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Why Cuomo’s Latest Tax Hike Proposal Would Accelerate New York’s Decline

New Yorkers had a rough, rough 2020. Governor Andrew Cuomo’s latest proposal would make 2021 even worse.

“New York Gov. Andrew Cuomo proposed raising taxes on the wealthy to a combined level of 14.7%, which would be the highest state-and-local tax rate in the nation,” CNBC reports. “The tax increase would raise $1.5 billion for the state, Cuomo said Tuesday in an address unveiling his 2022 budget proposal.”

The tax increases would apply to those who earn more than $5 million a year. If implemented, New Yorkers would officially beat California for the top state and local tax rate in the nation; the Golden State currently comes in at 13.3 percent.

Governor Cuomo says the tax increases are necessary because unless the federal government passes a full bailout for the $15 billion state budget hole New York has created, it will have a large deficit to plug.

“New York cannot manage a $15 billion deficit,” Cuomo said. “It’s beyond what we can do.”

The governor favors hiking taxes on “the rich” rather than closing the budget gap solely by cutting spending.

Even before these proposed hikes, the Empire State already has the highest overall tax burden—beyond just income taxes—nationwide and one of the highest costs of living. The situation has only worsened during the COVID-19 crisis, with huge losses of life, in part due to the governor’s mandate forcing nursing homes to accept COVID-19-positive patients. And, drastic lockdowns imposed irrespective of actual pandemic data have ruined New York City’s economy and the cultural vibrancy that made it so appealing pre-pandemic.

So it shouldn’t come as a surprise that people are fleeing in droves.

More than 300,000 people have left the city, according to official filings. Informal measures like U-Haul data similarly show New Yorkers moving elsewhere en masse. An astounding $34 billion in income left the area in 2020.

Over the summer, Governor Cuomo was literally reduced to calling up wealthy residents who’d fled and begging them to come back to New York City—even offering to cook for them and buy them drinks.

New York state officials should be doing everything they can to reverse this troubling trend; cutting taxes; removing regulations; expanding education options. If Cuomo successfully implements his tax hikes, though, it will only result in more people leaving the Empire State.

Why? It’s simple.

A tax proposal cannot be evaluated simply on its raw numbers. One must also take into account how it would change people’s behavior.

Successful people are not automatons; if anything, they are the most responsive and mobile members of society. And other thriving states like Florida and Texas offer not just warmer weather than New York, but zero state income taxes. It’s only natural that increased tax rates will prompt more people to leave the Empire State; nobody likes paying taxes or wants to have more of their money taken away. Even the super rich.

This will hurt the entire state, which will lose not only residents, but also their wealth, spending, investment, and businesses (aka jobs).

Ironically, the tax increase may not even raise the $1.5 billion in revenue that Cuomo hopes. Sometimes, an increase in income tax rates can actually decrease income-generating activity so much that overall tax revenues fall. This was the famous insight of economist Art Laffer, who served on Ronald Reagan’s board of economic advisors. We can’t know for sure whether it would apply here—taxes always disincentivize income earning, but only sometimes result in less tax revenue—but it’s certainly cause to be skeptical of Governor Cuomo’s revenue projections.

However, Governor Cuomo’s backward policy proposal has implications that reach much wider than just New York state and its most successful citizens. It’s another reminder that when it comes to government policy, incentives matter.

“Our economic verities have remained forever,” Laffer once explained. “They go back to caveman, pre-cavemen. Incentives matter: If you reward an activity, then people do more of it. If you punish an activity, people do less of it.”

This is why progressives often promote cigarette taxes or carbon taxes. They, at least in this setting, acknowledge that taxing something naturally discourages its consumption and production—you get less of it. Why does anyone want to do that for income?

The timeless economic reality of incentives doesn’t just call Cuomo’s tax hike on high earners into question. It ought to make us reconsider whether we should be punishing wealth-creation through taxing income at all.

COLUMN BY

Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

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California’s Statewide $15 Minimum Wage Will Horribly Backfire for Poorer Cities by Mark J. Perry

I wrote earlier this month about one of the potentially fatal flaws of California’s recently enacted $15 an hour statewide minimum wage: a one-size-fits-all uniform $15 minimum wage for the entire state of California is really a “one-size-fits-none” minimum wage, given the huge variations in the cost of living around the country’s most populous state.

