Locke Foundation's "Massachusetts Miracle"

Last month, the John Locke Foundation released a report, "Tax Cuts for All," that purported that the tax reform that North Carolina enacted in 2013 would result in lower average net taxes for every income group in the state by 2015. For the report, the JLF relied on numbers computed by the Beacon Hill Institute at Suffolk University in Massachusetts.

The numbers look miraculous.

Contrary to some other analyses, the JLF and its Massachusetts partner find that total taxes paid by every income group will be lower in 2015 than they would have without the reform. Specifically, they estimate that 

• households with incomes below $25,000 will save a total of $79 million,
• households with incomes of $25,000 to $50,000 will save $68 million,
• households with incomes of $50,000 to $75,000 will save $58 million,
• households with incomes of $75,000 to $100,000 will save $78 million,
• households with incomes of $100,000 to $200,000 will save $201 million, and
• households with incomes above $200,000 will save $369 million.

The enormous tax savings for the small number of households in the top income category would be great news for them, but the more modest projected savings for other households would also be good news (just not as much good news as the very, very rich).

The miraculous part is that numbers suggest that the NC tax changes provide average tax savings across the income distribution.

However, there's just a teensy, weensy problem with the analysis--the numbers don't add up. Or rather, the estimated $853 million in total JLF savings across income groups in 2015 adds to far more than the anticipated savings from NC's official budget analysis.

The report claims to rely on many figures and estimates provided by the Fiscal Research Division of the NC General Assembly. But the FRD calculated that the tax package would only reduce revenues by $501 million in fiscal year that runs July 2014-June 2015 and $760 million in the fiscal year that runs from July 2015-June 2016. Thus, the 2015 calendar year savings would be somewhere between $501 and $760 million.

Yet the JLF and its Massachusetts partner find $853 million in savings.

Talk about your Massachusetts miracles!

Update (2/12/14, 2:15 p.m.): The JLF/Beacon Hill numbers have become more miraculous.

The FRD estimates that state revenues will drop $501-$760 million in 2015. However, the funds coming from taxpayers' pockets will only fall $434 to $706 million because the expansion of the sales tax also increases local government tax receipts.

Also, the JLF/Beacon Hill estimates don't treat the elimination of the state Earned Income Tax Credit as tax reform (low-income families are likely to see things differently). The elimination of the state EITC will cost low-income households at least $100 million per year.

These changes add more than $150 million to the discrepancy between the JLF/Beacon Hill numbers and the official state projections.

Civitas proposes taxing insulin, artificial arms and legs

How cruel is the proposal by the John W. Pope Civitas Institute to replace North Carolina's progressive income, corporate, and privilege taxes with expanded sales, franchise, and real estate transfer taxes? It could literally cost amputees their artificial arms and legs and diabetics their insulin.

The sales tax elements of Civitas's proposal include increasing the tax rate from its current level of 6.87 percent on average (4.75 percent at the state level and 2.00-2.50 percent at the local level) to 8.05 percent and expanding the tax base. The largest part of Civitas' tax base expansion (and the largest gain in anticipated revenues) comes from "repealing current exemptions, preferential rates, and refunds" (p. 4). Civitas provides almost no detail for what these "exemptions, preferential rates, and refunds" include, leaving the impression that they are just a bunch of loopholes.

Every other year, the North Carolina Department of Revenue (NC DOR) compiles a list and estimates the value of tax "expenditures" (the value of exemptions, deductions, special rates, etc.) throughout the state's tax code. The latest estimates come from 2011 and generally provide estimates of the value tax "breaks" for 2011-12. An examination of these items reveals why Civitas was silent on these details.

The table below lists some of the items that would be included in Civitas' proposal.The table also lists the NC DOR estimate of the value of the state taxes saved in 2011-12 under the existing 4.75% rate and an estimate of how much the 8.05% Civitas sales tax would cost.

"All I need is a miracle" -- growth in the no-personal-income-tax states

Earlier this week, I analyzed a proposal that the John W. Pope Civitas Institute has made to eliminate the corporate, personal, and business franchise taxes that North Carolinians pay and to replace these with a higher and expanded sales tax, a business license fee, and a real estate conveyance fee (a real estate sales tax). The proposal would shift the responsibility for paying taxes away from North Carolina's wealthiest households and most prosperous corporations and towards its poorest households and smaller businesses.

Civitas acknowledges that the tax proposal would be regressive but claims that it would lead to greater economic growth. As evidence it cites the experiences of states that do not assess personal income taxes and of those that do not assess corporate income taxes. These states experienced higher growth in their Gross Domestic Products (GDPs) than other states.

