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Election 2010: What a night
Posted By:  - 11/03/10

Oh what a night!


As of this morning, Republicans won 60 additional seats and control of the U.S. House of Representatives. Also, Republicans expanded the size of their caucus by six in the Senate. These two changes that will have serious implications for a host of economic policies at the national level, including energy production, taxes, entitlements, and the debt. My colleague Jordan Forbes will have more to say about the federal results soon.


But for all of the dramatic change at the federal level, what happened in Congress pales in comparison to the changes that voters made at the state level. Republicans picked up nine governorships, including several in the economically important Midwestern states, and won control of 18 state legislative bodies, including chambers in North Carolina and Alabama; today marks the first time since Reconstruction the GOP has controlled those chambers. The larger number of fiscal conservatives in state legislative chambers will have a significant impact on the next round of budget negotiations, when states will have to face no easy choices to balance the budget in the midst of uncertain economic times.


Voters also weighed in on hundreds of state and local ballot measures that affect tax and budget policies. There were several setbacks for taxpayers yesterday. It appears as though voters rejected efforts to reduce taxes income and property taxes in Colorado and sales taxes in Massachusetts. Additionally, California passed a measure that would allow the legislature to enact a budget with a simple majority vote, which will likely open the door to more tax hikes. Unfortunately, Californians also rejected an effort to repeal a costly cap-and-trade emissions program in the state. However, at the same time, Californians voted to require supermajority votes on fees and to prevent the state from raiding funds for local government.


But taxpayers did score several important victories. Despite rejecting a broad reduction in the sales tax, Massachusetts approved a cut in the sales tax on alcoholic beverages. Washington voters resoundingly rejected an effort to enact a new state income tax and approved a measure rolling back a tax on soda, candy, and bottled water. Washingtonians also voted for a measure to require a supermajority in the legislature for any tax increase. Missourians voted overwhelmingly to require votes on local earnings taxes. Meanwhile, Indiana approved a measure to enshrine caps on property tax increases in the state’s constitution.


Elsewhere, Arizona and Oklahoma approved measures that projected the right to choose a health care plan from the individual insurance mandate in Obamacare. Several states, including Oklahoma, South Carolina, and Virginia approved measures to increase the size of their rainy day funds to weather bad economic times. Other states also approved measures that would provide property tax exemptions, impose term limits, and improve government accountability.


Of course, these are just a sample of the hundreds of measures that NTU is analyzing for its report showing how taxpayers fared at the ballot box yesterday. Stay tuned.

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Happy Election Day!
Posted By:  - 11/02/10

Happy Election Day!

Don't forget to vote!

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NTU Joins with Liberal Group to Identify $600 Billion in Waste
Posted By: Andrew Moylan - 10/28/10

Today, NTU joined with the liberal group U.S. PIRG to release a report called "Toward Common Ground: Bridging the Political Divide to Reduce Spending." This report debuts a list of $600 billion worth of specific federal spending reductions. With all the talk about debt and deficits, we saw an opportunity to put together a true left-right coalition in order to begin the conversation about the difficult choices we’ll have to make as a nation. We thought it would be useful to reach across the ideological divide to identify specific items that we could cut from the federal budget without reducing the quality of government services or neglecting the government's basic commitments.

The U.S. PIRG and NTU study identifies 30 specific, actionable items to cut in federal spending, including:    

  • $62 billion in savings by eliminating wasteful subsidies to farmers and large corporations.
  • $354 billion in savings from reforming inefficient contract and acquisition procedures.
  • $77 billion in savings by improving execution of existing government programs as well as eliminating unneeded programs.
  • $108 billion in savings from ending low-priority or unnecessary weapons systems, along with rightsizing other programs.

While we're under no illusions that every group or individual on the left and right will agree with our list, we think that it can serve as something of a consensus document from which Congress and the President's Fiscal Commission can work. Simply stated, we can't continue to kick the can down the road on reducing the size of the federal government.  In order to head off a debt crisis like that facing Greece today, we need to begin scaling back our unsustainable spending habits.  This list can help to do that without starting a political food fight.

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New Jersey abandons toothless reforms
Posted By:  - 10/27/10

What a difference a day makes!

