPP is affiliated with the Economic Analysis Research Network (EARN), which includes similar policy groups in about two dozen states. EARN was initiated by and is supported by the Economic Policy Institute.”

According to the EARN website, another affiliate is the Oklahoma Policy Institute. Also according to the EARN website:

“EARN seeks to advance progressive policy at the state and regional level, to deliver important national messages, and to use the collective capacity of its organizations to develop new ideas and strategies.”

According to the IPP website, IPP affiliates itself with the Center on Budget and Policy Priorities’ State Fiscal Analysis Initiative (CBPP) and the Economic Policy Institute (EPI). Both CBPP and EPI have received substantial funding from George Soros’ organizations.

According to its website, IPP loves Obamacareengages in the politics of envy,supports inheritance or estate taxesstrongly advocates for broken tax credit programs like the Earned Income Tax Credit (IRS reports an error rate of 23 to 28 percent or $13 billion to $16 billion) that promote welfare through the tax code, charges “wage suppression” and advocates for increasing Iowa’s state minimum wageattacks Iowan lawmakers for shunning recommendations to deal with climate changeasserts that public employees are the real job creatorsadvocates federal overreach by the EPA and questions whether Iowa has the will to govern itselfadvocates for the federal stimulus, and cites national liberal groups to blame deficits on “Bush Policies”.  That last claim was debunked recently by no less a sympathetic media outlet than The Washington Post. It’s so dubious an assertion that it earns four “Pinocchios” by WaPo.

Good Jobs First is equally ideological. The group says that one of the few bright spots in today’s U.S. economy is the prospect of “green jobs” andagrees with the nation’s leading green jobs advocacy organizations, including the Apollo AllianceGreen for All and the Blue-Green Alliance. GJF suggests the promise of millions of new jobs and a healthier planet deserves broad public support and smart taxpayer investments, demonizes “suburban sprawl,” declares that “union members earn better wages and benefits than their unorganized counterparts” and says “it is no exaggeration to say that unionization is economic development.” According to the GJF website, the GJF executive director (and founder) has spoken to or trained for meetings of such diverse organizations as AFL-CIO, Blue-Green Alliance, Center on Budget and Policy Priorities, Economic Policy Institute, National Conference of State Legislatures, Progressive States Network, Rail~Volution and the Sierra Club. The group receives significant funding from a number of unions like the AFL-CIO and SEIU, as well as from left-leaning foundations like the Tides Foundation.

In other words, these are Soros-funded neo-communist outfits disguised as non-partisan do-gooders.

Exactly like somebody else we know here in Louisiana.

OCPA also weighed in on the Art Laffer-vs.-George Soros state income tax debate with testimony from their own experience (you’ll notice that in the Tax Foundation’s map Oklahoma doesn’t make out much better than Louisiana did, largely thanks to a very soft state economy in the early years of the last decade and a brutal hit in the midst of the 2008-09 recession, but they’re rebounding nicely since)…

Consider the case in Oklahoma. Thanks to bipartisan efforts, Oklahoma has, in the past 10 years, decreased its personal income taxes by 25 percent, eliminated death and estate taxes, freed citizens to move freely throughout the marketplace as they choose (“Right to Work“), enacted lawsuit reform and avoided harmful regulations – all reforms that are recommended by Rich States Poor States.

During that time, Oklahoma has become one of the top performers in personal income growth, employment and other economic indicators. Jobs are up. The state sales tax growth rate is more than 40 percent faster, the state set an all-time high record for sales tax collections for the most recent fiscal year and personal income tax collections grew over the prior year in a year when the personal income tax rate was cut again. According to the state Comprehensive Annual Financial Report, the number of middle-class taxpayers is growing and the number of low-income taxpayers is decreasing.

Pro-growth policies work, no matter whether they’re espoused by ALEC, Republican lawmakers like former Gov. Frank Keating and current Gov. Mary Fallin, or Democrat lawmakers like former Gov. Brad Henry and former state treasurer Scott Meacham. Oklahoma and states across the country are proving the reality: Incentives matter and rewarding hard work benefits everyone. Kudos to Gov. Fallin, who embraces the policies outlined by ALEC and even wrote the forward to this year’s edition of Rich States Poor States. No snake oil here, Gov. Fallin and policymakers in Oklahoma possess correct perspective and continue to prefer pro-growth policies, a reality the left and progressives can’t seem to tolerate.

Oklahoma’s December 2012 unemployment rate was 5.1 percent.

So there’s Bob Mann’s friends on the Left and our friends on the Right. Is there anybody in the middle who can arbitrate this debate?

Probably not, since Mann wouldn’t likely accept the Wall Street Journal as an objective source…

These trends point to a U.S. economic future dominated by four growth corridors that are generally less dense, more affordable, and markedly more conservative and pro-business: the Great Plains, the Intermountain West, the Third Coast (spanning the Gulf states from Texas to Florida), and the Southeastern industrial belt.

