Synopses & Reviews
In early 2012, the Wall Street Journal published an editorial: The Heartland Tax Rebellion, which brought to national attention the movement in many Midwestern states to replace their state income tax. The opinion piece compared nine states with the highest personal income tax with nine states with no income tax. In each category (population, state product and employment) no-income tax states came out ahead, while high- and low-income tax states lagged behind. The debate continued in 2013, when Travis Brown’s groundbreaking book How Money Walks
proved conclusively for the first time what many folks, including some of the country’s most famed economists, have long suspected: Americans are moving away from high-tax states and into low- and no-income tax states at alarming rates; and pro-growth policy at the state level is creating the winners, while big-government, tax-and-spend policies at the state level are creating the losers. An Inquiry into the Nature and Causes of the Wealth of States
is a more detailed and critical look at income taxation across the 50 states, and drills down on the economic growth or malaise that results from state-level taxation polices. In short, the authors conclude you can’t tax a state into prosperity, nor can a poor person spend himself into wealth. If you tax rich people and give the money to poor people, sooner or later you’ll have lots and lots of poor people and no rich people. Based on their detail and quantitative analysis, the authors argue passionately for tax reform and no income taxes, and that government taxation policies truly matter when it comes to building economic growth and long-term prosperity.
The variables that matter:
- the state’s highest personal income tax rate,
- the progressivity of the personal income tax, i.e. how rapidly tax rates rise in relation to income,
- the state’s highest corporate income tax rate, is the state a right-to-work state?,
- the static revenue legislated tax changes over the past two years as a percentage of personal income,
- is there a death or estate tax?,
- workers’ compensation cost as a percentage of total payrolls,
- the state’s minimum wage,
- business friendliness of the state’s tort liability system, as measured by the U.S. Chamber of Commerce’s State Liability Systems Survey Index,
- the state’s sales tax burden as a percent of personal income,
- the state’s property tax burden as a percent of personal income,
- the burden of total other taxes, which include taxes such as motor fuel, alcoholic beverages, tobacco taxes, public utilities taxes, motor vehicle license taxes, etc., as a percentage of personal income,
- number of state and local public employees per 10,000 population, and more…
"This is a book full of evidence, compelling in the way it reveals differences among states and clear consequences. Read, learn, and weep in some constituencies or give three cheers in others."
—George Shultz, distinguished fellow at the Hoover Institution at Stanford University, former United States Secretary of Labor, Secretary of the Treasury, Secretary of State, Director of the Office of Management and Budget and professor of economics at MIT and the University of Chicago
"Left wing, right wing, liberal, conservative, Democrat or Republican, Arthur Laffer's book, The Wealth of States has the facts and the framework for policymakers and citizens alike. Tapping decades of research and experience in state economics, Laffer, Moore, Sinquefield and Brown communicate clearly the guiding principles to elevate their states-and thus the nation as a whole-to levels of prosperity never before seen. State and local legislators should base their economic policies on this book-it's a game changer."
—Dick Cheney, 46th Vice President of the United States, former Secretary of Defense, member of the U.S. House of Representatives representing Wyoming and Chairman and CEO of Halliburton Company
"Wow! This compelling, comprehensive book will be the bible for state and local leaders who truly want rapid economic growth. It will profoundly, positively change politics and economics in America."
—Steve Forbes, Chairman and Editor-in-Chief of Forbes Media
"Arthur Laffer is justly known as the father of Supply Side Economics whose pro-growth tax cuts combined with Reagan's policies of limited government, free enterprise and strong defense ushered in a twenty five year economic renaissance. He is not as well known for his work on the States, but this book will change that. With Stephen Moore, Rex Sinquefield and Travis Brown, Laffer uses the marvelous laboratory of the fifty States-set in the environment of free trade, population mobility and a common underlying federal structure-to demonstrate conclusively that economic policy matters. Where taxes are low, private property rights are strong and free enterprise prevails, prosperity grows. High taxes, big government and special interest domination may work politically to win elections, but they fail to bring home the bacon. Prosperity is not an accident or a fate, it is a choice-a freedom choice."
