A Tax With No Revenue?

There are many things to appreciate about America’s decentralized, federalist system. One is the fact that we can all learn from the mistakes of another state or local government without having to bear the bad consequences. Arizonans, Texans and Coloradoans, for example, have benefited from New Mexico’s experiment in socialism-lite. They have seen that New Mexico’s high tax rates and bloated government spending have made the state one of the poorest in the nation.
But even New Mexicans can learn from others. This county in North Carolina has recently decided to impose a hotel tax. Never mind the fact that the county has no hotels. They put the tax in place for “down the road,” according to Jeff Jennings, the Chairman of the County’s Board of Commissioners. How many hotel managers do you suppose will be eager to move into this county? I’d guess that the commissioners will have to look WAY down the road before they see any tax revenue from their new tax.

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Lack of Economic Freedom in NM

Economic Freedom Promotes Prosperity
The Rio Grande Foundation’s research and educational activities are based on the principle that:
Increased individual liberty leads to increased prosperity, individually and collectively, so long as voluntary contracts are enforced and well-defined property rights exist.
This principle is derived from a sound empirical foundation and examination of incentives. When societies are ranked by an index of economic freedom over the long run, we find their ranking of prosperity to be in nearly one-to-one correspondence with their degree of economic freedom. The more economic freedom there is, the better-off people are. That fact deserves notice in New Mexico!
The link between freedom and prosperity is not surprising when we compare incentives that guide individual behavior. Behavior is quite different for different degrees of economic freedom. But those differences are usually overlooked by decision makers, so the freedom-prosperity link also is usually overlooked. Lacking a careful examination of incentives, it often seems plausible that increased taxation and/or regulation will achieve a worthy goal (such as improved safety, environment, or transportation; or increased economic development; or helping the poor). On the contrary, economic freedom usually guides people to coordinate their activities in ways that better achieve these worthy goals.
The following graph depicts the empirical relationship between economic freedom and peoples’ well-being for states in the region. As the size of government increases, economic freedom decreases. And the greater is the size of government the less prosperous are the state’s people. New Mexico needs to reduce the size of government and move up the hill toward prosperity.
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We should be aiming for G* if we are going to maximize well-being. Unfortunately, however, we are sliding down the slippery slope toward serfdom. For more on the link between economic freedom and prosperity go to Economic Freedom of North America, New Mexico 2000, or Economic Freedom of the World.

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