As I wrote in the earlier post, this contention is correct, but it is hardly evidence of the effect of the states' tax policies. For example, total GDP is influenced by the number of people in a state, and GDP growth is influenced by population growth. Each of the no-personal-income-tax (NPIT) states experienced above-average population growth. Several of the states have other things that make them unique. Below I analyze the growth rates for the states, highlighting some of their characteristics.

Civitas' immiserating tax scheme

Charge them for the lice
Extra for the mice
Two percent for looking in the mirror twice
Here a little slice
There a little cut
Three percent for sleeping with the window shut

Taking inspiration where it can (and probably recommending that the poor pay a tax for that too), the John W. Pope Civitas Institute has released an audacious proposal to reduce rich North Carolinians' payments by having everyone else pay more in taxes for food, medicine, and rent.

Specifically, Civitas recommends eliminating the personal income tax, the corporate income tax, and the franchise tax that North Carolina households and businesses currently pay and replacing these with

• a higher (8.05 percent) sales tax which would be extended beyond the current tax base to cover groceries, insurance premiums, out of pocket medical expenses, residential leases, lottery ticket sales, and any service that is taxed in at least one other state (the proposal would also eliminate other exemptions and special rates in the current tax code but would exempt business expenditures on capital goods);
• a business license fee; and
• a real estate conveyance fee (a tax on commercial real estate sales)

Civitas claims that the change would be "revenue neutral," meaning that the new and increased taxes would bring in as much money as the taxes they are replacing. The claims of neutrality are suspect because the revenue figures that Civitas uses are $750 million less than what the state actually took in. Let's assume, however, that the final proposal is revenue neutral.

Under a revenue neutral tax reform, some households and businesses will pay less, while others will pay more. The reform shifts the responsibility of paying taxes from one group to another.

For this particular proposal, the responsibility would shift from rich households and prosperous corporations to poor households and smaller businesses. The tax system would lurch from being progressive (meaning that wealthier people pay a higher proportion of their income in taxes than poorer people) to regressive (meaning that poorer people pay a higher proportion of their income in taxes than wealthier people).

Civitas claims that this shift will actually be beneficial because "progressive income taxes (are) more harmful to growth." As evidence in support of this claim, Civitas compares "growth rates" for states with and without corporate income taxes and states with and without personal income taxes. It finds that states without the taxes experienced higher rates of economic growth.

Civitas provides almost no documentation for its figures besides saying that they are based on data from the Bureau of Economic Analysis (BEA). An analysis of the BEA data, however, indicates that the Civitas claims don't hold water.

The "headline" measure of state economic growth that the BEA uses is real (inflation-adjusted) gross domestic product (GDP), an estimate of the value of goods and services produced within the state. For instance, Civitas claims that average annual growth from 2002-2011 was half a percent lower in states with a personal income tax than in states without such a tax (1.7 percent growth vs. 2.2 percent growth). There is some question regarding which states do and don't have personal income taxes. Seven states (Alaska, Florida, Nevada, South Dakota, Texas, and Washington) definitely do not have personal income taxes. Two other states (New Hampshire and Tennessee) only assess personal income taxes on certain types of income, such as dividends or interest. For the present analysis, I computed the annual changes in real GDP for 2002-3, 2003-4, ..., 2010-11, averaged the annual changes for the first seven states, and averaged the annual changes for the remaining 43 states (omitting the District of Columbia). Doing this reproduces Civitas' 2.2 percent average annual growth figure for the no personal tax states but only produces a 1.5 percent growth figure for the other states. These comparisons are more favorable to Civitas' argument than others (such as including DC or treating NH and TN as no-personal-income-tax states), so I'll continue with them.

There are a number of problems with Civitas' analysis. For one thing, Civitas does not adjust its GDP figure for population growth. Redoing the comparisons using real per capita GDP reveals that economic output per person grew slightly more in the personal-income-tax states (0.7 percent per year) than in the no-personal-income-tax states (0.6 percent per year).

Civitas similarly fails to account for the fact that three of the seven no-personal-income-tax states are major oil and gas producers that have benefited from high energy prices over the last decade. Although oil and gas extraction accounted for only one percent of economic output nationally in 2010, it accounted for 16.4 percent of the output in Alaska, 14.2 percent of output in Wyoming, and 6.3 percent of output in Texas. Indeed, Alaska gets so much revenue from its oil and gas fields that it actually pays an annual royalty to its citizens.

