Tuesday, July 19, 2016

July, 2016, Part 1, By The Numbers: Low Taxes Mean More Fiscally Sound States and More Individual Freedom

On a periodic basis we do some posts that fall under the theme of “by the numbers.” Rather than trust what the American political tells us about reality, we like to examine the real numbers and the real reality in the world to understand what is actually going on. Relying on politicians, and their cohorts in the media, to tell us what is reality is always a sucker bet. They have their own agendas and goals, usually centering around their needs and self-enrichment. So we need to look at the reality of the numbers to determine what is really going on.

Previous analyses of “by the numbers” can be accessed by entering the phrase in the search box above. This is the third and final post this month where we look at the numbers to truly find out how good, not likely, or bad, most likely, the American political class is doing in managing our tax dollars, protecting our freedoms, and resolving major issues that affect all of us. 

Today and tomorrow we are going to focus on economic freedom which is tightly linked with political freedom. I say this because the less money the government and the American political class allow you to keep from your work endeavors, the less overall freedom you have. You have less freedom, options and choices to send your kids to better schools, to start a business, to donate to charities, to retire in better financial shape, or to just enjoy life to the degree that you should be able to based on how hard you work. 

Today we will prove our constant libertarian point in this blog that the less government governs the better off everyone is on average. That the most heavily taxed states are usually the states in the worst financial shape which will eventually require residents of those states to pay more and more in taxes which will result in less and less freedom. As a result, as the numbers will show, that is why more and more people are leaving the highly taxed, financially distressed states for states that afford them the maximal return on their hard work and wealth. As always under this theme, you will see that the numbers do not lie. This is the cold reality of overreaching, freedom reducing politicians in this country today.

Let’s start with some numbers from a recent article and analysis from the Investors’ Business Daily website, written by John Merline. They recently ran an article where they found that the most financially sound states are are currently and/or historically have been operated by Republican politicians. Conversely, the financially unsound states have traditionally been operated by Democrats.

Their analysis is based on research and number analyses by the Mercatus Center operating out of George Mason University. Details of their methodology include:
  • They ranked the fiscal status of each state and state government along five criteria.
  • Government numbers and data were used to analysis the five criteria included such fiscal tasks as a state’s ability to pay its short term bills, meet longer term financial obligations and liabilities such as pension and healthcare expenses, budget management, service-level solvency measures a state’s ability to respond to a demand for increased spending, and trust fund solvency measures unfunded pension liabilities and state debt.
The ten most fiscally sound states are:

1 - Alaska
2 - Nebraska
3- Wyoming
4 - North Dakota
5 - South Dakota
6 - Florida
7 - Utah
8 - Oklahoma
9 - Tennessee
10 - Montana
Most of these states have been run by Republicans for a very long time with the exception of Florida which now has had a Republican governor for the past six years and whose both houses in the state legislature are Republican controlled. Living in these states is a good thing from a taxation perspective since they are the top states in a fiscal position to meet the five financial criteria listed above, meaning that need for more taxes is less likely than in the other states. This provides more freedom and liberty to residents of these states.

The worst states from a financial stability perspective are:

41 - Maryland
42 - New York
43 - Maine
44 - California
45 - Hawaii
46 - Kentucky
47 - Illinois
48 - New Jersey
49 - Massachusetts
50 - Connecticut

These states, with the exception of Kentucky, have been operated by Democrats for the longest time. Residents in these states are most likely to see their taxes go up in the future, and their freedom levels go down, since these states are most likely to need additional tax revenue to cover the failed financial management skills of the mostly Democratic state politicians. As we said above, as taxes go up, your freedom of choice for everything from your kids’ schools to your vacation experiences goes down.

Let’s move from the numbers that describe the financial health or sickness of each state and see how each state compares from a taxation perspective. One could make the argument that the reason that the above financial distressed states are in the condition they are is because they tax their residents at very low levels, depriving the state government of tax revenue. Conversely, the financially healthy states may be that way because they place the heaviest taxation burden on their residents, reducing their freedom.

Well, you could make that argument but you would probably be wrong. According to the numbers from the financial advising website, Wallethub, using statistics and numbers from Statista, believe it or not, the above states that are the financial soundest also have considerably LOWER taxes than the states above that are the least financial sound. Let’s see where the above financially sound states rank when it comes to the local and state taxation burden:

1 - Alaska - Wallethub rank - 6
2 - Nebraska - 39
3- Wyoming - 2
4 - North Dakota - 25
5 - South Dakota - 17
6 - Florida - 11
7 - Utah - 10
8 - Oklahoma - 12
9 - Tennessee - 4
10 - Montana - 3

Average rank for lowest taxation of the ten most fiscally sound states = 12.9

Now, let’s look at the ranking of the ten worst financially sound states and their ranking as far as the local and state burden is for its residents:

41 - Maryland - Wallethub rank - 44
42 - New York - 51 (this survey included D.C.)
43 - Maine - 40
44 - California - 33
45 - Hawaii - 49
46 - Kentucky - 27
47 - Illinois - 43
48 - New Jersey - 47
49 - Massachusetts - 46
50 - Connecticut - 50

Average rank for the lowest taxation among the ten most fiscally unsound states = 43.0

The tax burden average rank of the states in the worst financial shape is about three and half times higher than the tax burden average rank of the states in the best financial shape. Thus, one obvious observation is that the more you tax your residents, the worst financial shape your state ends up in. Which means that the taxation burden will have to go even higher in the future to keep the financial solvency of your state whole. And you end up in a financial death spiral.

Lower taxes means more financial integrity in the state government. Who knew? Many of the states in the worst financial shape ask their residents to pay a whopping ten percent or so of their household income to state and local taxes in addition to their Federal income taxes, Social Security taxes, and Medicare taxes. Tough to say you live in a freedom loving state when the various levels of government decimate your income with little societal benefit in return.

So our preliminary analysis of the numbers leads us to conclude that: low taxes = fiscally sound states and state governments. And low taxes also means more freedom and liberty for the residents of those fiscally sound states. Simple logic, solid numbers to support it. Tomorrow, we will continue this number analysis by looking at another measure of state by state financial shape and state by state migration to see if fiscally sound states with low taxes, as we proved today, also increases the wealth and sheer numbers of state residents.

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