Wednesday, July 20, 2016

July, 2016, Part 2, By The Numbers: Less Taxes Makes For Better Government Which Makes For More 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. 

Yesterday and today we focusing on how economic freedom 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. 

During these two days 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.

Our preliminary analysis of the numbers from yesterday led 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. 

Today, 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 yesterday, also increases the wealth of state residents.

Let’s do another more set of numbers. The American Legislative Exchange Council (ALEC) recently released their ninth annual “Rich States, Poor States” report. The report is based on the following approach: “The Economic Outlook Ranking is a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less—especially on income transfer programs, and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states that tax and spend more.

The Economic Performance Ranking is a backward-looking measure based on a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration and Non-Farm Payroll Employment—all of which are highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on this economic data.”

So, let's take this measurement and numbers approach, which states are in the best economic shape ("rich states"), and the lists we started with yesterday that had the top ten states governments that were most fiscally sound and the bottom ten states that were least fiscally sound and compare them to the health and robustness of their state economies as measured by the ALEC:

1 - Alaska - ALEC rank - 25

2 - Nebraska - 32
3- Wyoming - 4
4 - North Dakota - 3
5 - South Dakota - 11
6 - Florida - 8
7 - Utah - 1
8 - Oklahoma - 10
9 - Tennessee - 7
10 - Montana - 40

Average rank for the ALEC economically ranked states of the most fiscally sound states we identified yesterday = 14.1

41 - Maryland - ALEC rank - 31

42 - New York - 50
43 - Maine - 38
44 - California - 46
45 - Hawaii - 42
46 - Kentucky - 33
47 - Illinois - 43
48 - New Jersey - 48
49 - Massachusetts - 45
50 - Connecticut - 47

Average rank for the ALEC economically ranked states of the most fiscally unsound states we identified yesterday = 42.3

Thus, the economic condition average rank, as measured by the ALEC approach, of the states in the worst financial shape is about three times higher than the economic condition average rank of the states in the best financial shape. Another measure that shows lower taxes actually may lead to better economic conditions. And as we have discussed above, the states in the best economic condition also tend to be operated and led by Republican politicians:

And the two states with the worst economic conditions that are led by Republicans, New Jersey and Illinois, are really the exception because historically they have almost always been operated by Democrats. 

Note: Just to answer any assumptions that this analysis is tainted because I am a Republican or conservative, understand that I have NEVER voted for a Republican for President in my life (I have been voting since the 1970s) and until 2010, I have never voted for Republican for national office since 2010. As always, these posts are number based and I do not care where the numbers lead to, as long as the numbers are used correctly and thoroughly.

One last set of numbers. Over the past two days we have shown that the states that are in the best fiscal condition from a state government financial perspective also have the more robust economies and the lowest local and state taxes. What do those conditions mean for population growth? Let’s look at the top ten and bottom ten states that we developed yesterday and see if people are moving in or out of them:

1 - Alaska - population growth rate in 2014 - 2015 - -6.9%

2 - Nebraska - 1.2%
3- Wyoming - .3%
4 - North Dakota - 10.6%
5 - South Dakota - 4.0%
6 - Florida - 11.4%
7 - Utah - 1.4%
8 - Oklahoma - 3.0%
9 - Tennessee - 3.7%
10 - Montana - 4.1%

Average population growth of the ten most fiscally sound states = 3.28%

Now, let’s look at the ranking of the ten worst financially sound states and their ranking as far as their population growth:

41 - Maryland - population growth rate in 2014 - 2015 - 4.6%
42 - New York - 1.4%
43 - Maine - .9%
44 - California - 2.8%
45 - Hawaii - 4.2%
46 - Kentucky - 1.7%
47 - Illinois - -3.0%
48 - New Jersey - .5%
49 - Massachusetts - 4.6%
50 - Connecticut - .8%

Average population growth of the ten most fiscally unsound states = 1.85%

Thus, the population growth rate for the most fiscally sound states is about 77% higher than the population growth rate for the most fiscally unsound states. Obviously, state by state population growth is likely affected by a lot of factors but it is an interesting correlation that states with the best run state governments that operate at high efficiency with lower taxes results in more robust state economies and more state residents. And of course, less taxes, smaller government means more freedom and liberty for those state residents.

Of course, people like Obama and Pelosi and Reid get it backwards. They think that more taxation is needed for bigger government to make people’s lives better. Obviously, they have never looked at the numbers to see the exact opposite is true: less taxation means smaller government and better managed government which means more robust economic opportunities. The numbers do not lie.

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