The Tax Foundation has just issued a new tax study that compares the “business climates” of each state. The study is quite well done; and it should be a must read for tax “reformers.” As you might guess, New Mexico is in the lower quartile; but certainly not as bad as New York or Hawaii. However, given the rate at which Richardson is cranking up state spending, we may be catching down with them quickly.
A few comments on the study:
1. It does not include property taxes; New Mexico’s position in the rankings would improve if it did.
2. It weighs the components equally, so does not really catch the adverse impact of our gross receipts tax. New Mexico’s ranking would be far worse if it did.
3. It does not include severance taxes. If it did, our corporate tax ranking would be worse.
A little elaboration on point 2:
Federal and state taxes are inextricably intertwined. That being so, we can calculate the effective rate of tax on income for an entrepreneur engaged in providing a service subject to the gross receipts tax. We take into account that the GRT payment is a business expense, that state income tax is deductible on state and federal returns and that the entrepreneur’s taxable income is a certain percentage of her total receipts (say, for example, 50 percent). Give our entrepreneur a somewhat modest income: she is in the 25 percent federal tax bracket, 6 percent New Mexico tax bracket, makes “contributions” to social security and Medicare at the rate of 15.3 percent and has gross receipts that are twice her taxable income. In that case her overall rate of tax on income is 52 percent! Compare that to an equivalent entrepreneur in Texas: her effective rate of tax is 40 percent. Now you can see how the gross receipts tax destroys jobs in New Mexico. Maybe we should call our gross receipts tax the “Texas, Colorado, Arizona Economic Development Initiative.” Since the effective rate of tax on each dollar earned is much higher than is usually thought in discussions of state taxes, the adverse effects of GRT “pyramiding” for New Mexico are a much worse than is usually thought
Look here if you want to find an entertaining yet economically informative discussion of WalMart.
If you liberals want to pile on a lot more welfare payments, as a matter of political choice, then okay. But don’t tell me that this is a “cost.” We make a political choice to subsidize poor people, perhaps to ensure that there will be lots of poor people who might vote Democrat, since apparently no employed person can bring themselves to pull the D lever. (Sure, that doesn’t count college profs. I meant “gainfully employed.”)
Believe it or not, some states are not as foolish as New Mexico when it comes to wishful thinking about Medicaid. Florida, New Hampshire and South Carolina are actually making some sensible, market-based reforms. Thanks to the Galen Institute for the pointer.
And they have not foolishly penalized Health Savings Accounts!
It looks like NM is poised to increase real spending by over two percent (adjusted for population growth and inflation). Real spending has already increased by over $930 million since 1992 (again, adjusted for inflation and population growth). What have we gotten for it?
Is it not time that we controlled spending and reduced taxes? That would create real prosperity, because it would increase the rewards for responsible behavior while lowering the subsidies for irresponsible behavior. How long can we continue with the kind of wishful thinking that emerges as policy from Santa Fe?
Is anybody really surprised about the report of waste by Albuquerque Public Schools? It is easy to understand why. Recall the words of economist Arnold King:
“In my view, government’s biggest weakness relative to the private sector is its inability to reward success more than failure. The biggest reason that I believe private-sector education would prove superior in the long run is that I think it would tend to weed out failing teachers and failing processes in general.”
Bill Richardson is at it again. He seems to want to emulate the TennCare disaster (thanks to NCPA).
According to todays Albuquerque Journal he wants to expand Medicaid to help the kids and the uninsured. While he is at it, he want to tax nursing home patients at the rate of $9 per bed per day. Thinking that this will improve health care in New Mexico is wishful thinking in the extreme!
If he really wants to improve health care without busting the budget, I suggest he look here or here.
Another from Chuck Muth:
SELLING A LEMON
USA Today revealed on Friday that President Bush’s Education Department paid black conservative columnist/talk show host Armstrong Williams almost 1/4 million dollars to promote Ted Kennedy’s “No Child Left Behind” law. Tribune Media Services immediately dropped Williams’ column, and Williams responded by admitting “bad judgment” and saying he understands “why some people think it’s unethical.”
Gee, why would anyone think that a conservative media personality taking $241,000 to promote a bigger role for the federal government in education was “unethical”?