—Phil Gramm, former U.S. Representative and Senator representing Texas and professor of economics at Texas A&M University
"Arthur Laffer's latest book on the states makes it clear that running a state is a lot like running a business. The goals are the same: making our businesses and states more prosperous, competitive, and attractive to investors and citizens. With important lessons identified, The Wealth of States will make its mark."
—Jack Welch, Chairman and CEO of General Electric, 1981-2001
“The widening gap in policies and prosperity among the states has been a source of increasing controversy. The migration of people and businesses from high-tax states such as California and Illinois to fast-rising rivals Texas, Nevada, and Florida is creating a divide that, to some observers, mirrors the battle between emerging markets and aging economies in decline. . . . An important new book identifies a major factor that, the authors claim, separates the winners from the laggards: state income taxes . . . . Given the authors' pedigree, the conclusions are predictable: Imposing income taxes inevitably leads to economic decline and enriches the competing states that don't have them. What gives their arguments credence is the staggering wealth of data summoned to support their claims.”
—Shawn Tully, senior editor-at-large, Fortune, April 18, 2014.
“For the economist, the relocation decision offers a fascinating insight into the differences between attractive and repellent environments. If every state were exactly the same—same economy, same laws, same weather—the relocation decision wouldn’t tell us anything of interest. People would still move, but there wouldn’t be any discernible trends. We’d see the same number of people moving from Cuba to Florida as vice versa. But what if people systematically prefer one kind of jurisdiction over another when they move? . . . as a partial explanation for relocation decisions it’s a fascinating insight, one that informs an important new book by Arthur Laffer, Stephen Moore, Rex Sinquefield, and Travis Brown, An Inquiry Into the Nature and Causes of the Wealth of States. The title, borrowed from Adam Smith’s Wealth of Nations, promises a revolutionary reinterpretation of what makes American states wealthy and, remarkably, the authors deliver on their promise. What they find, in brief, is that low-tax states deliver more wealth without sacrificing the social services that tax revenues are supposed to fund. They also find that people move in massive numbers from high- to low-tax states.”
—F.H. Buckley, The American Spectator, May 14, 2014
A passionate, detailed, quantified argument for state-level tax reform
An Inquiry into the Nature and Causes of the Wealth of States explains why eliminating or lowering tax burdens at the state level leads to economic growth and wealth creation. A passionate argument for tax reform, the book shows that even states with small populations can benefit enormously with the right policies. The authors’ detailed exposition evaluates the impact state and local government policies have on a state’s relative performance and economic growth overall, backed up with economic data and analysis.
Facts don’t lie. But they do point clearly to the failure of so-called progressive tax schemes designed more to curry favor with selected constituencies than to create an economic system that leads to individual wealth as the reward for hard work and entrepreneurial risk taking. An Inquiry into the Nature and Causes of the Wealth of States is a detailed and critical look at income taxation across the nation, and drills down into an analysis of the economic growth or malaise that results from tax policy. Arguing eloquently that a state cannot tax itself into prosperity, just as the impoverished cannot spend themselves into wealth, the authors point out what many inherently know but often fear to say out loud. The book provides detailed quantitative analysis, and discusses the policy variables that can have enormous effects on the financial well-being of states and individual residents, such as:
- Personal and corporate income tax rates
- Total tax burden as a percentage of personal income
- Estate and inheritance taxes
- Right-to-work laws
An Inquiry into the Nature and Causes of the Wealth of States shows everyone how to evaluate state-level fiscal and economic policies to become more competitive.
Poor people can't spend themselves into wealth. Similarly, as huge segments of the population have long suspected, a higher tax burden doesn't lead to prosperity at the state level. Seems simple enough to many, but this little piece of wisdom has been the subject of loud debate. An Inquiry into the Nature and Causes of the Wealth of States
is putting that debate to rest with a cogently presented, meticulous analysis of the facts.