Federal government military and civilian activity also accounts for a larger share of economic output in the no-personal-income-tax states than in the others, and federal military and civilian activities grew at a faster rate in the last decade in those economies than in others. For example, although federal civilian and military activities only accounted for 3.7 percent of state economic output nationally in 2010, they accounted for 10 percent of the economic activity in Alaska and 5.1 percent of the activity in Washington. The state and local governments in the seven no-personal-income-tax states also get more intergovernmental revenue from the federal government (e.g., payments from the federal government to help the state and local governments operate schools and build roads) on a per capita basis than other states. Figures from an analysis by The Economist also reveal that the seven no-personal-income-tax states enjoyed a bigger net differential over other states between 1990 and 2009 in the receipt of federal expenditures over the payment of federal taxes. It's much easier to lower your state's tax rates when taxpayers from other states are footing so much of the bill.

Shifting more of the responsibility of paying taxes from those who have benefited from the economy to those who haven't is a cruel prescription, especially given the deprivations that poor families have faced over the last few years. However, it's crueler still to do this with no demonstrable benefit to the economy.

Coming soon to a coast near you--more frequent flooding

Coastal flooding and our responses to it are an on-going and growing concern in North Carolina.

The outlook isn't getting any better. The New York Times reports

About 3.7 million Americans live within a few feet of high tide and risk being hit by more frequent coastal flooding in coming decades because of the sea level rise caused by global warming, according to new research.

If the pace of the rise accelerates as much as expected, researchers found, coastal flooding at levels that were once exceedingly rare could become an every-few-years occurrence by the middle of this century.

The researchers have put together a web-site showing low-lying areas that at risk of flooding.

Meanwhile, the Carolina Journal has recently said we should all just stick our collective heads in the beach sand.

State officials are pressuring local governments to plan for a one-meter sea-level rise by 2100, even though many independent scientists have argued the rise is highly unlikely if not impossible.

Even though a state advisory panel no longer recommends regulations based on the one-meter projection, local government officials worry that state regulators will try to implement those rules.

Such a policy, they say, would have a devastating impact on coastal economies, property values, and citizens’ ability to secure financing and property insurance. North Carolina also would become the first state to enact policies consistent with a projected sea-level rise of that magnitude.

In a 2010 report (PDF), the Coastal Resource Commission’s Science Panel said the sea level is likely to rise one meter by 2100. Now the commission is drafting policy “encouraging” coastal communities to consider accelerated rates of sea-level rise in local land-use and development planning.

A group of independent scientists have challenged the panel’s report, pushing the CRC to revise its draft sea-level rise policy so that the regulations in it read more like suggestions and the one-meter benchmark no longer appears.

There’s nothing scientific about the way the science panel came up with its one-meter projection, said John Droz, a physicist and environmental activist. Droz, with the help of more than 30 other scientists, wrote a critique (PDF) of the panel’s “NC Sea-Level Rise Assessment Report.”

The "independent" scientist who is quoted is actually a realtor who stopped working professionally in the sciences in 1979 and who is working on behalf of a pro-development coalition NC-20. The "30 other scientists" were sent copies of the report.

As Chico Marx once said, "who you gonna believe, me or your own eyes."

Carolina Journal claims its Tempest Trophy

Jeff Martin (aka Fec) reports on the fall-out from the Tempest in a Lunchbox.

Sara Burrows and the Carolina Journal, with their inaccurate reporting and subsequent cover up, are directly responsible for the suspension of an educator merely attempting to abide by school policy.

You may recall that the under the hysterical headline "Preschooler’s Homemade Lunch Replaced with Cafeteria 'Nuggets:' State agent inspects sack lunches, forces preschoolers to purchase cafeteria food instead" the Pope-funded Carolina Journal falsely reported that a state agent inspected pre-schoolers' lunches at West Hoke Elementary school on Jan. 30 and told a 4-year-old that her home-packed sack lunch didn't pass muster. The CJ eventually backtracked on some of those falsehoods when its shoddy reporting began to fall apart: first by slightly editing the story to say that "the school" told the child that the lunch "was not nutritious" and second, by editing the headline. The headline of the current version of the story continues to implicate a "state agent" and indicate that children "purchase(d) cafeteria food," and the story itself says that the little girl was "told" that her lunch "was not nutritious."

The original false story caused quite an uproar, what with state lunch inspectors poking into lunch sacks and taking 4-year-olds' turkey and cheese sandwiches away. However, the CJ continued to fan the flames of outrage from the story that it had inaccurately reported, asking "Who is the Mystery Food Monitor?" and describing reports from state agencies that they weren't involved "sketchy--and sometimes conflicting."

