Transcript Taxes, Spending, Economic Growth, and Budget

Economic Freedom:
Where We Rank and Why
It Matters
DEAN STANSEL
ASSOCIATE PROFESSOR OF ECONOMICS
FLORIDA GULF COAST UNIVERSITY
HTTP://WWW.DEANSTANSEL.COM
1) Where do we rank (Arkansas,
and Little Rock)?
2) Why are we so low?
3) Why does it matter?
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“It is no crime to be ignorant of
economics, which is, after all, a
specialized discipline and one
that most people consider to be
a ‘dismal science.’ But it is totally
irresponsible to have a loud and
vociferous opinion on economic
subjects while remaining in this
state of ignorance.”
-- Murray Rothbard, Austrian
Economist
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Economic Freedom Project
What is it?
An initiative to help publicize the
findings of the Economic
Freedom of the World Report and
the Economic Freedom of North
America Report and economic
freedom in general.
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How Do We Rank?
•U.S. is down to 12th place from
7th in 2008 and 2nd in 2000.
•Arkansas ranks 36th,(below all of
its neighbors) down 7 places
over the last 6 years. It ranked
as high as 17th in 1991.
•Who was leader in 2000 & 1991?
•Available at:
www.freetheworld.com
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An Economic Freedom
Index of U.S. Metropolitan Areas
Dean Stansel
Florida Gulf Coast University
[email protected]
Journal of Regional Analysis and Policy, 43, 1 (2013): 3-20.
http://www.jrap-journal.org/ or http://t.co/xfKmP2VHjO
Rank TOP 10 AREAS
1
Naples-Marco Island, FL MSA
Overall
EFI
8.52
2
Fort Walton Beach-Crestview-Destin, FL MSA
8.39
3
Manchester-Nashua, NH MSA
8.37
4
West Palm Beach-Boca Raton-Boynton Beach, FL MD
8.34
5
Bradenton-Sarasota-Venice, FL MSA
8.33
6
Sebastian-Vero Beach, FL MSA
8.33
7
Rockingham County-Strafford County, NH MD
8.23
8
Palm Bay-Melbourne-Titusville, FL MSA
8.17
9
Sioux Falls, SD MSA
8.11
10
Tampa-St. Petersburg-Clearwater, FL MSA
8.07
Rank BOTTOM 10 AREAS
384 El Centro, CA MSA
Overall
EFI
3.32
383 Visalia-Porterville, CA MSA
4.19
382 Merced, CA MSA
4.31
381 Kingston, NY MSA
4.48
380 Glens Falls, NY MSA
4.50
379 Bakersfield, CA MSA
4.57
378
4.60
New York-White Plains-Wayne, NY-NJ MD
377 Modesto, CA MSA
4.66
376 Fresno, CA MSA
4.79
375 Wenatchee-East Wenatchee, WA MSA
4.88
Summary of Results
•All of top 10 are in states with no
tax on labor income (FL, NH, SD)
•9 of bottom 10 are in California
or New York (and 15 of bottom
20)
Economic Freedom in Little Rock
•Little Rock ranked 116 out of
the 384 metropolitan areas in
the U.S.
•It ranked 1st out of 6 metro
areas in Arkansas...
•…but behind 3 of 8 in MO, 2 of
3 in OK, 9 of 10 in TN, and 19 of
26 in TX
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Why Has Economic
Freedom Declined?
•Federal spending has doubled
since 2000 and tripled since 1990.
•Personal income has only gone up
by less than half since 2000.
•We have an over-spending
problem, NOT an under-taxing
problem.
Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS
(in millions of dollars)
Total
Year
1990
2000
2004
2008
2012
2014 estimate
Receipts
1,031,958
2,025,191
1,880,114
2,523,991
2,450,164
3,001,721
Outlays
Surplus or
Deficit (−)
1,252,994
-152,639
1,788,950
236,241
2,292,841
-412,727
2,982,544
-458,553
3,537,127 -1,086,963
3,650,526
-648,805
Source: Historical Tables of the Budget, FY2015, Office of
Management and Budget.
http://www.whitehouse.gov/omb/budget/Historicals
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Spending & Deficits at
Post-WW2 High
•As a percent of GDP, federal
spending hit a post-WW2 high of
25.2% in 2009.
•The federal deficit as a percent of
GDP has also been at its highest level
since WW2.
•It hit 10.1% in 2009.
•It has exceeded 5% five years in a
row.
Source: Historical Tables of the Budget, FY2014,
Office of Management and Budget.
http://www.whitehouse.gov/omb/budget/Histo
ricals
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Debt as % of GDP at Post-WW2 High
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Entitlement Spending
•Cato Institute found that welfare
pays more than:
•the starting wage for a secretary in
39 states.
•the average first year wage for a
teacher in 11 states.
•an entry-level computer
programmer in the 3 most generous
states.
Obamacare
•AKA, The Unaffordable Care Act
•Higher taxes
•Higher spending
•Regulatory uncertainty
•Unintended consequences
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Tax Freedom Day
•The Tax Foundation
•Was April 21st this year.
•3 days later than last year.
•11 days later than in 2009.
•If we include deficits, which
require higher future taxes, it
was 15 days later (May 6)
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The President’s $1 Trillion Tax Hike
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Expanding
Tax Code
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Cost of Tax Compliance
•$37 billion in 2012 preparing
federal individual, business, and
employment tax returns.
•3.24 billion hours
•The equivalent of 369,858 years
• Source: McCaherty, “The Cost of Tax
Compliance,” Tax Foundation, Sep. 2014.
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•According to the OECD “the United
States has the most progressive income
tax system among industrialized nations.
… The richest 10 percent of households
in the United States (those making
$112,124 or more) contribute a greater
share of taxes (45.1 percent of all
income taxes) than their counterparts in
any other industrialized nation.”
•The OECD average is 31.6 percent. The
next highest is Italy at about 42%. Only a
handful of others are above 35%.
Source: http://mercatus.org/publication/progressivity-taxes-oecdcountries-mid-2000s
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Source: Dan Mitchell, Cato Institute, http://danieljmitchell.wordpress.com/
International Tax Competitiveness
•The U.S. ranks 32nd out of the 34
OECD countries.
•Highest corporate tax rate
•Double taxation of capital gains and
dividends
•1 of only 6 with a “worldwide system
of taxation”
• Source: Pomerleau & Lundeen, "2014
International Tax Competitiveness Index," Tax
Foundation, September 15, 2014.
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Regulatory Burden Is High
and Rising
•The Federal Register contains
81,000 pages of regulations.
•It would take more than 2 years
to read through all of it.
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Cost of Federal Regulations
•$2 trillion in 2012
•$9,991 per employee, all industries
•$19,564 per employee in the
manufacturing industry
•$34,671 per employee in the
manufacturing industry (small
businesses, < 50 employees)
• Source: Crain & Crain, “The Cost of Federal Regulation to the
U.S. Economy, Manufacturing & Small Business,” National
Association of Manufacturers, Sep. 2014.
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Sen. George McGovern (D-SD)
• “I also wish that during the years I
was in public office, I had had this
firsthand experience about the
difficulties business people face
every day. That knowledge would
have made me a better U.S. senator
and a more understanding
presidential contender.”
• Source: George Mc Govern, “A Politician's Dream Is a
Businessman's Nightmare,” Wall Street Journal, 6/1/92.
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Arkansas - Taxes
•According to the Tax Foundation,
Arkansas’ 2011 tax burden of
10.3% ranks 12th highest out of 50
states.
•It ranks 35th overall in state
business tax climate.
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Arkansas - Business
•Arkansas had the 2nd most burdensome
occupational licensing requirements on
the Institute for Justice “License to Work”
report.
