Global Competitiveness Report
I was just reviewing the 2010-2011 Global Competitiveness Report from the World Economic Forum as I wait for Nevada's Senate Revenue Committee to begin it's first meeting.
The Report ranks every nation's economic environment on the basis of tax and regulatory burdens, legal structures, property rights protection, the degree of public corruption and governmental efficiency.
The Report reveals some very intriguing aspects on the economic environment in the United States. Below are some of the key findings (in all cases, a #1 ranking indicates the best economic environment):
Strength of property rights
US Rank: 40 (Below China)
Diversion of public funds due to coruption
US Rank: 34 (Below Botswana)
Public trust of politicians
US Rank: 54 (Below Iran, Tajikistan, Azerbaijan, Kazakhstan, Syria and Indonesia)
Irregular payments and bribes
US Rank: 40 (Below Botswana)
Judicial Independence
US Rank: 35 (Below Rwanda)
Favoritism in decisions of public officials
US Rank: 55 (Below Tanzania)
Wastefulness of government spending
US Rank: 68 (Below Sri Lanka)
Burden of government regulation
US Rank: 49 (Below Finland, Canada)
Efficiency of legal framework in settling disputes
US Rank: 33 (Below Botswana)
Transparency of government policymaking
US Rank: 41 (Below Rwanda, China, Malaysia)
Read moreAssembly Taxation, Feb. 8
I'm sitting in the Assembly Taxation Committee hearing at the Nevada Legislature and have noted an important legal question just raised by Assemblyman Ed Goedhart.
Legislative Counsel Bureau staff is presenting this session's Revenue Reference Manual to committee members and reviewing changes in the General Fund revenue structure resulting from the sunsetting of taxes imposed during the 2009 session pursuant to SB 429.
As the discussion focused on projected revenues resulting from the Modified Business Tax (a tax assessed against employers as a percentage of payroll), Assemblyman Goedhart questioned staff as to whether the tax rate applied to public-sector employers or only targeted private-sector employers. Staff responded that the tax is designed to apply only to private-sector employers.
This raises an important legal question with respect to the "Equal Protection Clause" of the Fourteenth Amendment to the US Constitution. The law appears to discriminate specifically against workers in the private sector who suffer wage loss as a result of payroll taxes assessed against their employer. Public employees in Nevada are exempt from this wage loss because of the tax's limited applicability.
There is definitely a case to be made that Nevada's MBT denies those who work in the private sector equal protection under the law.
Notably, NPRI has recommended eliminating the MBT for other reasons. The MBT is the most volatile General Fund revenue source used in Nevada and is a direct financial penalty against private-sector empoyers for hiring new workers or offering pay raises.
I'll continue to update this blog live from Carson City as the session wears on over the next few weeks.
Private-sector monopoly?!
After reading Howard Stutz's column in the Business section of the Las Vegas Review-Journal yesterday, I was appalled that such a basic ignorance of free enterprise would be published on the front page of any paper's "business" section.
Stutz laments that any legislative proposal to implement a state-run lottery in Nevada would likely be dead on arrival.
Lawmakers have considered a state-run lottery in successive legislative sessions for decades, against the advice of their own consultants. A famed 1988 tax study commissioned by the legislature from Price Waterhouse examined this possibility and concluded:
Regardless of how popular state-run lotteries are becoming ... the lottery fails both the equity and efficiency tests of a good tax system. Moreover, it has proven to be an unstable source of revenues over time.
At present the state's private gaming interests have their own forms of lotteries (e.g. keno), and have the ability to create even more forms. Moreover, a state-run lottery fails every test of a "good" tax policy. In Nevada, gaming should be left to the private sector.
Nearly every nonpartisan analysis of state-run lotteries has drawn similar conclusions. State lotteries are an extremely regressive form of taxation, they unnecessarily introduce volatility into the tax structure and they generally fail to generate much revenue. Moreover - and this is the key - a state-run lottery would directly compete with the largest private-sector industry in Nevada.
Stutz identifies Boyd Gaming and Station Casinos as gaming companies that have opposed state-run lotteries because they want the "monopoly" on locals' discretionary spending. That's right - Stutz accuses two firms specifically of carving out a monopoly in a certain market. By definition, this is not a monopoly because there is more than one prominent competitor.
Apparently, Stutz believes that a monopoly exists whenever the government is not directly competing (on an uneven playing field) with private industry.
Stutz cites as examples states that run their own lotteries despite the presence of casinos, as if this provides evidence that a state-run lottery in Nevada would not be detrimental to the state's most significant industry. However, the examples highlighted by Stutz are not comparable to Nevada. Sure, the State of Michigan runs a lottery and has a single casino in Detroit. However, businesses in Nevada operate hundreds of nonrestricted gaming licenses and thousands more restricted gaming licenses, all of which would experience lower consumer demand in the event of a state-run lottery.
