State of the Stimulus in the 50 States: Cut, Cap and Keep on Truckin'

We know that the Left is quite unhappy about the debt-ceiling agreement just signed into law.  Unlike the mega-budget deals in 1982 and 1990, there is no tax increase.  Worse, the legislation increasing the debt ceiling by $2.4 trillion includes a reduction in federal government spending by slightly more than $2.4 trillion over the next decade.  This claws back one-fourth of Obama’s scheduled debt increase of $10 trillion over the same decade.  And it erodes some of what the Left considers “progress.”
But worse, we have established the “Boehner Rule,” named after House Speaker John Boehner, which from now on requires any and all debt-ceiling increases to have a dollar-for-dollar spending reduction.  This is a new weapon in the fight to bring down spending.

But to get the flavor of how unhappy liberals are, one can always check in with the hypersensitive barometer of leftist angst:  New York Times columnist and Princeton economics professor Paul Krugman.  And he is very unhappy.

On his Times blog on July 30, he announced that he would be appearing on ABC’s “This Week” with Christiane Amanpour with me with the following one line:  “I’ll be on “This Week” tomorrow.  Also on the panel, Lord Voldemort Grover Norquist.”

Evidently, you don’t have time to read Milton Friedman, Friedrich Hayek or Adam Smith when focused on the economic musings of J.K. Rowling.

Krugman argued that the only thing wrong with Obama’s spending binge was that it was entirely too small.  He bragged that he had said from the beginning that it needed to be twice as large.

Obama and Krugman’s theory is that if you take a dollar through taxation or debt from someone who earned that dollar and give it to someone who is politically connected in a grant or subsidy, you have actually created wealth, income and jobs.  And Obama transferred many dollars.  First, the $800 billion “stimulus” spending bill.  And TARP (Troubled Asset Relief Program) round two, another $350 billion.  And a plus-up of a trillion of total spending levels in his first two years.

Krugman’s theory is that if Obama, Reid and Pelosi take three buckets to one side of a lake and withdraw three buckets of water, then walk around the lake to the other side, and before the MSNBC cameras pour the water back into the lake, you will have “stimulated the lake to great depths.”  Well, maybe not all at once, but if you do this 800 billion times, surely the lake will get deeper.

I suggested that we could learn from the success or failure of the 50 states—some of which had recently refused to increase taxes and in fact demanded spending restraint.  Florida and Texas have focused on spending restraint without tax hikes for the past decade, and California, Illinois and Connecticut have increased spending and taxes.  How are they doing?  Since the 2010 election, Wisconsin, Pennsylvania, Ohio, Michigan and New Jersey (2009) have elected Republican governors who have refused to increase taxes and insisted on spending cuts.

I argued, “The states that have reduced spending and not raised taxes are doing better than the states like Illinois and Connecticut and California, which are trying to raise taxes.”

Amanpour asked Krugman, “Is that right, Paul?”  And Krugman insisted,  “It’s not.  We can get into statistics here, we can get too deep into the weeds, but it’s just not true.”

Well, let’s leave the weeds aside and look at statistics.

The American Legislative Exchange Council (ALEC) has just published its fourth edition of Rich States, Poor States, written by Arthur Laffer, Stephen Moore and Jonathan Williams.  The study ranks all 50 states using 15 taxation, spending and regulatory policy variables. 

The Top 10 most economically free states are Utah, South Dakota, Virginia, Wyoming, Idaho, Colorado, North Dakota, Tennessee, Missouri and Florida.  The lowest-10-ranked states are Pennsylvania, Rhode Island, Oregon, Illinois, New Jersey, Hawaii, California, Maine, Vermont and New York.  For the years 1999 to 2009, the average personal income per capita growth in the Top 10 states was 44.3%, while the lowest-10-ranked states had a measure of 41.2%.  In the Top 10 states, the average net domestic in-migration as a percentage of population was 3.0%, with the lowest-10-states at -2.4%.  Nonfarm payroll employment growth in the Top 10 states was 6.5%, while the bottom-10 states retracted by 0.9%.

Texas and Florida, with Republican governors for the past decade (2000-2009) who have refused to raise taxes and have restrained spending, and have seen per capita income jump 40% in Florida and 42% in Texas.  Domestic migration into Texas during that decade totaled 867,273, and into Florida, 1,281,000.  Employment was up 10.5% in Texas and 3.9% in Florida.

Tax increases in California, Illinois and Connecticut?  California watched 1,466,917 citizens leave the state while employment dropped 2.3%.  Illinois drove away 652,205 citizens and dropped employment 7%.  Connecticut lost 100,055 citizens and dropped employment 3.8%.  Per capita income growth in all three tax-hiker states is lower than Texas and Florida—ranking in the bottom half—35, 34 and 26 among the 50 states.

Everything you needed to know about the success or failure of capitalism and socialism you learned by noting the direction of those jumping over the Berlin Wall.  The 10-lowest tax states gained 187,457 citizens from 2008 to 2009, while the 10-highest tax states lost 199,879 citizens.  Over the same period, taxpayers fleeing the 10-highest tax states took with them $7.9 billion in income, while the 10-lowest tax states were on the receiving end of $4.96 billion in new income, as earners migrated to become residents of these states.

If people wanted big government they would move to where you had all those wonderful services.  Instead they flee to avoid those glorious perks we are always told we demand from government.

The executive summary of the ALEC study states, “Generally, states that spend less, especially on income-transfer programs, and states that tax less, such as working or investing, experience higher growth rates than states that tax and spend more.”

Looking at real statistics suggests that those states that have changed economic policy by electing Republican governors who have refused to increase taxes and instead focused on spending restraint—Ohio, Wisconsin, Pennsylvania, Michigan and Maine—have chosen wisely.