While a high-wage, high cost-of-living city like San Francisco might be able to absorb a $15 minimum wage without experiencing significant negative employment effects, that same $15 wage could inflict serious economic damages and result in job losses for many of the state’s 500 cities that are in low-wage, low cost-of-living areas.

To help understand how the “one-size-fits-all” approach of a $15 an hour state minimum wage will have a disproportionately adverse impact on low-cost communities in California, the table below displays the “living hourly wages” for California’s 26 metropolitan statistical areas (MSAs), based on data from MIT’s Living Wage Calculator for the year 2014 (most recent year available).

According to the MIT website, the cost-of-living adjusted living wages are the “hourly rates that individuals must earn [in a given MSA] to support their family [and cover basic family expenses], if they are the sole provider and are working full-time (2,080 hours per year).” Living wages for adult workers with 1 to 3 children are also displayed in the table.

The living wage data shown above reveal huge differences in the cost-of-living between low-cost California MSAs like Yuba City, El Centro, Chico, and Merced (living wages are below $10 an hour) and high-cost cities like San Francisco and San Jose, where the cost-of-living adjusted living wage is 38% higher.

If $15 an hour is an appropriate minimum wage for San Francisco, it should be less than $11 an hour in MSAs like Yuba City and El Centro, where the cost-of-living is significantly lower. It’s also important to note that all four of those low-cost MSAs had jobless rates above the state average in February, and three of them (all except Chico) had double-digit unemployment rates in February, with El Centro having the distinction of once again being the MSA with the highest jobless rate in the entire country at 18.6%.

Therefore, many MSAs in California (like Yuba City, El Centro, Chico and Merced) not only have costs-of-living way below the state average, but they also have jobless rates that are way above the state average, and it’s those MSAs that will be adversely impacted by the imposition of a uniform state minimum wage of $15 an hour.

Bottom Line: As I concluded before, even supporters of a $15 an hour minimum wage in California would have to concede that a one-size-fits-all, uniform $15 an hour state minimum wage, without any adjustments for the significant differences in the cost-of-living across the Golden State, will disproportionately affect unskilled and limited-experience workers in low-cost MSAs like Yuba City and El Centro, and also in hundreds of other low-cost, low-wage cities (that are not part of an MSA) throughout the state.

In other words, a one-size-fits-all minimum wage for all 500 cities in California is really a “one-size-fits-none” minimum wage, and will inflict very serious and long-lasting economic damage in most parts of the state outside of the large metro areas on the coast (LA, San Francisco, and San Diego).

The clumsy, top-down, ham-handed approach of government imposed wage controls like a $15 an hour statewide minimum wage in California, without allowing for any adjustments to accommodate the significant differences in cost-of-living and labor market conditions, is one of the main reasons the Golden State’s risky experiment with a $15 wage will likely backfire and be “not-so-golden” in practice.

In contrast, one of the significant advantages of market-determined wages is that they can naturally and automatically adjust to the market conditions of local areas. For example, we might expect that the starting wages for national chains like McDonald’s (1,165 stores in California) and Starbucks (2,000 locations) would vary around the state of California based on local labor market conditions and the local cost-of-living, and would be higher in San Francisco than in cities like El Centro.

But a government mandated price control like the $15 an hour uniform minimum wage in California that outlaws adjustments to fit the customized needs of the 500 individual city-level labor markets in the state is a public policy destined to fail — especially in the state’s low-wage, low cost-of-living cities with high jobless rates that are the most vulnerable to the “one-size-fits-none” awkwardness and clumsiness that is the $15 statewide minimum wage in California.

Related: See my article with AEI colleague Andrew Biggs titled “A National Minimum Wage Is a Bad Fit for Low-Cost Communities.

Bonus Question: I included the living wages above that MIT calculated would be necessary to support an adult-headed household with either one, two or three children so that I could feature the question posed below by Georgetown University professor Jason Brennan at the Bleeding Heart Libertarians blog in his post titled “Some Questions for Living Wage Advocates” (h/t Don Boudreaux):

If you believe employers owe employees a living wage, do you think that an employer has a moral duty to pay an employee more just because [he or] she has more children?

Reprinted with the permission of the American Enterprise Institute.