On Monday, I blogged about New Jersey's General Assembly taking up a toothless reform to public employee pay and benefits. The measure, AB 3393, would have required arbitrators to consider but not actually limit costs of benefits to government in determining their awards.

The General Assembly was poised to take up the bill, but dropped it after a caucus meeting of the Democrats, who have a majority in the chamber, revealed that there were not enough votes in support of the plan. According to the Ashbury Park Press, lawmakers from Essex County complained, rightly so, that AB 3393 would not do enough to control costs faced by local government. Two of the strongest critics of AB 3393 have been the New Jersey League of Municipalities and Joseph DiVincenzo, the Essex County Executive. The measure in its current form appears to be dead. All sides in the debate are taking about going back to the drawing board and finding a compromise.

For the sake of New Jersey taxpayers, let's hope they come up with something better than toothless reforms...and soon.

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New Jersey's General Assembly votes on toothless reforms today
Posted By:  - 10/25/10

So much for reform.

This afternoon, the New Jersey General Assembly will vote on Assembly Bill 3393, a measure that would make several changes to the process by which municipal governments and police and fire unions negotiate contracts. Among the changes in the bill is a new method for choosing an arbitrator, including new requirements for arbitrators and a new appeals process. Additionally, arbitrators will be required to consider the impact of their award amount on the governing authority, but there is nothing in the bill to require restrain the awards.

Although Assembly Bill 3393 is being called a "reform," it is a toothless reform at best.

New Jersey police officers and firefighters use arbitrators to settle disputes arising from their contracts. But over the years, the arbitration process has been abused. Over the past 30 years, the salaries of police officers and firefighters have risen faster than all others, according to the New Jersey League of Municipalities. These increases in salaries have been the primary driver of increased government costs, which have led to New Jersey's highest in the nation property taxes. Although New Jersey passed a historic 2% property tax cap earlier this year, those taxes will continue to rise unless the cost of government is brought under control. The only way to do that is to enact a cap on the arbitrators awards like the cap on property taxes.

Unfortunately, New Jersey's General Assembly seems more interested in protecting the union interests rather than the taxpayers interests. By moving toothless legislation, the General Assembly does not address the underlying problem of controlling the costs of government. What it does do is rob the effort to reform New Jersey of momentum, which is badly needed in Trenton given the unsustainable fiscal situation in the Garden State.

Hopefully, the State Senate will demonstrate that it has a better understanding of the problems facing New Jersey. Stay tuned...

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Got questions about ballot measures? NTU's Ballot Guide has answers
Posted By:  - 10/14/10

Voters face many important decisions in the upcoming elections, which are now less than three weeks away. But many of these critical decisions will not involve choosing between the names of candidates. Instead, voters will have to choose between letters and numbers identifiying hundreds of state and local ballot measures, many of which could have an especially profound impact on tax, spending, and other fiscal policies for years to come and regardless of which political party triumphs in the state houses. To help taxpayers better understand these measures, NTU has produced and made available on our website "The 2010 Ballot Guide: The Taxpayers Perspective."

Our Guide is more than just a list of measures. The Guide is an analysis of these measures on the state and local ballots across the country, providing evaluations of how these measures grow the size of government and increase the tax burden on hard-working families. Unfortunately, there are many such measures on the ballot according to the Guide. However, many other measures on the ballot will give taxpayers opportunities to exercise a greater degree of control over government tax, spending, and regulatory powers.

Here are some highlights from the pages of the Guide:

  • In Washington State, Initiative 1098 would impose a state-level income tax there for the first time, beginning on individuals with incomes above $200,000 but later possibly extending to other groups at the Legislature’s discretion.  This would knock Washington off the list of just nine states without a broad-based income tax. On the other hand, Initiative 1053 would require two-thirds of the Legislature or a majority of voters to raise taxes in the future, while Initative 1107 would roll back taxes on candy, bottled water, and soft drinks.
  • In California, Proposition 23 on the statewide ballot would suspend the California Global Warming Act, and all of its mandates until unemployment eases. Taxpayer advocates in the state argue that this measure would prevent substantial hikes in energy costs on struggling consumers. Meanwhile, Proposition 25 would do away with a two-thirds legislative vote requirement to pass a budget but Proposition 26 would extend a two-thirds vote stricture on increases in many fees.
  • Voters in Massachusetts will consider a measure that would reduce the state’s sales tax from 6.25 percent to 3 percent, as well as one repealing in most cases the sales tax on alcoholic beverages.
  • Proposition A on the Missouri statewide ballot would take away the authority for cities to levy an earnings tax, require voter approval for the continuation of earnings taxes where they currently exist, and provide for their eventual phase-out.
  • At the local level, voters in California's San Diego County, as well as voters in Illinois' DuPage County, will vote on measures that would either require voter approval for increases in public safety pension benefit formulas or call upon the state to undertake serious pension reforms immediately.

We hope you find the Guide useful in evaluating the choices awaiting you at the polls. Be sure to check back with NTU after the election for our report on how taxpayers fared.

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Gov. McDonnell Makes Changes to VA Liquor Privatization Plan
Posted By:  - 10/04/10

Governor Bob McDonnell has pledged to pull the cork on the state-run sale of alcohol in Virginia, joining the 32 other states nationwide with privatized systems. On September 8th he and his policy staff unveiled liquor privatization recommendations to the Virginia Commission on Government Reform and Restructuring. Since then the plan has undergone some modifications as McDonnell attempts to garnish legislative support. Modifications include the removal of certain taxes and changes in licensing practices.

Firstly, McDonnell’s initial plan called for a $17.50-per-gallon excise tax on distilled spirits, a 1 percent tax on the gross receipts of wholesalers, and a 2.5 percent tax on restaurants that chose to buy liquor from wholesalers. These were put in place to ensure the state would continue to collect revenue close to the $248 million in liquor profits, excise, and sales taxes the state collected in fiscal 2009. However, the new plan calls for eliminating the wholesaler tax and the restaurant fee. The $17.50-per-gallon excise tax will remain.  

Secondly, McDonnell had said that retail licenses should be divided into three categories, with 600 reserved for big stores, 150 for free-standing package stores, and 250 for drug and convenience stores. He now proposes a fourth category, taking 100 of the 250 licenses reserved for drug and convenience stores and earmarking them for very small stores owned by companies that employ no more than 50 people. Also, small stores would be able to finance their bids for licenses over several years.

The governor is trying to gain support from lawmakers concerned about tax hikes and those worried about state revenue decreases. With the proposed removal of certain taxes many lawmakers are now weary about the plan. They claim yearly revenue losses would double if the taxes were removed. Further changes can be expected as debate over the proposal progresses. We will keep you updated on further modifications.

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Think like a Stakeholder, not like a Dependent A New Take on Unemployment Insurance
Posted By:  - 09/22/10

Paying people not to work will ease unemployment.

There is something wrong with this statement. Nevertheless, when it comes down to it this is exactly the rationale some have regarding the current state-sponsored unemployment insurance (UI) systems. They are programs that attempt to help people through difficult times after involuntary layoffs. The hope is to get people on their feet, by providing them an income as they look for a new and acceptable job. No argument there.  However, study after study (even those conducted by economists in the Obama Administration) have shown that the current UI system actually prolongs unemployment, stalls economic growth, and discourages individual savings.

In an attempt to mitigate these problems, and preserve an unemployment insurance program, the Oregon-based Cascade Institute has proposed an interesting solution. It calls for a hybrid program consisting of tax-free Individual Asset Accounts (IAA) and a small federal common-pool fund. The idea is to make workers stakeholders in their own plans and use current tax dollars to increase private wealth.

Currently, the Social Security Act compels the states to operate Unemployment Insurance (UI) systems. The plans are predominantly run by the states and funded through payroll taxes paid by the employer based on their layoff history. Those who layoff more, pay a higher rate.

Overall, there are three problems in the current UI system worth noting.