•$212 in fees and 689 days of education
and experience
•www.ij.org/licensetowork
•According to Chief Executive, Arkansas
ranks 29 out of 50 on the 2014 Best &
Worst States for Business Rankings.
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Arkansas - Business
•Arkansas was one of four states to
pass an increase in the minimum
wage at the polls last week.
•The increase will put Arkansas above
the federal minimum wage.
•Combined with the occupational
licensing restrictions, this will make it
even harder for low-skilled workers to
find a job.
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Arkansas - Economy
•Arkansas ranks only 37th in 20122013 population growth
•The U.S. average is twice as high
•The average for the South is three
times higher.
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“And if I spend somebody
else’s money on somebody
else, I’m not concerned about
how much it is, and I’m not
concerned about what I get.
And that’s government.”
-- Milton Friedman
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Economic Freedom
Why does it matter?
Areas with more economic freedom
have higher: GDP, GDP growth,
Income of the poorest 10%, Income
share of the poorest 10%, political
freedom, civil liberties, life
satisfaction, literacy, life expectancy,
and cleaner environments
And, lower: unemployment, child
labor, infant mortality rates, and
corruption
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Per Capita Income Is Much Higher in
Nations with Higher Economic Freedom
Per Capita GDP Growth Is Positively Correlated with
Economic Freedom in States
2
1
from Nationa MEan)
Average Growth in Real GDP
per Capita (percent) (Deviations
3
0
-1.5
-1
-0.5
0
0.5
1
1.5
2
-1
-2
-3
-4
Average Growth in Economic Freedom at the AllGovernment Level (percent) (Deviations from National Mean)
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Unemployment Is Much Lower in Metro Areas
with Higher Economic Freedom
8%
Unemployment Rate, 2002
7%
6.8%
5.9%
6%
5.4%
5%
5.0%
5.3%
4%
3%
2%
1%
0%
Least Free
Fourth
Third
Second
Economic Freedom Quintiles
Most Free
“…no human wisdom or
knowledge could ever be
sufficient … for the proper
performance of … the duty of
superintending the industry of
private people, and of directing it
towards the employments most
suitable to the interest of the
society.”
-- Adam Smith, The Wealth of Nations
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Source: Dan Mitchell, Cato Institute, http://danieljmitchell.wordpress.com/
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Consumer Power in Health Care
•Lasik surgery
•Not covered by most health
insurance plans
•Price has fallen dramatically over the
years
• Cosmetic surgery is another example.
• “Price” of other medical procedures
has risen much faster than inflation
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Prescription for Growth
INCREASE
ECONOMIC
FREEDOM
1. Rein-in spending
2. Lower taxes
3. Reduce the regulatory burden
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The Good News…
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Nation’s Leader Rejects Keynesian
Economics, Acknowledges that
Real Jobs Are Created by the
Private Sector
“We need to put an end to
illusions: it’s not the public
sector that creates jobs. To
believe that injecting billions …
[into the economy] is the key
to growth is an idea of the
past.”
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Nation’s Leader … Acknowledges
that Real Jobs Are Created by the
Private Sector
That quote was from
Alexander Stubb, the Prime
Minister of Finland, not the
President of the United States.
Source:
https://danieljmitchell.wordpress.com/2014/10/0
3/nations-leader-rejects-keynesian-economicsacknowledges-that-real-jobs-are-created-bythe-private-sector/
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“Capitalism has been the most
effective ideology we have
known in taking people out of
extreme poverty.”
-- Bono
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Economic Freedom: Where
We Rank and Why It Matters
DEAN STANSEL
ASSOCIATE PROFESSOR OF ECONOMICS
FLORIDA GULF COAST UNIVERSITY
HTTP://WWW.DEANSTANSEL.COM
HTTPS://WWW.FACEBOOK.COM/DEAN.STANSEL.1
HTTPS://TWITTER.COM/DEANSTANSEL