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A surplus now, but the deficit’s on the way

Thursday, March 1, 2012

Minnesota Management and Budget has forecast a tiny surplus in the state budget for the current biennium. Great. But as Commissioner Jim Schowalter observes, “we still have lots of IOU’s” to pay back–including the “school shift” of $2.7 billion.

The press release also shows another cloud on the horizon: “The forecast shows a projected deficit of $1.1 billion for fiscal years 2014-15.”

Uh-oh.

The state’s spending trajectory is still unsustainable.

John LaPlante is a senior fellow for Minnesota Free Market Institute at Center of the American Experiment. 

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School choice doesn’t hurt, often helps

Wednesday, February 29, 2012

Breaking the chain between street address and the school a child attends–school choice–is not only moral, it works. Education Week recently ran a commentary from nine scholars who make that point. The nine, who include representatives from the American Enterprise Institute and the Thomas B. Fordham Institute, say that in 20 years we have learned a lot about how to design choice programs, as well as how well school choice works. The article’s title reflects its content pretty well: “What research says about school choice.”

Studies about the effects of school choice–tax credits, vouchers, charter schools, and other options–have focused on three questions: Does choice benefit students who receive vouchers, tax credits, etc.? Do choice programs have an effect on schools as a whole (that is, what about the students who don’t participate)? Does it have a beneficial effect on the public purse?

The answer to the first question may be summed up as, “students who participate are not harmed, and in some cases they are helped.”

The answer to the second question is similar, though the evidence for voucher programs is stronger than it is for charter schools.

As to the third question, “the net impact of school choice on public finances is usually positive and has never been found to be negative.” (No surprise there; as far as I can tell, school choice programs always spend less in public money, on a per-pupil basis, than district schools.)

The authors rightly point out that our evidence on the effects of school choice are limited by the fact that school choice programs are very limited, both in size and in scope. School choice programs enroll well under 5 percent of all school-aged children. That means economies of scale or innovations that might come from a wider marketplace of education haven’t been seen.

They authors add that much public debate has focused on the demand side of education–how many students and which ones participate in school choice programs. The supply side of schooling, which is trapped in red tape and a 100-year-old mindset, can’t be ignored.

In short, school choice is an important part of the puzzle when it comes to “quality education,” however you define it. But it’s a part that, based on the evidence as well as normative reasoning, demands more attention.

* * *

The authors include a helpful list of studies on the effects of school choice. I would paste it in here, but it’s much too long–a good problem to have!

John LaPlante is a senior fellow for Minnesota Free Market Institute at Center of the American Experiment. 

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Religion, yes; political religion, no

Tuesday, February 28, 2012

A few thoughts on the Michigan primary:

Predictions at the top of the race are more likely to be accurate than predictions at the bottom. At least that was the case for me. I overestimated Romney’s performance by 9 percent (not bad for an amateur who didn’t carefully follow the polls), and things got more inaccurate after that, to the point where I underestimated Gingrich’s support by 40 percent.

The Santorum robocalls were appalling, even in the world of politics. It wasn’t the tactic (asking Democrats to vote for him) as the fact that the allegedly more conservative candidate in the race was encouraging people demand yet more government intervention in the economy.

Turnout was abysmally low. Less than 20 percent? Even considering that there was no contest on the Democratic side, that suggests that Republican voters are not that motivated. Frank Beckman says that voter turnout was the third-highest in state history. Perhaps. But if a second Obama Administration is as big a great to the future of the country as Republicans tend to argue, shouldn’t turnout be much higher?

“Nearly 6 in 10 Michigan voters said it was important that they share religious beliefs with their candidate.” Really? Say you’re a Christian, the single largest religious group in the country. Christian doctrine has been used as a part of the justification of socialism, libertarianism, and I suppose even fascism. Aren’t you going to look at economic, legal, or other politically related concerns before voting for the “most Christian” (whatever that means to you) candidate?

As a social commentator, Rick Santorum is not always wrong, or at least not out to lunch. His comments on contraception, for example, are grounded in his understanding of teachings of Pope John Paul II (no intellectual slouch) and other leaders of Santorum’s church. The widespread development of illegitimacy and the attendant problem of growing childhood poverty suggests that people of all faiths or no faiths should consider the possible downsides of contraception. (See, for example, a recent commentary by James Taranto.)

But is the president of the United States the person to launch the prod people into thinking about such things? Granted, the Bully Pulpit is a powerful platform. But the president who uses his office to prod what an ethical and ultimately discussion is risking all sorts of trouble.