Turns out that the entire story of any encounter with a state official or agent on Jan. 30 was completely false and that the "sketchiness" was multiple state and federal agencies trying to prove a negative. The CJ reported on Feb. 23 that a state consultant had "observed the lunch routine" on Jan. 26 (there's no longer any mention of sack lunch "inspections") and that parents had been notified on Jan. 27 that lunches needed to include certain items. There was no state official in the school on Jan. 30.

Instead, CJ's story is now

A teacher offered a 4-year-old girl a cafeteria tray with chicken nuggets, a sweet potato, bread, and milk to replace the turkey and cheese sandwich, potato chips, banana, and apple juice her mother had packed for her.

No state agent, no purchase, and no statement to the child about the quality of the lunch.

Now comes the kicker that Fec blogged about, the incident has finally cost someone her job...the children's pre-school teacher!

The CJ reports

The teacher involved in “supplementing” a preschooler’s lunch with chicken nuggets in Hoke County has been suspended indefinitely.

Art Pope, Sara Burrows, and the "responsible" folks at the John Locke Foundation are likely toasting their success in taking down a public employee. Kudos to the whole crew on a smear well done!

The parents and children from West Hoke Elementary seem less pleased. You'll understand if they aren't raising their milk cartons (school-provided or brought from home) with you.

Tempest in a lunch box

Yesterday, the Pope-funded Carolina Journal misreported that

A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because a state employee told her the lunch her mother packed was not nutritious.

The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the agent who was inspecting all lunch boxes in her More at Four classroom that day.

Meanwhile the Pope-funded Civitas Institute added, "A state inspector assessing the pre-K program at the school said the girl also needed a vegetable, so the inspector ordered a full school lunch tray for her."

One teensy-weensy problem though--the state employee made no such statement to the girl and ordered no such meal. It's doubtful that the state employee "inspected" the girl's lunch at all.

The Carolina Journal was forced to backtrack on the story, changing the paragraphs from above to

A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because the school told her the lunch her mother packed was not nutritious.

Funny, I didn't know that schools could talk.

The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the person who was inspecting all lunch boxes in the More at Four classroom that day.

The Carolina Journal explained that "The first two paragraphs of this story were updated. Neither DHHS nor school officials would identify the person who inspected the homemade lunches and decided they did not meet USDA guidelines." Thus, the CJ's initial statements, which were reported as facts (not "alleged" or according to the child or parent), were never confirmed with the school, DHHS, or the person involved.

Indeed, the CJ actually has the gall to now run a story about not being able to identify the person involved, saying that "the government officials involved have provided sketchy — and sometimes conflicting — details" about the person involved, and then lists contradictions from the Civitas story as part of the evidence.

A spokesperson for the school district later admitted that it was likely the school's mistake.

After investigating, the DHHS determined

...no employee of DHHS, nor the Division of Child Development and Early Education (DCDEE) or its contractors, instructed any child to replace or remove any meal items. Furthermore, it is not DHHS' policy to inspect, go through or question any child about food items brought from home. The facts we have gathered confirm that no DHHS employee or contractor did this.

The CJ has characterized the results of the DHHS investigation as one of the "sketchy" details.

Compounding the error, U.S. Representatives Larry Kissel and Renee Elmers sent a letter to the U.S. Secretary of Labor, complaining that "a school official denied a child the right to eat the lunch provided to her by her mother" and "at no point should a government official be allowed to deny a 4-year-old child access to a parent packed lunch or imply to a child that their lunch is wrong or there is a problem with the food provided to them by their mother or father." This despite the fact that none of the people involved has claimed that the little girl was denied access to her lunch.

However, the CJ is now also reporting on the overblown uproar caused by its own irresponsible and incorrect reporting.

Ultimately, what is the great mistake that was made? People who were concerned that a little girl did not have an adequate lunch appear to have put her in a cafeteria line with the intention of having her get an additional free item to go along with the lunch that her mother packed but mistakenly giving her a full, free school lunch instead.

Which all goes to show that the economists' old adage is true--there is no such thing as a free lunch.

Update and note (6:50 p.m., 2/16): This post summarizes and extends a conversation at Doug Clark's blog.

As part of that conversation, the publisher of the CJ, John Hood, wrote

CJ did not report that the person in question personally intervened to keep the girl from eating her packed lunch. Nor did we report that the packed lunch was confiscated.

...The only reason we changed a couple of words in our initial story is that other news media were misreading them and inventing events that did not happen — and that CJ never reported as happening — such as a government health inspector confiscating the kid's turkey sandwich. We noted that there is no doubt which institution dealt with the kid. It was the school, not the inspector.