First, studies show that unemployed workers who receive benefits take more than twice the time to find a job than those who are not eligible for benefits. Why? Alan Reynolds from the Cato Institute says it best:  “When the government [in some cases] pays people 50 or 60 percent of their previous wage to stay home for a year or more, many of them do just that.” It’s the classic “when you subsidize something, you get more of it” routine.  The promise of benefits discourages the unemployed from looking harder for new work.  Reynolds cites a survey conducted by Bruce Meyers of the University of Chicago showing that the probability of a person leaving unemployment rises dramatically just prior to when benefits run out. For example, if benefits are extended to 79 weeks – as they were in the “stimulus” bill – there is a higher likelihood that many people will not accept work until the 76th or 78th week.

Second, the supposed economic benefits of unemployment insurance are balderdash.  Spending money over a long period of time to sustain a person who is not working is not an investment in economic growth.  As a matter of fact, research done by economist Sylvain Leduc shows that government spending produces a lower fiscal multiplier than do tax cuts. In other words, a dollar of added federal debt added as a result of increased spending added far less than a dollar to GDP.

Third, safety nets like UI discourage personal savings and responsibility.  This occurs under the assumption the government will protect people in the event of job loss. Saving helps the economy by generating a greater supply of loanable funds, thus lowering interest rates and stimulating capital investments.

The Cascade Policy Institute has an interesting solution to the current problems of the UI system, which they hope to pilot in Oregon. Their plan calls for a hybrid system that features Individual Asset Accounts (IAA) and a small common-pool fund. Employers would still pay state payroll taxes but the funds would be put into the employee’s IAA, while the federal payroll tax would fund the common fund. The tax rate for employers to fund the IAA’s would be 1.6 percent of wages, while the federal common fund rate would remain at its current 0.8 percent of the first $7,000 of wages.  This common fund would be used to subsidize qualified low balance accounts for a limited time. 

The IAA would accumulate tax free for life and could be used at the discretion of each worker for unemployment insurance. At retirement, the accounts balance would be deposited into the worker’s IRA, turned into an annuity, given as a lump sum transfer, or passed onto heirs.

This innovative plan would encourage individuals to think like stakeholders, since they are the ones who own the account. In the event of layoff, individuals could draw from their account. At the same time they would be more cost conscious and encouraged to step up their job search efforts. In addition, the savings being built up with the IAA’s would have a positive effect on the economy by providing more capital for businesses to expand. And lastly, many who currently pay into the Oregon UI system but are not eligible for benefits (either because they have not worked the required minimum 500 hours or have not earned sufficient wages) would now be able to participate in the system.

At a time when the country faces high unemployment rates all options should be on the table for policymakers. Evidence shows that the current UI system actually prolongs unemployment and economic recovery. As such, reforms to this system should be front and center on the minds of those in state governments. IAA’s are a good start.  

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Happy Constitution Day!
Posted By:  - 09/17/10

In honor of the formation and signing of the U.S. Constitution by 39 men on September 17, 1787, let's take today and reflect on our nation's founding ideals and the once supreme law of the land. We don't have to look too far to find these very principles and freedoms under attack: a $2.5 trillion health care bill (now law) with unprecedented mandates, highly regulatory financial reform legislation (also law), and an ever-growing federal government whose policies (and spending sprees!) could make it virtually impossible to bounce back from the current economic crisis. Just look at Dan's post below! An occupational license to speak? Hardly what James Madison intended when he wrote, “The powers delegated by the proposed Constitution to the federal government are few and defined.” There's no question our founding fathers feared a government that was too powerful.

Thankfully, many of you are fed up and already speaking out on the government's failure to abide by the Constitution. Check out this video from the Heritage Foundation, become even more inspired, and continue to hold your elected officials accountable.

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A-B-See ya later? Liquor Store Privatization on the Table in VA
Posted By:  - 09/10/10

Is the sale and distribution of Jack Daniels a core function of government? Most would think not however, since the days of Prohibition the Old Dominion has held monopoly control over both the sale and distribution of distilled spirits. And as is the case with any monopoly, the consumer is left with fewer choices, poor service, and higher prices. With this in mind, Governor Bob McDonnell has pledged to pull the cork on the sale of alcohol and join the other 32 states nationwide that currently follow a more free market approach to liquor sales. 