Overall, these corridors account for 45% of the nation’s land mass and 30% of its population. Between 2001 and 2011, job growth in the Great Plains, the Intermountain West and the Third Coast was between 7% and 8%—nearly 10 times the job growth rate for the rest of the country. Only the Southeastern industrial belt tracked close to the national average.

Historically, these regions were little more than resource colonies or low-wage labor sites for richer, more technically advanced areas. By promoting policies that encourage enterprise and spark economic growth, they’re catching up.

Such policies have been pursued not only by Republicans but also by Democrats who don’t share their national party’s notion that business should serve as a cash cow to fund ever more expensive social-welfare, cultural or environmental programs. While California, Illinois, New York, Massachusetts and Minnesota have either enacted or pursued higher income taxes, many corridor states have no income taxes or are planning, like Kansas and Louisiana, to lower or even eliminate them.

The result is that corridor states took 11 of the top 15 spots in Chief Executive magazine’s 2012 review of best state business climates. California, New York, Illinois and Massachusetts were at the bottom. The states of the old Confederacy boast 10 of the top 12 places for locating new plants, according to a recent 2012 study by Site Selection magazine.

Energy, manufacturing and agriculture are playing a major role in the corridor states’ revival. The resurgence of fossil fuel–based energy, notably shale oil and natural gas, is especially important. Over the past decade, Texas alone has added 180,000 mostly high-paying energy-related jobs, Oklahoma another 40,000, and the Intermountain West well over 30,000. Energy-rich California, despite the nation’s third-highest unemployment rate, has created a mere 20,000 such jobs. In New York, meanwhile, Gov. Andrew Cuomo is still delaying a decision on hydraulic fracturing.

Cheap U.S. natural gas has some envisioning the Mississippi River between New Orleans and Baton Rouge as an “American Ruhr.” Much of this growth, notes Eric Smith, associate director of the Tulane Energy Institute, will be financed by German and other European firms that are reeling from electricity costs now three times higher than in places like Louisiana.

Korean and Japanese firms are already swarming into South Carolina, Alabama and Tennessee. What the Boston Consulting Group calls a “reallocation of global manufacturing” is shifting production away from expensive East Asia and Europe and toward these lower-cost locales. The arrival of auto, steel and petrochemical plants—and, increasingly, the aerospace industry—reflects a critical shift for the Southeast, which historically depended on lower-wage industries such as textiles and furniture.

Since 2000, the Intermountain West’s population has grown by 20%, the Third Coast’s by 14%, the long-depopulating Great Plains by over 14%, and the Southeast by 13%. Population in the rest of the U.S. has grown barely 7%. Last year, the largest net recipients of domestic migrants were Texas and Florida, which between them gained 150,000. The biggest losers? New York, New Jersey, Illinois and California.

Frankly, it’s a ridiculous – and tiresome – circumstance that we’re even arguing about whether competitive tax policy is an aid to economic growth. That Mann would beclown himself by wading into it shows he’s out of place as a professor in LSU’s mass-com school and ought to be in the poli sci department, but of course this is nothing more than a local equivalent of a George Stephanopoulous or Elliot Spitzer passing himself off as a journalist.

Mann’s blog, which one hopes he’s not composing on state time, consists of one left-wing anti-Jindal diatribe after another. Most of them are fairly well-written and appear reasonable until you do some research into his sources and claims; that’s a testament to his skill as a spin doctor.

But if you do that research and come to the conclusion that he’s a partisan hack entrusted with the education of our kids, and if you should give voice to that conclusion, be prepared to see the darker side of political spin doctoring.

Because he’s capable of that, too.

Reasonable people can differ on how best to accomplish a pro-growth tax policy in Louisiana while still maintaining a revenue base the state government can live with – or what size revenue base is really required. But when outright falsehoods are being spread in a partisan, ideological campaign to tarnish those who are trying to grow our economy, we’re unlikely to get to that reasonable debate.

And when those falsehoods are being spread by somebody pocketing your tax dollars to educate your kids at the state’s flagship university, it’s more than an irritation – it’s a damn shame.

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5 Comments

  1. Anonymous
    Anonymous February 26, 22:31

    Please, Scott, don't elevate a partisan stenography hack into the political science professoriate. At least a number of us try to be objective researchers (but, to be fair, a number also don't). Nor do we suffer from imaginary persecution complexes that demean genuine academicians who, in our search for the truth, run counter to the prevailing orthodoxy; see http://jeffsadow.blogspot.com/2012/12/faux-outrage-demeans-real-instances-of.html.

  2. Anonymous
    Anonymous February 26, 22:31

    Please, Scott, don't elevate a partisan stenography hack into the political science professoriate. At least a number of us try to be objective researchers (but, to be fair, a number also don't). Nor do we suffer from imaginary persecution complexes that demean genuine academicians who, in our search for the truth, run counter to the prevailing orthodoxy; see http://jeffsadow.blogspot.com/2012/12/faux-outrage-demeans-real-instances-of.html.

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