Besides, government can perhaps “assist” in social decline, however you wish to define the term “social decline.” But given its track record on everything else, can it really be expected to lead a moral revival?

First published by the Michigan View.

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Shifting towards a sales tax

Wednesday, February 15, 2012

While government needs taxes to run, not all taxes are equal in their effect. A new report from the Tax Foundation–State and Local Sales Taxes in 2012–evaluates the burden of state and local sales taxes across the United States. It shows great variation. State sales tax rates range from 0 percent (Alaska, Delaware, New Hampshire, Oregon), to 7.25 percent (California). Some states have local sales taxes, while others do not. And of course states define the “base” differently: Some tax food and clothing while others don’t.

If you look only at state-level taxes, Minnesota has the seventh-highest burden in the land, behind California, Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee.

Local sales taxes in Minnesota are widespread or high as they are in some other states. So when you add in the burden of local sales taxes and rank the states, Minnesota drops from its position as the seventh-highest-taxed state (in sales taxes). But in the “new” position of 17, it’s still more heavily taxed than other states. When you consider all taxes, Minnesota is the seventh-most heavily taxed state.

Relying on the income tax, whether personal or corporate, presents a lot of challenge for state lawmakers as well anyone who depends on the state budget. For one thing, income taxes, especially progressive ones, are prone to boom-or-bust revenue cycles.  (Minnesota has the 44th-heaviest burden of personal income taxes, so it’s quite a relevant point.) This means that the state has to scramble whenever hard times come, and that lawmakers are tempted to build unsustainable growth into the budget when times are good. Aside from cutting back from spending (a good thing in itself), the way to budget stability is to change the mix of taxes that government depends on. To quote from Russell S. Sobel (West Virginia University) and Gary A. Wagner (University of Arkansas), “the retail sales tax, when it includes food, is quite a bit more stable than is the individual income tax, and that when it excludes food it is about  as variable as the income tax.”

Given all this, I wouldn’t mind seeing a higher sales tax rate if it meant lower rates in income taxes.

John LaPlante is a senior fellow for Minnesota Free Market Institute at Center of the American Experiment.

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Individual Mandate May Be Linchpin of ObamaCare, But It’s Still Unconstitutional

Monday, February 13, 2012

Should a state-focused think tank care about ObamaCare? How about state legislators? You betcha! That’s why the Minnesota Free Market Institute at the Center of the American Experiment has joined in a legal brief on the question of whether Congress can require you to purchase health insurance.

Let’s review a few of the harms that ObamaCare does to states and to federalism. You can make the case that the law does the following:

  • It commandeers state agencies to carry out the wishes of Congress
  • It threatens state budgets through requiring an expansion of Medicaid
  • It threatens the idea of dual sovereignty (certain powers reserved to the states)

You could argue, though, that the most destructive element of ObamaCare is the requirement that each American purchase health insurance. If Congress can require you to buy something simply as a condition of living, what can’t it do?

Oddly enough, the “minimum coverage” requirement, otherwise known as the individual mandate, may be one of the most sensible parts of the law. Why? Without it, other portions of the law “don’t work.” Some of the requirements the law puts on insurance  (guaranteed issue and community rating) will likely, absent the mandate, destroy health insurance as we know it. So ObamaCare is a great example of how one government requirement (what kind of insurance companies are allowed to buy) can logically lead to yet another government requirement (that you buy insurance).

Thankfully, there have been many legal challenges to the law, some of which have made it to the U.S. Supreme Court, which soon will hear oral arguments on a challenge brought by Florida, and 25 other states.  (See ACA Litigation Blog for more.)

Today, we’re proud to announce that we are part of a new brief that the Cato Institute has turned into the Court. According to Kin Crocket, general counsel of the Center of the American Experiment, the brief calls on the Court to uphold U.S. District Court Judge Roger Vinson’s decision striking down the individual mandate in the Florida case.

The brief asks this question: “Can a limited government to whom a free people have delegated only certain enumerated powers commandeer that people into purchasing a product from a private business pursuant to its power to pass laws “necessary and proper for carrying into execution” the authority to “regulate Commerce . . . among the several States”?

Not surprisingly, the answer is “no.” Here’s the conclusion from the brief: “In sum, there is no ‘generally applicable, judicially enforceable limiting principle that would . . . uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers.’ Unless this Court wishes to make federal power boundless—a result contrary to the Constitution’s text, structure, and history—it should affirm the judgment below.”