 Presently, Virginia owns and operates some 332 stores, each with their own distinctive blah ambiance, a staff with very little liquor knowledge and overall limited selection (a big problem for those of us who enjoy a specialty cocktail or two). As a current resident and drinker in Virginia I usually find myself crossing the river into DC to shop in the city’s various privately owned stores. In comparison, DC shops have the specially liquor I’m looking for, a knowledgeable staff, and a comfortable shopping environment. Now, why such a difference? Well, in the absence of government monopoly DC store owners are forced to compete on price, quality and choice to retain customers. They do so in an independent but regulated market.

 In response to Virginia’s budgetary problems, Governor Bob McDonnell has had his radar set on the privatization of the wholesale, distribution, and retail sale of alcohol. His hope is that privatization will provide customers with better service and convenience while still allowing the state to regulate consumption, generate needed transportation revenue, and streamline costs. On Wednesday, September 8, senior members of McDonnell’s staff unveiled the official staff recommendation for ABC privatization at a meeting of the Simplification and Operations Committee of the Virginia Commission Government Reform and Restructuring  in Richmond.

 Some highlights of the plan include auctioning off 1,000 retail licenses to the highest bidders. These licenses will be broken into three categories: 600 licenses for large establishments such as grocery stores; 150 for smaller establishments such as package stores and wine and beer shops; 250 for convenience stores/retail pharmacies. 332 licenses will be guaranteed for areas currently served by an existing ABC outlet, while the additional 668 licenses will be granted based on population density. The wholesale side will also be privatized, allowing the state to completely focus on law enforcement and regulation.    

 Administration staff claim there is no tax increase in the proposal. However, there are reports of a $17.50-per-gallon excise tax on distilled spirits, which would exceed the national average.  In addition, there would be a 1 percent tax on the gross receipts of wholesalers to be paid each year and a 2.5 percent tax on restaurants. McDonnell’s staff mention this restaurant tax in their memos to the public but say it’s optional. They claim that this is because they would only pay if they chose to buy liquor at discounted prices from wholesalers.

 Additional forms of annual revenue would come from annual license fees for new private liquor retailers, varying from $500 to $2,000 a year depending on the size of the store, and the continuation of $13 million a year in existing fees on restaurants.

We will see what happens. Changes are bound to occur between now and October 4 when the full commission will vote on the proposal.

 Nevertheless , the concern over state revenue will linger as lawmakers consider give up their 76 year-old monopoly. According to the Washington Post, “Virginia's Alcoholic Beverage Control board deposited $248 million in liquor profits, as well as excise and sales taxes, into state coffers during fiscal 2009.” This is because in Virginia, more than $13 of the retail price goes to the state as opposed to the dollar or two generated from that same bottle sold in Maryland and DC.

 Yet, it is important to remember what privatization would mean: more stores and therefore a larger tax base to generate more tax revenue.  Administration officials estimate that selling ABC assets and new liquor licenses could bring in $300 million to $500 million to the state to be used for improving roads. In addition, private businesses would now be subject to corporate income and property taxes representing additional revenue streams to the state and local governments. Secondly, the state could regain the estimated 15-20 percent of Virginians (including me) who drive to DC’s more than 500 privately run liquor stores. Once Virginia establishes its own competitive market, a multitude of convenient specialty shops would emerge, thus recapturing those out-of-state shoppers. And lastly, Leonard Gilroy of the Reason Foundation notes that with privatization the state would no longer be spending millions in overhead, salaries and benefits for nearly 3,000 public employees, and store space. He notes that these operating costs currently swallow a significant amount of state revenue.

 But, is there any real life evidence of this?  Well, yes!  Gilroy notes that since 1987, West Virginia, Iowa and Alberta (Canada) have each fully privatized the retail side of their ABC operations and as a result saw tax revenue increases. He writes, “Each of these jurisdictions had to lower their alcohol markup rates after privatization—effectively lowering taxes on consumers—to maintain revenue neutrality because revenues to the state increased after privatization and operational costs to the state declined.”

 When state governments are experiencing shaky budgets, policy makers need to be on the look out for any and all innovative ways to streamline or cut functions that are not inherently governmental. Many claim that liquor sales surely are an example of this, considering most other states allow the private sector to handle it.

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