Mark J. PerryMark J. Perry

Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

Is the Scientific Process Broken? by Jenna Robinson

The scientific process is broken. The tenure process, “publish or perish” mentality, and the insufficient review process of academic journals mean that researchers spend less time solving important puzzles and more time pursuing publication. But that wasn’t always the case.

In 1962, chemist and social scientist Michael Polyani described scientific discovery as a spontaneous order, likening it to Adam Smith’s invisible hand. In “The Republic of Science: Its Political and Economic Theory,” originally printed in Minerva magazine, Polyani used an analogy of many people working together to solve a jigsaw puzzle to explain the progression of scientific discovery.

Polanyi begins: “Imagine that we are given the pieces of a very large jigsaw puzzle, and … it is important that our giant puzzle be put together in the shortest possible time. We would naturally try to speed this up by engaging a number of helpers; the question is in what manner these could be best employed.”

He concludes,

The only way the assistants can effectively co-operate, and surpass by far what any single one of them could do, is to let them work on putting the puzzle together in sight of the others so that every time a piece of it is fitted in by one helper, all the others will immediately watch out for the next step that becomes possible in consequence.

Under this system, each helper will act on his own initiative, by responding to the latest achievements of the others, and the completion of their joint task will be greatly accelerated. We have here in a nutshell the way in which a series of independent initiatives are organized to a joint achievement by mutually adjusting themselves at every successive stage to the situation created by all the others who are acting likewise.

Polyani’s faith in this process, decentralized to academics around the globe, was strong. He claimed, “The pursuit of science by independent self-co-ordinated initiatives assures the most efficient possible organization of scientific progress.”

But somewhere in the last 54 years, this decentralized, efficient system of scientific progress seems to have veered off course. The incentives created by universities and academic journals are largely to blame.

The National Academies of Science noted last year that there has been a tenfold increase since 1975 in scientific papers retracted because of fraud. A popular scientific blog, Retraction Watch, reports daily on retractions, corrections, and fraud from all corners of the scientific world.

Some argue that such findings aren’t evidence that science is broken — just very difficult. News “explainer” Vox recently defended the process, calling science “a long and grinding process carried out by fallible humans, involving false starts, dead ends, and, along the way, incorrect and unimportant studies that only grope at the truth, slowly and incrementally.”

Of course, finding and correcting errors is a normal and expected part of the scientific process. But there is more going on.

A recent article in Proceedings of the National Academy of Sciences documented that the problem in biomedical and life sciences is more attributable to bad actors than human error. Its authors conducted a detailed review of all 2,047 retracted research articles in those fields, which revealed that only 21.3 percent of retractions were attributable to error. In contrast, 67.4 percent of retractions were attributable to misconduct, including fraud or suspected fraud (43.4 percent), duplicate publication (14.2 percent), and plagiarism (9.8 percent).

Even this article on FiveThirtyEight, which attempts to defend the current scientific community from its critics, admits, “bad incentives are blocking good science.”

Polanyi doesn’t take these bad incentives into account—and perhaps they weren’t as pronounced in 1960s England as they are in the modern United States. In his article, he assumes that professional standards are enough to ensure that contributions to the scientific discussion would be plausible, accurate, important, interesting, and original. He fails to mention the strong incentives, produced by the tenure process, to publish in journals of particular prestige and importance.

This “publish or perish” incentive means that researchers are rewarded more for frequent publication than for dogged progress towards solving scientific puzzles. It has also led to the proliferation of academic journals — many lacking the quality control we have come to expect in academic literature. This article by British pharmacologist David Colquhoun concludes, “Pressure on scientists to publish has led to a situation where any paper, however bad, can now be printed in a journal that claims to be peer-reviewed.”

Academic journals, with their own internal standards, exacerbate this problem.

Science recently reported that less than half of 100 studies published in 2008 in top psychology journals could be replicated successfully. The Reproducibility Project: Psychology, led by Brian Nosek of the University of Virginia, was responsible for the effort and included 270 scientists who re-ran other people’s studies.

The rate of reproducibility was likely low because journals give preference to “new” and exciting findings, damaging the scientific process. The Economist reported in 2013 that “‘Negative results’ now account for only 14% of published papers, down from 30% in 1990” and observed, “Yet knowing what is false is as important to science as knowing what is true.”

These problems, taken together, create an environment where scientists are no longer collaborating to solve the puzzle. They are instead pursuing tenure and career advancement.