There is no legitimate policy argument to justify the imposition of state-run lottery anywhere, but especially in Nevada. A "business" columnist should know this.
A plan for Nevada: Follow PLAN's actions
As the Legislature opens today, it's appropriate to share a good budget plan from a surprising source - PLAN.
You may have heard of PLAN - the Progressive Leadership Alliance of Nevada. They're the small group cheerleading attempts to raise your taxes and increase spending at the Legislature.
So why should Nevada follow PLAN's actions?
Because when it comes to its own organization (which it can't fund by taking your money), PLAN knows how to balance a budget - cut spending by 20 percent!
PLAN was hit hard by the economic downturn. But we developed a plan to ensure we move forward with our core mission intact. We cut our budget by 20 percent through a combination of staff layoffs, reduction in hours, and voluntary pay cuts.
Cut the budget by 20 percent while keeping its core mission intact? Now that sounds like a plan we can all support for Nevada - even PLAN.
Happy Birthday, Ronald Reagan!
Ronald Reagan would have turned 100 today.
Learn more about Reagan and his legacy here.
Read Geoff's thoughts on Reagan here.
Public-private partnership burns the public
There are many reasons why Nevada's state government should avoid public-private partnerships, unless government is privatizing or outsourcing an essential service.
Two philosophical reasons stand out. One, the government has a unique and important, but limited, role. Government's job is to provide a few core services, including (for state government) public safety, K-12 education and a basic safety net. Government's job isn't to create jobs or build things like sports stadiums. Two, the government shouldn't be picking the winners and losers in the economy. Its role is to referee, not participate in the business world.
If the philosophical arguments don't convince you, consider what happens when government oversteps its bounds - the government (read: the public) gets burned.
The Legislative Interim Finance Committee agreed Thursday to shift $176,000 out of a reserve account to pay a national law firm to protect the state in the bankruptcy proceedings of the Las Vegas Monorail.
Bonds for $650 million were issued through the state Department of Business and Industry to build the 3.9 mile system that runs between casinos on the Strip and the Las Vegas Convention Authority.
Lon DeWeese, chief financial officer for the state housing division, told the committee that the state was only the conduit for the issuance of the bonds. But hundreds of millions of dollars are owed the bond holders who invested in the project. ...
Horsey said Guinn also insisted that a highly rated insurance company be hired to make sure the bonds were covered. He said Ambac Financial Group, a triple "A" company, was employed. But now Ambac is also in bankruptcy.
Read the whole thing to get a complete sense of how taxpayers are getting soaked (and could be on the hook for hundreds of millions). All this happened despite the best-laid plans of those in charge at the time.
And this happens because all business ventures contain an element of risk. There is no sure thing in the business world, which is why no one should be forced (through the government using your tax dollars) to invest in something.
This is why principles are so important. No one knows the future, but sticking to the time-tested principles of limited government protects taxpayers from paying for the mistakes of yesterday.
Update 2/8/2011: My collegue, Geoffrey Lawrence, made an excellent point to by email. Public-private partnerships have a valuable role in a different context. If the government decides to outsource the provision of a core service to a private company, that's a worthwhile public-private partnership.
What's objectionable is when a public-private partnership is used to do something outside the core functions of government or when the government picks the winners and losers in the economy.
I've made a small change in the above text to reflect this point.
"Is" our children learning?
A recent study by NYU and University of Virginia sociologists reveals that college may not be all it's hyped up to be. Among other distressing findings, the professors note that 45 percent of college students show no significant improvement in critical thinking skills after completing their sophomore year. The study also notes that:
... federally mandated fixes similar to "No Child Left Behind" in K-12 education would be "counterproductive," in part because researchers are still learning how to measure learning.
It's encouraging to see some researchers acknowledge that government is not as effective at fixing education as once believed.
The Reagan Legacy
Cato's Gene Healy has an interesting take on the Gipper's legacy, in light of what would have been his 100th birthday. Healy says that neocons mistakenly cast themselves in Reagan's shadow, despite the fact that Reagan was far from a neocon himself.
Healy inveighs against the Weekly Standard, which has also published its own tribute to Reagan's legacy in commemoration of his would-be century mark. However, I find Healy's criticism to be somewhat unfair.
Certainly, Weekly Standard writers are, in a general sense, viewed as the poster children of neocon ideology and would love to cloak themselves in the Gipper's aura. However, Jeffrey Bell's recent column on Reagan's legacy is both thoughtful and accurate - regardless of one's take on what he views as the importance of social conservatism.
Bell documents Reagan's clear departure from the "realist" foreign policies that had animated Republican leaders since the Nixon-Kissinger era. Healy points out that "Reagan viewed the U.S. as a city on a hill, a 'model to other countries,' not a crusader state with 'an obligation to forcibly promote democracy overseas.'" Bell's column actually reinforces the same viewpoint.
