Milton Friedman served as economic advisor for two American Presidents – Richard Nixon and Ronald Reagan. Although Friedman was inevitably drawn into the national political spotlight, he never held public office.
Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 1
I know that Charlie Collins is a big Milton Friedman fan like I am. Therefore, I put this post together with both Collins and Friedman in mind.
John Brummett is one of the liberals in Arkansas that does write very interesting articles and I make a point of reading them regularly. I don’t agree with many of them though. For instance, the other day Brummett made the statement that President Obama was not a big spender. That was not too difficult to debunk.
On June 3, 2012 in the Arkansas Democrat-Gazette Brummett asserted, “I’d like to rearrange these rates, exempting more of the lowest income from them altogether and hitting the rich folks a little more steeply than the 7 percent that kicks in way too early at $31,000 or so.”
I think this would drive away the job creators from Arkansas. I was thrilled that Republican state Rep. Charlie Collins of Fayetteville was a given a chance to respond to Brummett in the June 7, 2012 edition of the Arkansas Democrat-Gazette. Here are some portions of his response:
Brummett said that, overall, taxes in Arkansas aren’t that high. Using federal numbers, total Arkansas state tax revenue on everything from income to fishing licenses in 2011 was $2,634 per person, which ranked us 35th of 50. However, as a percentage of personal income, Arkansas had the ninth-highest taxation rate in the country! States with higher percentages included special cases like Alaska (energy tax revenue included), North Dakota (energy taxes) and Hawaii (tropical island). Even California and New York took a lower share of personal income than Arkansas.
Our top income-tax rate is 7 percent on earned income above $33,200. My plan would give all workers tax relief and simplify the system. We eliminate two of the six tax brackets—the 2.5 percent and 7 percent rates—which drops the new top rate to 6 percent. We then phase in higher income levels (six-figure earners) for the 6 percent rate over time.
The result is a dramatic tax break for low-income workers (60 percent reduction from 2.5 percent to 1 percent), strong relief for middle-class working families (35 percent cut from 7 percent to 4.5 percent), and a modest drop for high-income workers and job creators (14 percent from 7 percent to 6 percent).
We can phase in tax relief at a pace that maintains state government spending, keeps the budget balanced, and includes other priorities such as eliminating the grocery sales tax and targeted spending increases. We do it by slowing the growth in state spending.
Today President Obama is telling us that we must raise taxes in order for us to prosper and grow our economy and that sounds like the same think that Brummett and his liberal friend are saying. I have heard that before and it has never worked!!!!
Liberals like Ernie Dumas and Max Brantley who write for the Arkansas Times have always bragged on the 7% state income tax that Dale Bumpers raised in 1971 and how Arkansas has grown economically since then. However, the facts are quite different.
Ernie Dumas in his article “Arkansas” A tax myth-maker too,” Arkansas Times, April 13, 2011 asserts:
Until Gov. Dale Bumpers raised income-tax rates and other taxes in 1971, Arkansas had by far the lowest per-capita state and local taxes in the United States. Afterward, we were still 50th but within shouting distance of 49th.
Here are the real facts according to Greg Kaza of the Arkansas Policy Foundation:
(June 2006) Democratic Gov. Dale Bumpers and the General Assembly raised Arkansas’ top income tax rate to “broaden the tax base” in 1971(1). Yet Arkansas’ per capita income, expressed as a percentage of the U.S. total, has barely improved, moving from 71 (1971) to 77.7 percent (2005) over the 34-year period, according to data from the U.S. Bureau of Economic Analysis. The 1971 income tax increase reversed a decades-long strong growth trend and left Arkansas with the highest income tax rate among bordering states (Mississippi, Missouri, Louisiana, Oklahoma, Tennessee and Texas).
Income Stagnation: The 1930s
One has to turn to the 1930s-the decade of the Great Depression-to find weaker income growth than in recent years.
Arkansas per capita personal income was 44 percent of the U.S. in 1929, the first year data was compiled in the BEA time series. The Great Depression started that year, and by the time it ended in 1933 Arkansas per capita income had fallen to 41 percent of the U.S. By decade’s end (1939) it had returned to 44 percent.
Growth Decades: The 1940s, 1950s & 1960s
Arkansas per capita income increased as a percentage of the U.S. in the next three decades.
In 1941, at the onset of World War II, Arkansas per capita income was 47 percent of the U.S. It was 59 percent at war’s end in 1945 and again in 1949. It was 56 percent in 1950, 62 percent a decade later in 1960, and 68 percent in 1969. If this growth rate had continued Arkansas would have exceeded 100 percent of the U.S. average in the current decade (2000-2009).