That's funny, because besides contradicting the explanation that the CJ actually posted, the statement is belied by CJ's headline on its initial story "Preschooler’s Homemade Lunch Replaced with Cafeteria 'Nuggets:' State agent inspects sack lunches, forces preschoolers to purchase cafeteria food instead."

In addition to the economics free lunch adage, there is an even older adage that says "what a tangled web we weave, when we first practice to deceive."

Update #2 (8:00 p.m. 2/16): Covering its tracks, the CJ has sent the words "forces" and "to" from the article headline down the memory hole. No explanation given by CJ, and frankly, none expected.

People who tell the truth from the start never don't have to change their stories.

Pope's misinformation for UNC alumni

The John W. Pope Center for Higher Education Policy can be faulted for a host of sins, but a lack of ambition is not among them. Not content to mislead and misinform state lawmakers to cut public funding for North Carolina's public university system, the Pope Center also operates a misleading web-tool to also discourage private donations from some alumni.

Did you attend a North Carolina college or university?

If so, you undoubtedly receive frequent pleas from your school for financial support. Does your school deserve your donations?

Find out using this Alumni Guide to North Carolina colleges. Select your college or university from the list below to answer a short survey to determine whether your giving priorities line up with your alma mater’s current activities and performance.

I went to the Alumni Guide for my institution, UNCG, to see what dastardly things my colleagues and I were doing. Below I post some of the Pope Center's statements, along with English translations.

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Pope: UNC Greensboro has a free speech rating of "Red"

Translation: A free-speech group objects to UNCG's policy on discriminatory conduct--specifically to the statements

UNCG will not tolerate any harassment of, discrimination against, or disrespect for persons. UNCG is committed to equal opportunity in education and employment for all persons regardless of race, color, creed, religion, gender, age, national origin, disability, military veteran status, political affiliation or sexual orientation.

The same group rates 65 percent of the colleges and universities that it surveyed as also "severely restricting free speech and open debate." Only four percent of colleges and universities meet with the group's approval.

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Pope: UNC Greensboro has a grade of "B" in ACTA's "What Will They Learn" assessment.

Translation: Another group has marked UNCG down for allowing students with SAT or ACT writing scores in the top decile to opt out of its first-year English 101 composition class. Students would still have to take an additional "Reasoning and Discourse" class and also complete two additional "writing-intensive" classes. The group also objects to UNCG allowing students to take courses like Western Civilization, Introduction to Greek Civilization, and Europe 1400-1789 in place of a course on either U.S. History or U.S. Government. In addition, the group objects because UNCG doesn't require students to take Economics (okay, they've got a point there).

Describing this as a "what will they learn" index is odd. At one end of the distribution (tied for worst in the state), our sister school, UNC Chapel Hill, gets a "D" from the group. UNC Chapel Hill students seem to learn a lot (just ask one of them). At the other end of the spectrum, getting "A's" are the University of Texas -- San Antonio, which graduates a whopping 27% of its students, the University of Science and Arts of Oklahoma, which graduates 32% of its students, and Kennesaw State University, which graduates 41% of its students. The distinction between putting an extra requirement in the undergraduate bulletin and actually learning something seems lost on the Pope Center.

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Pope: UNC Greensboro received a rating of "Unbalanced: Democratic" for faculty political balance.

Translation: Pope explains

This category measures the number of professors in the economics and political science departments who are registered Democrats versus the number who are registered Republicans. Ratios of greater than 5:1 are considered "Very Unbalanced." Ratios between 5:1 and 1.5:1 are considered "Unbalanced." A ratio of 1.5:1 or less is considered “Balanced.” Data were gathered from the North Carolina State Board of Elections.

So, in one breath, Pope criticizes UNCG for not forcing students to take government and economics classes. In the next, it decries those faculty as being unsuitably democratic. It's really hard to win with these folks.

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Pope: UNC Greensboro has a 6-year Graduation Rate of 52 percent. The national average for 4-year schools is 63.2 percent.

Translation: The 52% statistic listed for UNCG is the percentage of students who started their careers at UNCG in 2003 and who completed their degrees at UNCG by 2009. The 63.2% statistic is not comparable and appears to be the proportion of students who start at a four-year institution seeking a bachelor's degree and ever attain one at any institution. At UNCG, just over a fifth of students transfer. UNCG (and other colleges) don't track graduation rates for their former students. The 63.2% statistic appears to come from a completely different data series based on a government survey (the kind of government spending other folks in the Pope Empire routinely object to). The comparable statistic for students completing a bachelor's degree at the same four-year institution they started at is 55.5%; for public institutions, the comparable statistic is 53.5%.

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Incorrect and misleading statistics? Just another day at the office for the folks at the Pope Center.