But the news is not all bad. Recent efforts for science to police itself are beginning to change researchers’ incentives. The Reproducibility Project (mentioned above) is part of a larger effort called the Open Science Framework (OSF). The OSF is a “scholarly commons” that works to improve openness, integrity and reproducibility of research.

Similarly, the Center for Scientific Integrity was established in 2014 to promote transparency and integrity in science. Its major project, Retraction Watch, houses a database of retractions that is freely available to scientists and scholars who want to improve science.

A new project called Heterodox Academy will help to address some research problems in the social sciences. The project has been created to improve the diversity of viewpoints in the academy. Their work is of great importance; psychologists have demonstrated the importance of such diversity for enhancing creativity, discovery, and problem solving.

These efforts will go a long way to restoring the professional standards that Polyani thought were essential to ensure that research remains plausible, accurate, important, interesting, and original. But ultimately, the tenure process and peer review must change in order to save scientific integrity.

This article first appeared at the Pope Center for Higher Education.

Jenna RobinsonJenna Robinson

Jenna Robinson is director of outreach at the Pope Center for Higher Education Policy.

Florida Office of Film and Entertainment: The Laurel and Hardy of pork barrel projects?

Dan Krassner, Co-Founder and Executive Director Integrity Florida, and Ben Wilcox, Research Director Integrity Florida, have released their latest research report: Florida Film Incentives – “Action” or “Fade to Black”?

Krassner and Wilcox state, “Florida’s production industry is lobbying the state legislature, as of February 2014, for a new $1 billion package of subsidies to sustain movies, TV shows, video games and other entertainment industry productions through 2020. As this major investment of taxpayer dollars is considered, this study examines the transparency, accountability and effectiveness of Florida’s Entertainment Industry Financial Incentive Program. While this study does not take a position about whether or not lawmakers should maintain or eliminate the incentive program, is does offer ways to improve the program if it continues.”

Key Research Findings are:

1) Insufficient disclosure. The Florida Department of Economic Opportunity (DEO) does not disclose deals made through Florida’s Entertainment Industry Financial Incentive Program on its website. The Office of Film and Entertainment, located within DEO, does not always disclose online both the specific value of the tax credit awards along with the actual production company names of the recipients.

2) Questionable compliance with state statutes. The Office of Film and Entertainment may not be properly utilizing the Florida Film and Entertainment Advisory Council in decisions about incentives and is possibly working with the Council’s Executive Committee out of the sunshine.

3) First come, first served incentive deals rather than a focus on return on investment. Rather than properly vetting all applicants and deciding on projects based on the best return for taxpayers, a first come, first served policy is used by the Office of Film and Entertainment.

4) Subjective use of family-friendly incentive bonus awards. The legislative definition of what qualifies a production for a family-friendly incentive bonus is written with subjective language and may not be applied in a consistent manner by the Office of Film and Entertainment.

5) Industry group seeks taxpayer funds for a public-private partnership based on the Enterprise Florida model. The nonprofit group Film Florida is floating a proposal to create a public-private partnership with the Office of Film and Entertainment based on the Enterprise Florida model that could receive taxpayer funding from the legislature.

Key Policy Recommendations include:

1) More online disclosure of film and entertainment incentive agreements, with production company names and details of tax credits approved and awarded, on the DEO website.

2) Ensure the Office of Film and Entertainment Advisory Council and its related committees take appropriate steps to comply with Florida’s open meeting laws.

3) Increase fiscal responsibility for incentive deals by assessing potential for return on investment for taxpayers across all industry sectors equally, instead of the current policy of first come, first served tax credit applications and industry-specific caps.

4) More objectivity and oversight of tax credit bonus approvals.

5) Avoid privatization as OPPAGA, the legislature’s internal watchdog, noted concerns about performance and fiscal controls the last time that model was used.

Click here to read the latest research report by the nonpartisan government watchdog group Integrity Florida.

ABOUT INTEGRITY FLORIDA

Integrity Florida is a nonpartisan, nonprofit research institute and government watchdog whose mission is to promote integrity in government and expose public corruption.  Our vision is government in Florida that is the most open, ethical, responsive and accountable in the world. Integrity Florida and its research have been cited by major news outlets across the U.S., including the New York Times,  Washington PostAssociated Press and the Center for Public Integrity.