To summarize, Arkansas per capita income increased from 44 to 71 percent of the U.S. total between 1939 and 1971.
Anemic Income Growth (1971-2005)
The trend in recent decades is anemic growth in Arkansas per capita personal income. Fiscal policy changes effect economic behavior with a time lag. Arkansas per capita income was 71 percent of the U.S. in 1971 and 76 percent in 1973. Income growth stagnated for the rest of the decade, reaching 77 percent of the U.S. in 1979. It fell to 75 percent in 1989, and was 76 percent in 1999. Today, Arkansas per capita income, at 77.7 percent of the U.S., is barely above its high point of the 1970s.
We can look at other states and see what their experience is too.
April 21, 2012 by Dan Mitchell
I’ve done a couple of posts comparing Reaganomics and Obamanomics, mostly based on data from the Minneapolis Federal Reserve on employment and economic output.
Some of the best evidence about high tax rates vs. low tax rates comes from inside America. Art Laffer (yes, that Art Laffer) and Steve Moore have a great column in today’s Wall Street Journal. It’s sort of Reaganomics vs. Obamanomics, looking at evidence from the states.
Barack Obama is asking Americans to gamble that the U.S. economy can be taxed into prosperity. …Mr. Obama needs a refresher course on the 1920s, 1960s, 1980s and even the 1990s, when government spending and taxes fell and employment and incomes grew rapidly. But if the president wants to see fresher evidence of how taxes matter, he can look to what’s happening in the 50 states. In our new report “Rich States, Poor States,” prepared for the American Legislative Exchange Council, we compare the economic performance of states with no income tax to that of states with high rates. It’s like comparing Hong Kong with Greece… Every year for the past 40, the states without income taxes had faster output growth (measured on a decadal basis) than the states with the highest income taxes. In 1980, for example, there were 10 zero-income-tax states. Over the decade leading up to 1980, those states grew 32.3 percentage points faster than the 10 states with the highest tax rates. Job growth was also much higher in the zero-tax states. The states with the nine highest income tax rates had no net job growth at all, and seven of those nine managed to lose jobs.
Tax rates also lead people to “vote with their feet.” Laffer and Moore look at migration patterns.
Over the past decade, states without an income tax have seen 58% higher population growth than the national average, and more than double the growth of states with the highest income tax rates. …Illinois, Oregon and California are state practitioners of Obamanomics. All have passed soak-the-rich laws like the Buffett Rule (plus economically harmful regulations, like California’s cap-and-trade scheme), and all face big deficits because their economies continue to sink. Illinois has lost one resident every 10 minutes since hiking tax rates in January. California has 10.9% unemployment, having lost 4.8% of its jobs over the past decade. …Every time California, Illinois or New York raises taxes on millionaires, Florida, Texas and Tennessee see an influx of rich people who buy homes, start businesses and shop in the local economy.
Competition among the states is leading some states to make further improvements. Some are even trying to get rid of their income taxes.
Republican governors in Florida, Georgia, Idaho, North Dakota, South Carolina, Ohio, Tennessee, Wisconsin and even Michigan and New Jersey are cutting taxes to lure new businesses and jobs. Asked why he wants to reduce the cost of doing business in Wisconsin, Gov. Scott Walker replies: “I’ve never seen a store get more customers by raising its prices, but I’ve seen customers knock down the doors when they cut prices.” Georgia, Kansas, Missouri and Oklahoma are now racing to become America’s 10th state without an income tax.
I like the quote from Governor Walker. He seems to know what he’s talking about, so it will be interesting to see whether he survives the upcoming recall election. I guess it depends whether voters understand that big government and high tax rates is a recipe for continued decline.
Some states, such as Illinois and California, are filled with voters who refuse to recognize reality. Think of them as the Greece and Spain of America, perhaps because the number of tax-consumers is greater than the number of tax-producers.
And even though parasites should understand it doesn’t make sense to kill their host animals, this cartoon illustrates how the welfare states lures a growing number of people to ride in the wagon. And this cartoon shows the consequences of too many moochers and not enough producers.
Take a look at all the Milton Friedman clips that I have posted today. These liberals I mentioned above have truly forgotten how powerful the market is if not interferred with by the government.
Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 2
Why do people move to other states to avoid Arkansas’ high state income tax? (If you love Milton Friedman then you will love this post)
Milton Friedman served as economic advisor for two American Presidents – Richard Nixon and Ronald Reagan. Although Friedman was inevitably drawn into the national political spotlight, he never held public office. Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 1 Mike Huckabee recently moved to Florida? Why? The answer [...]
Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 3