The brief also argues that “The individual health insurance mandate is not constitutionally warranted simply because it is ‘necessary’ to make other legislation function properly.”

At Cato-at-Liberty, Ilya Shapiro offers a few more thoughts that explain the brief.

“Under modern doctrine,” he writes, “regulating intrastate economic activity can be a ‘necessary’ means of carrying out Congress’s regulatory authority (as that term is understood under the Necessary and Proper Clause) if, in the aggregate, it has a substantial effect on interstate commerce. But the obvious corollary is that regulating non-economic activity cannot be ‘necessary,’ regardless of its economic effects. And a power to regulate inactivity—to compel activity—is even more remote from Congress’s commerce power.”

Five members of the Minnesota Senate have signed onto the brief, as have 22 members of the Minnesota House. In total, 333 legislators nationwide have signed on, as have a number of state-focused think tanks. In May, 2011, some members of the Minnesota Legislature signed onto another brief in the case.

Filed in Center of the American Experiment, Health care | | Comments (0)

Socialism’s ancient roots

Monday, January 30, 2012

This year I’ve set a goal of learning a few things about the history of China–you know, that country that’s holding a substantial portion of our national debt.

So far I have listened to eight out of 30 lectures, bringing me (roughly) from pre-history up through the birth of Jesus. One thing that has struck me is that underlying today’s political debates are disagreements that go back at least 2,000 years, if not longer.

For example, in (roughly) 80 BC, the Han emperor Wudi dies, setting off the “salt and iron” debate. Where should people look to for the essentials of life–government, or the marketplace? That’s the big lesson of the debate on salt and iron.

Thayer Watkins, an economics professor at San Jose State University, offers a very short synopsis of the debate.

To quote the world’s best-known ancient document, “there is nothing new under the sun.”

http://apps.detnews.com/apps/blogs/watercooler/index.php?blogid=4077

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I thought conservatives hated it when people play the victim card

Friday, January 20, 2012

Conservatives talk a good game about personal responsibility and accepting the consequences of one’s actions, until …

Newt Gingrich is a rising candidate in the Republican presidential sweepstakes. It’s primarily for his record as a conservative leader, though I do give him credit for leading the Republicans out of 40 years in the congressional wilderness as a neutered minority party. It’s also not for his conservative or free-market positions, since he’s been in favor of global-warming antics (to cite one example), and certainly not because “lean six sigma” is more popular than “American Idol.”

Rather, Newt’s popularity stems primarily from his ability to verbally stick it to people, particularly, President Obama, and the legacy media.

Did ABC and Gingrich’s ex-wife #2 ambush him? Yep. Republican voters may have enjoyed seeing him rip into yet another member of the legacy media. But his attack doesn’t make him a conservative leader, let alone suitable material for the White House.

Perhaps he is the best available for the job. But pulling a Bill Clinton (I’m outraged you would ask me that) isn’t enough of reason to say that.

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What Gov. Snyder should learn from a long-dead Dutchman

Thursday, January 19, 2012

I’ve always been a bit leery of the idea that what government needs is a successful business executive. Henry Payne’s recent column comparing Gov. Snyder and Gov. Daniels prompted me to wonder why. I came up with a few more ideas.

He wrote, “Contrary to popular wisdom, the Daniels role model — followed to a ‘T’ by Snyder — is not conservativism; it is creating a successful business climate. What defines Daniels and Snyder is their executive’s competiveness. They are CEOs who see their states as businesses in a battle for market share.”

This suggests a lack of governing principles, or as George H.W. Bush called it, “the vision thing.” Do whatever it takes.

A political executive who has a business background, without an adequately freedom-oriented vision can be harmful to the public good.

To take one example, the drive to “battle for market share” is entirely compatible with targeted business incentives, such as the much-maligned film-industry tax. Does Indiana give a tax break to Michael Moore? Well, so should Michigan!

Viewing state government primarily as a means of boosting the business competitiveness of a state can translate to a pragmatic-based advocacy of government doing things it shouldn’t be doing. The problem goes beyond tax incentives for business.

During his state-of-the-state speech, Snyder went big, if you will, on obesity. Will the state fisc save in outlays if the governor enacts policies to nag people into eating right and exercising 30 minutes a day? Probably. But in taking those steps, government becomes our mother, stepping outside its boundaries. (Is obesity a problem for the state budget? Then cut back on state spending on health welfare.)

Focusing government on competitiveness, in other words, is a bad philosophy of governing.