By looking at quantitative data from all 50 U.S. states, the authors have put together a solid case for lower state income taxes and decreased tax burdens. Wealth doesn't stay put. Businesses and individuals in upper economic strata go where their interests are protected. The result? As this book demonstrates, almost every measure of economic prosperity at the state levelpopulation, employment, and beyondis linked to taxation. Low-tax states in every region of the country are outperforming their neighbors.
In all kinds of economic weather, states need to become competitive or risk urban dilapidation, population shrinkage, decreases in quality of living, and worse. In An Inquiry into the Nature and Causes of the Wealth of States, lucid quantitative analysis supports the argument that wealth-friendly policies at state and local levels are the key to maintaining prosperity for everyone. These policies extend far beyond the personal income tax rate to include corporate income taxes, estate taxes, the overall tax burden, right-to-work laws, and much more. Add it all up, and states won't be able to ignore this airtight case for tax reform.
Yes, State Tax Rates Matter A Lot
The pages of this book contain the ammunition you need to end the debate over state tax policy once and for all. Taxing the wealthy to give to the poor drives the wealthyalong with their tax dollars and their businessesacross state lines. An Inquiry into the Nature and Causes of the Wealth of States presents the data that prove it.
There is no substitute for facts. Inside, you'll find straightforward evidence that high state and local tax burdens can destroy prosperity in states of any size. If you're looking for investment locations, considering reform policy, or planning to relocate to a state that looks out for your interests, you'll want to see how the numbers really fall.
This data-based exposé reveals just how damaging state and local taxation can be to economic growth and wealth creation. With its rare, articulate presentation, An Inquiry into the Nature and Causes of the Wealth of States is one of the most important economic treatises in recent memory.
A business leader and esteemed economic thinker outlines simple solutions to Americaandrsquo;s five most pressing public policy issues, from healthcare to education to inequality
America today confronts a host of urgent problems, many of them seemingly intractableandmdash;but some we are entirely capable of solving. Inand#160;Five Easy Theses
, James M. Stone presents specific, common-sense solutions to a handful of our most pressing challenges, showing how simple it would be to shore up Social Security, rein in an out-of-control financial sector, reduce inequality, and make healthcare and education better and more affordable. The means are right in front of us, Stone explains, in various policy options thatandmdash;if implementedandmdash;could preserve or enhance government revenue while also channeling the national economy toward the greater good.
Accessible and thought-provoking,and#160;Five Easy Thesesand#160;reveals that a more democratic, prosperous America is well within our reach.
About the Author
JAMES M. STONEandnbsp;is CEO of the Plymouth Rock family of insurance companies, vice chairman of web-based international news service Global Post, and a founding member of the Administrative Committee of Lindsay Goldberg, a large New Yorkandndash;based private equity company. Stone has also served as chairman of the United States Commodity Futures Trading Commission under President Jimmy Carter, as commissioner of insurance for the Commonwealth of Massachusetts, and as lecturer in economics at Harvard University. A fellow of the American Academy of Arts and Sciences and the author of numerous articles on insurance, finance, and economics, as well as a book on the securities industry, he holds a Ph.D. in economics from Harvard and lives in Boston, Massachusetts.
