An Inquiry into the Nature and Causes of the Wealth of States: How Taxes, Energy, and Worker Freedom Change Everything / Edition 1

by Arthur Laffer, Stephen Moore, Rex A. Sinquefield, Travis H. Brown

Overview

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.

Product Details

ISBN-13:	9781118921227
Publisher:	Wiley
Publication date:	04/14/2014
Pages:	368
Sales rank:	1,042,746
Product dimensions:	6.30(w) x 9.10(h) x 1.40(d)

About the Author

ARTHUR B. LAFFER, PhD, is the founder and chairman of Laffer Associates, an economic research firm focusing on interconnecting macroeconomic, political, and demographic changes.

STEPHEN MOORE is chief economist at The Heritage Foundation. He focuses on budget, tax, and monetary policy.

REX A. SINQUEFIELD was a co-founder and director of Dimensional Fund Advisors LP. Since retirement, he has become one of Missouri’s leading philanthropists and a dedicated supporter of public policy change.

TRAVIS H. BROWN is the CEO and co-founder of Pelopidas, LLC, a public affairs and issue-advocacy firm. He frequently contributes to Fox & Friends and Forbes.com and is the author of How Money Walks.

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Table of Contents

Prologue xiii

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

Ohio 7

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

Connecticut 13

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

Conclusions 158

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

Conclusion 242

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

Notes 281

Bibliography 295

Acknowledgments 317

About the Authors 319

Index 321

What People are Saying About This

From the Publisher

"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