Dutch theologian and politician Abraham Kuyper came up with the idea of “sphere sovereignty,” and I think it’s worth mentioning here. The idea says, in brief, that God ordained various human institutions–family, business, government, church–to address human needs. If one institution takes over the responsibilities of another, trouble results. I don’t think you need to be a Christian to see the value in this concept: Crony capitalism is a problem, regardless of what you think about any deities.

So when business leaders become political ones, we run the risk that they will apply business logic, inappropriately, to government. In business, you can say, “does it save money? Let’s do it.” In government, you need to ask, “does it save money? That’s interesting. Now, is it consistent with principles of American government, including personal liberty?”

Unfortunately for the war on obesity, a nanny state may save the state money. But I don’t see that it honors individual freedoms.

If Snyder’s approach to governing does not include any philosophical (rather than pragmatic) limits on the role of government, it will lead to an over-reaching government.

http://apps.detnews.com/apps/blogs/watercooler/index.php?blogid=3990

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The pro-global warming caucus

Wednesday, January 11, 2012

Like Dan Calabrese, I’ve taken my bike out of the garage several times this warm winter. Since the first snowfall, I’ve been my skis once, my snowboard twice, and my bike six times.

While I find the brown landscape depressing, I’m probably in the minority. After all, the warmer weather means no “winter driving,” no shoveling, no ice dams, and being able to wear shirts and shorts outside. (OK, I’ve seen that last one just once, and it was done by a 13-year old.)

But as I have suggested, there is a constituency for cold weather: skiers, snowboarders, ice fisherman, and pond-rink hockey players.

I don’t know much about ice fishing or hockey, but I will tell you that the ski industry is on the stop-global-warming bandwagon, and for obvious reasons. Oh sure, resorts can and do make snow (and I’m thankful for that). But when the grass is brown at home, people tend to not buy lift tickets, skis, ski clothing, and so forth.

So I’ve been to meetings of the ski industry where we are earnestly implored to do something about global warming. I usually keep my mouth shut because I’m interested in skiing and snowboarding, not politicking–and because global warmism is something approaching a religion.

Skiing isn’t cheap, and people who ski tend to have higher-than-average incomes. A season pass to one of the mini-hills in the Metro area is $300-$400 per person, and the cost of outfitting a skier with skis, boots, poles, clothing, and whatnot can easily reach $1,000. After spending that much money, and getting some psychic benefit out of skiing, skiers are (understandably) frustrated at seeing dirt rather than snow.

But the campaign to “save our snow” (as one industry effort is called) is another example of a prosperous interest group eager to use government to inflict the costs of its pleasures and preferences on everyone.

http://apps.detnews.com/apps/blogs/watercooler/index.php?blogid=3939

Filed in Environmental policy, Michigan View | Tagged | Comments (0)

One-sided Economics Afflicts Politics

Tuesday, January 10, 2012

The warm winter, virtually without snow, provides a lesson in incomplete thinking about economics.

The Star Tribune recently published a story about the economic impact of the season: “Minnesota businesses are seeing red ink in brown winter.” It then quotes, as evidence, people with businesses that clear driveways of snow, remove ice dams from buildings, and sell cross-country ski equipment. As someone who enjoys the snow, I sympathize with ski hills, whose businesses suffer even if they have plenty of snow for downhill skiing and snowboarding.

But the Star-Tribune article omits some important perspective. What about the benefits of little snowfall? There are fewer weather-related auto accidents. Thirty-minute commutes have not ballooned to two-hour drives. People who don’t pay for snow- and ice-removal services can redirect that money to buy meals out, clothing, electronic gadgets, etc., providing an economic boost to people in those industries. Alternately, they can save money, which, through investments, can enhance economic growth.

In other words, you’ve got to look beyond the obvious considerations. Would that we do this in economic policy. That’s the major point of the classic book, Economics in One Lesson. It’s a book-length illustration of the concept of “opportunity costs.” Unfortunately, opportunity costs are too often ignored when government spending is concerned. Solar power? Woo hoo! Let’s sink a billion into a company that can make it happen! (Oops! It’s gone bankrupt!) Bailout the United Auto Workers? Sure! Of course, those billions add to the national debt, which represents claims on the economy’s future earnings. Pay for the health care of everyone over 65? Why not, other than the fact that the unfunded liabilities of Medicare are somewhere in the ballpark of $75 trillion–five times the size of the U.S. economy.

If you depend on snowplowing for a substantial part of your income, well, it’s going to be hard to be you this winter. I hope you can adjust without too much trouble. But more importantly, I hope that the rest of us apply the lesson of opportunity costs to government spending.

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