The political Right in America has always been characterized by a somewhat uneasy coalition of libertarians and conservatives since the days when the two ideologies were united in opposition to FDR's socialist-authoritarian intrusion into American society. However, in this case, I think the disagreement is imagined.
My personal take on Reagan's legacy has always stemmed from what he told Reason magazine in 1975:
If you analyze it I believe the very heart and soul of conservatism is libertarianism. I think conservatism is really a misnomer just as liberalism is a misnomer for the liberals-if we were back in the days of the Revolution, so-called conservatives today would be the Liberals and the liberals would be the Tories. The basis of conservatism is a desire for less government interference or less centralized authority or more individual freedom and this is a pretty general description also of what libertarianism is.
Indeed, sir.
The false promise of 'investing' in higher education, and other NSHE thoughts
I'm currently watching the NSHE Board of Regents meeting and just heard a statement from Chancellor Dan Klaich to the effect of, "The link between economic diversification and a state's system of higher education is virtually indisputable."
That sentiment was a general theme of the recent Nevada 2.0 conference, and many of Nevada's politicians hold a similar belief.
This sentiment is always forward-looking: "If only Nevada would make (or maintain) this investment." This belief is forward-looking because even the most basic knowledge of Nevada's recent history disproves this assumption.
Nevada has increased its subsidy to NSHE from $306 million in Fiscal Year 2000 ($378 million, adjusted for inflation) to a high of $623 million in FY 2009. The NSHE's overall budget went from $833 million in FY 2000 ($1.027 billion, adjusted for inflation) to $1.694 billion in FY 2009. And Nevada now has the highest unemployment rate in the country.
A $245 million increase in the state's subsidy and a $667 million increase in the operating budget of the Nevada System of Higher Education should have put Nevada on the path to economic-diversity bliss. Except ... Nevada's economy now has the highest unemployment rate in the nation, in large part because its economic base is so narrow.
Now, does this mean that subsidizing higher education will lead to higher unemployment? No. Nevada's economy is affected by innumerable factors, including taxes, energy rates, government regulations, access to water, the global economy, K-12 and higher education, policies of the Federal Reserve ... I could go on and on.
But Nevada's history does disprove the simple assertion that "investing in higher education will diversify Nevada's economy."
Beware of the many smart, "educated" individuals (many of whom work in higher education - imagine that!) who are endlessly repeating this mantra. If government subsidies were all it took, we would have achieved a diversified economy by now.
Education is certainly a factor, but spending isn't the same as achieving results.
Other thoughts on the meeting:
Chancellor Klaich is doing a much better job noting that Gov. Sandoval's proposed budget reductions only impact the subsidy Nevada gives NSHE. And that this subsidy represents only a portion of the operating budgets of UNR, UNLV and Nevada's colleges - roughly 30 percent of each institution's operating budget. In total, Gov. Sandoval's proposed reductions would be less than a 10 percent reduction to the total NSHE operating budget.
I wonder if UNLV President Neal Smatresk is taking notes on how Chancellor Klaich is accurately describing the budget. Let's hope this clarity on the scope of the budget reductions (less than 10 percent of NSHE's total operating budget) is a continuing part of the debate. Why am I not hopeful?
Also hilariously, Chancellor Klaich admits that higher-education officials have been guilty of hyperbole in the past (I wasn't fast enough to type the exact quote, but that's the essence of what he said).
One last thing to remember, via Chancellor Klaich: "[Higher education] budgets are being cut elsewhere. Fees are being raised."
Liberals unsure of what a tax increase is, but finally acknowledge that they're destructive
Is anyone else really enjoying this effort by Nevada's liberals to pretend that eliminating subsidies to college students or other favored Nevadans is a tax increase?
Their latest effort is hilarious.
Liberals are DESPERATELY trying to find some way to claim that Gov. Brian Sandoval has violated his promise not to balance the budget by raising taxes by calling anything and everything under the sun a "tax hike."
That has so far included potential tuition hikes and reallocation of local tax revenues. And now some are trying to claim that the proposed elimination of the Senior Property Tax Assistance welfare program is technically a tax hike.
Let's at least applaud Nevada's leftists for acknowledging that tax increases have negative consequences.
Senate Majority Leader Steven Horsford, D-Las Vegas, said Sandoval's suggestion that the university raise tuition "is shifting the problem to others, rather than owning it and dealing with it straight on."
Horsford, who put himself through UNR, said, "I'm concerned that for every percent tuition is increased, a middle-income family or students putting themselves through college won't be able to attend."
We've finally achieved bi-partisan consensus - tax increases hurt people.
I'm going to repeat that, because I have a feeling this is something we're going to need to remember: Tax increases hurt people.
Of course, what the political left doesn't understand is that ending a subsidy isn't a tax increase - ending a subsidy is ending a subsidy.
Now, while liberals struggle to figure out what is and isn't a tax increase, I hope they continue this line of argumentation.
All they're doing is reminding the public of the negative impacts of tax increases. And why would anyone want to stop that?