Table of Contents
Chapter 1 The Fall from Grace: The Story of States 11 and the Income Tax Adopted 1
The Implementation of an Income Tax—A Terrible Mistake 1
That Giant Sucking Sound Is People, Output, and Tax Revenue Fleeing Income Taxes 4
Economic Malaise 4
Misleading Measures 5
The Story of New Jersey—A Colorful Example of Opportunity Wasted 10
Lower Tax Revenue 10
The Rhetoric Surrounding Tax Revenue and the Decline in Public Services 11
The Case of the Disappearing Tax Revenue 12
No Bang for the Buck—How Costly Tax Increases Fail to Result in Better Provision of Public Services 16
Chapter 2 Economic Metrics 23
Primary Economic Metrics 24
Tax Revenue Performance of All States over the Past Decade 32
The ALEC-Laffer State Rankings 37
Internal Revenue Service Tax Migration Data 39
Chapter 3 The Nine Members of the Fellowship of the Ring to Balance Out the Nine Nazgûl 53
An Analysis of the Top Personal Income Tax (PIT) Rates 56
Public Services and the Personal Income Tax 61
The Effects of Oil and Severance Taxes 63
A Longer-Term View of the Data 67
An Analysis of Corporate Income Taxes 69
An Analysis of the Overall Tax Burden 73
An Analysis of the ALEC-Laffer State Economic Competitiveness Index 76
Chapter 4 Piling On 81
An Analysis of the Property Tax Burden 82
An Analysis of the Sales Tax Burden 82
Estate and Inheritance Taxes 88
Right-to-Work Laws 90
Labor Force Unionization 93
State Minimum Wages 96
Chapter 5 Give unto Caesar 99
New Hampshire—Case in Point 104
Top Traders 121
Real-Time Mobility Index 127
Chapter 6 Why Growth Rates Differ: An Econometric Analysis of the Data 133
List of Variables 137
Gross State Product Growth: Single-Variable Analysis 141
Gross State Product Growth: Two-Variable Analysis 146
Gross State Product Growth: Three-Variable Analysis 149
Population Growth: Single-Variable Analysis 150
Population Growth: Two-Variable Analysis 153
Population Growth: Three-Variable Analysis 156
Population Growth: Four-Variable Analysis 157
Annotated Econometric Bibliography 159
Key Quotes from Econometric Bibliography 186
Chapter 7 Fiscal Parasitic Leakages: Texas versus California 193
A Tale of Two States—A 55-Point Summary 194
The November 2012 Elections in California and Texas 199
Economic Performance: California, Texas, and the United States 201
A Brief Note on Poverty Metrics 207
The Texas Oil Boom and California’s Oil Bust: A Clash of Economic Cultures 208
An Overview of Total State and Local Government Revenues—Texas and California 212
Texas, California, and the United States: A Comparison of Tax Revenue and Debt Financing 213
Policy Variables Affecting Growth 218
The Relationship among Taxation, Spending, and the Achievement of Policy Objectives—A Story of Parasitic Leakages 224
Intergovernmental Revenues, Federally Mandated Social Services, and State Welfare, Medicaid, and Food Stamp Programs 225
The Provision of Public Services by State and Local Governments 229
The Performance of State and Local Public Education 235
Highways: California versus Texas 239
Prisons: California and Texas 241
Chapter 8 Au Contraire, Mon Frère: Criticisms of Our Work—Our Responses 245
Conflicts of Interest and Policies 245
Taxes and Other Supply-Side Policy Variables Don’t Affect Population and Gross State Product Growth 247
Growth Is a Move from North to South, from Clouds to Sunshine, from Cold to Warm 251
Growth Is Predominantly a Matter of Education and Not Taxes and Other Economic Policy Measures 252
Personal Income per Capita and Median Income Growth as Measures of Success Show Taxes Don’t Matter 253
Tax Rate Cuts Are Public Service Cuts 257
Other Factors Affect Population Growth (Oil, Sunshine, Accessible Suburbs, Etc.), and Therefore Taxes, Right-to-Work Laws, and Other Supply-Side Variables Don’t 259
Correlations between Tax Rates and Growth Reflect a Simultaneous Equation Bias (Reverse Causation); That Is, Growth Causes Tax Cuts, Not the Reverse 261
There Are High-Tax States That Outperform Low-Tax States; Therefore the Supply-Side Theory Is Wrong 264
The Oklahoma Argument against Tax Cuts 267
Income Distribution Becomes More Even with Progressive High-Rate Tax Codes 270
The Probity of the ALEC-Laffer Measures Is Nonexistent; Therefore Their Policy Prescriptions Are Wrong 273
Federal Tax Rates Are More Important Than State Tax Rates, and Therefore State Tax Rates Don’t Matter 275
The Wealthy Used Public Resources, and They—Not Others—Should Pay for Those Public Resources; We Need More Progressive Taxes, Not Less 276
When Is Enough Evidence Enough? If the Facts Were Reversed, We Would Concede 277
About the Authors 319