Friday, May 9, 2014

ALEC states like Wisconsin failing at job-growth, balancing budgets

Over the last couple of weeks we've seen stories pop up that in isolation may not mean so much, but when put together shows the failure of trickle-down, pro-corporate policies across several states, showing that it's not just Wisconsin that's been driven into the ground by Koch-ALEC policies.

The reason I mention ALEC is because University of Wisconsin Professor Menzie Chinn has received some nationwide attention as he reported on the aptly-named Art Laffer's ALEC rankings of "Rich States, Poor States", and economic "competitiveness." Chinn took a look at the ALEC rankings, and then compared them to actual job creation of those states since certain governors started to institute Koch-ALEC policies. Chinn first chose to look at two states that chose Republican governors in the 2010 elections (Kansas and Wisconsin), and had huge tax cuts and other "pro-business" policies put in place. Then he compared them to two states that replaced two-term Republican governors with Democrats (California and Minnesota), and instituted more progressive policies than the ALEC states. The results weren't what Art Laffer and ALEC predicted.
Notice that Kansas and Wisconsin, ranked 15th and 17th in terms of the ALEC-Laffer “Economic Outlook Rankings”, are doing equally badly relative to US employment growth. In contrast, Minnesota (ranked 46th) is outperforming the United States and those two states. The cumulative employment gaps are [2.1% and 1.9%], since 2011M01 (inaugurations of Governors Brownback, Walker and Dayton). The ALEC-Laffer methodology equally weights 15 measures: Top Marginal Personal Income Tax Rate, Top Marginal Corporate Income Tax Rate, Personal Income Tax Progressivity, Property Tax Burden, Sales Tax Burden, Remaining Tax Burden, Estate/Inheritance Tax Levied, Recently Legislated Tax Changes, Debt Service as a Share of Tax Revenue, Public Employees Per 10,000 of Population (full-time equivalent), State Liability System Survey (tort litigation treatment, judicial impartiality, etc.), State Minimum Wage, Average Workers’ Compensation Costs (per $100 of payroll), Right-to-Work State (option to join or support a union), and Number of Tax Expenditure Limits.

What about California? It is ranked 47th by ALEC-Laffer, and yet is doing the best in terms of employment amongst the four states. This does not deny the relevance of these indices, but for sure the correlation of the index with performance is not obvious to me. (These rankings are persistent — in 2012, Kansas and Wisconsin were ranked 26 and 32 respectively, while Minnesota and California were 41 and 38 respectively.) So, the higher the ranking according to Arthur Laffer, Stephen Moore (currently chief economist of Heritage), and Jonathan Williams, the poorer the employment growth.
Chinn went on to look at the Philadelphia Federal Reserve's coincident indexes for these four states over the last year, and the same correlation existed.
Bottom line: If there is any evidence, it suggests that a higher ALEC-Laffer Economic Outlook score is associated with a worse economic performance, as measured by 2013M01-2014M03 growth using the Philadelphia Fed’s coincident indices. However, a more definitive conclusion must await a more comprehensive analysis....

Addendum: For the data reported by BLS, over the 1976M01-2014M03, the Wisconsin fixed effect (relative to the US), is 0.9 ppts. That is, on average, Wisconsin’s unemployment rate is 0.9 percentage points below that of the United States. The t-statistic (using Newey-West standard errors) for the null hypothesis of 0 difference is 9.5. If you do not understand this paragraph, you should not be comparing inter-state unemployment at a point in time, without referring to a prior period.
That last line also blows apart Gov. Walker's argument that "it's working" because Wisconsin has unemployment below the national rate. As Prof. Chinn mentions, Wisconsin is usually around 0.9% below the national rate, so for Wisconsin to sit at 5.9% and the U.S. at 6.3% means the state is underperforming.

And the fiscal effects of these ALEC-run states are starting to set in past slow employment growth. Just last week, the state of Kansas had its bond rating downgraded after April revenues fell short of projections by nearly $93 million following income tax cuts under Gov. Sam Brownbnack. North Carolina also followed the ALEC, tax-cutting agenda, and also has had a budget deficit blow up, as revenues are now projected to be $445 million short.
Revenues are now predicted to fall 2.1 percent short of the $20.6 billion the legislature said it needed to carry out this year's budget, according to a memo written by the General Assembly's top economist and a state budget official and obtained by The Associated Press.

The adjustment is based in part on April 15 tax filings and other trends related to last year's tax overhaul and the federal budget agreement in late 2012 that led to higher tax rates from Washington, the memo said. Before April 15, analysts had reported that overall revenues for the first nine months of the year were on track with projections.

The lower projections also will affect revenues for the 2014-15 fiscal year. The analysts downgraded collections by $191 million compared to what was predicted when the legislature assembled a two-year budget last summer.
And this trend of "higher tax revenues in 2013 being a one-time deal" could come home to roost in Wisconsin, as our state has thrown on two rounds of tax cuts on the heels of a "surplus" that was based on high revenue growth in 2012 and 2013. I mentioned a couple of weeks back that Wisconsin's revenues were on the low side for the first 3 months of 2014, causing this fiscal year's collections to be on pace to fall as much as $184 million below LFB estimates. Obviously, the month of April is a huge one for seeing where things are headed when it comes to revenues, with taxes being due on April 15 and many payments coming in around that time. But the Kansas and North Carolina cases indicate that GOP-run states who passed Dubya-like tax cuts may be heading toward Dubya-like revenue shortfalls and deficits.

And it's not like Wisconsin's fiscal future was great to begin with. In addition to the nearly $1.1 billion in unfunded Transportation needs, LFB Director Bob Lang told a group in Oshkosh this week that the Wisconsin would also need to close a General Fund deficit of $717 million. And that $717 million would only grow if the state does indeed fall short on revenues, like Kansas and North Carolina have.

Funny how these trickle-down policies never seem to work out when it comes to balancing the books or providing job growth. But then again, that's not what ALEC or WisGOP cares about, as their goals are to diminish the wages and political power of the 99%ers, while giving more money and control to the 1%ers. And on that level, it's clear that Scott Walker has been a rip-roaring success, which is why Wisconsin keeps shooting up the charts in the ALEC "competitiveness" rankings.

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