Thursday, February 7, 2019

February, 2019, Part 7, Political Class Insanity: Economic Ignorance in New York and Extreme, Unimaginable Weirdness In Virginia

It is another month which means it is again time to review the latest political class insanity from Washington and around the world. Political class insanity takes many forms including the wasting of taxpayer wealth, criminal fraud within government programs, inane and stupid political quotes and actions, the inability to create and implement effective and efficient government programs, stupid and ill performing economic policies and strategies, and other forms of insanity that continue to evolve and surprise and shock us.

Let’s get started:

1) We have often talked about the reality that when politicians raise taxes they rarely, if ever, reap the rewards they thought they would get. People are for the most part rational beings when it comes to their money and wealth. They will protect in any number of ways:
  • Sometimes they just physically move where they live to escape ever rising taxes.
  • Sometimes they will change their investments or jobs to avoid ever rising taxes.
  • Sometimes they will change their behaviors to avoid ever rising taxes.
  • Whatever politicians do, you can be sure taxpayers will at least give some thought to ways they can keep more of their hard earned wealth. 
The classic example we discussed previously happened in the state of Maryland several years ago. The state passed a law that raised the tax rate on every dollar taxpayers in that state earned over a million dollars. The politicians thought that the residents would not change their lives and just counted the extra money they thought they would get from millionaires under the new tax rate.

However, in a very short time they found that even though the had raised the marginal tax RATE on state millionaire earners, they actually received less REVENUE from state millionaire earners, many of whom probably just moved across state lines to reduce their tax burden.

But politicians never learn, as illustrated by the financial crisis starting to hit in New York state:
  • As a former resident of a northeastern state (New Jersey), In know that local and state taxes, e.g. income taxes and property taxes, have always been extremely high.
  • Fortunately for the local and state politicians, they could get away with a lot of these high taxes because they knew their citizens could deduct the high taxes on their Federal income tax returns, taking a little bit of the sting out of the high tax burden in their states.
  • But along comes the Trump tax cuts which caps the amount of deductions that can be taken at $10,000, a level far below what many people in the northeast were used to taking.
  • But according to Rachel Silberstein, writing for the Times Union website on February 4, 2019, the state of New York now finds itself in a potential financial death spiral because of its high state and local tax burdens and the new Federal tax guidelines.
  • Top state politicians recently announced an unexpected tax revenue shortfall of $2.3 billion.
  • It will be the biggest shortfall in the past eight years despite a booming overall economy.
  • Most of the big shortfall is due to a large drop in state income tax revenue streams.
  • The New York governor blamed the shortfall on the Trump tax plan that capped deductions for state and local taxes.
  • Note, it was not his fault for spending too much, it was Trump’s fault for stopping the rest of the country from subsidizing his state’s over spending.
  • In blaming Trump, for protecting the rest of the country’s taxpayers, the governor ends up sounding like a spoiled five year old: "Everything we did economically is right. We tightened our belt, we cut taxes, we're creating jobs, and here's a penalty just because we are Democrats."
  • But it gets worse as one high ranking state politician cited “anecdotal reports of New Yorkers leaving the state or changing their primary residence and Wall Street volatility as factors in the revenue gap.”
  • A recent Wall Street Journal article supports this trend, reporting that many, many New Yorkers are decamping from that state and coming to income tax free Florida and other places, with Miami realtors seeing a big increase in New Yorkers coming to the Sunshine state.
  • Which is what happens when you spend too much and you squeeze your most productive citizens since the top 1% of New York earners pay a whopping 50% of the state’s income tax revenue, 1%.
  • And you know that the top 1% certainly have the means to go live elsewhere for a far cheaper lifestyle and far lower taxes.
  • And when that happens, it is the middle class and poor that have to either pick up the tax slack or endure cuts to services as pointed out by Senate Minority Leader John J. Flanagan: "We cannot allow this [Democrats to raise taxes on the middle class and poor]to happen. It's imperative that we balance the budget without resorting to tax increases, enact the spending cap into state law, and make the property tax cap permanent to bring certainty to homeowners and seniors. Budgeting is about choices; and it's time for Gov. Cuomo and legislative Democrats to make the right ones."
  • But this is not unexpected, we have been discussing this reality for years. And in the face of this crisis, Democrats in the state government ”are pushing for significant increases in state funding for housing, healthcare and school aid in next year's budget.”
They just do not get it. Taxing people to the extreme eventually causes those being over taxed to fight back to protect their hard earned wealth. The solution to budget deficits is to clean up wasteful and criminal spending, and become more efficient and effective. Instead, these folks want to spend MORE in the face of LESS revenue, the classic definition of both being in denial and a financial death spiral. Insanity.

2) I am assuming that most of you have been following the political circus going on down in the state of Virginia:
  • First, it came out that the Virginia governor had posed either as KKK member or someone in black face in a photo which appeared in the yearbook of the medical school he was attending.
  • Initially, he said he was one of those in the picture and a day later said he was not in the picture on his personal yearbook page.
  • It also came out, also on his yearbook page, that his nickname was racially insensitive “Coonman,” which he denied was his nickname despite it being on his personal yearbook page.
  • And then his lieutenant governor was accused of making a sexual attack from years ago.
  • The lieutenant governor than inferred that the governor had outed him to take the heat off of governor.
  • The lieutenant governor allegedly then profanely stated what should happen to his accuser,  “F*** that b****!” Class act.
Wow, you could say it can not get much wilder than that. But alas, you would be wrong, according to an article on the Townhall website by Mike Vespa on February 6, 2019:
  • Virginia attorney general Mark Herring is the third in command in the state government and reportedly has/had plans to run for governor in 2021.
  • But then it came to light that he had also dressed up in black face and dressed as a rapper back in 1980: "The very bright light that is shining on Virginia right now is sparking a painful but, I think we all hope, important conversation. The stakes are high, and our spirits are low. I am sure we all have done things at one time or another in our lives that show poor judgment, and worse yet, have caused some level of pain to others. I have a glaring example from my past that I have thought about with deep regret in the many years since, and certainly each time I took a step forward in public service, realizing that my goals and this memory could someday collide and cause pain for people I care about, those who stood with me in the many years since, or those who I hoped to serve while in office. In 1980, when I was a 19-year-old undergraduate in college, some friends suggested we attend a party dressed like rappers we listened to at the time, like Kurtis Blow, and perform a song. It sounds ridiculous even now writing it. But because of our ignorance and glib attitudes – and because we did not have an appreciation for the experiences and perspectives of others – we dressed up and put on wigs and brown makeup. This was a onetime occurrence and I accept full responsibility for my conduct.”
  • He then went on to try to explain that his actions since then have not been racist or cruel.
  • In a great piece of irony and hypocrisy, he had called for the governor to resign for a similar part of his past a day or so earlier.
My gosh, you could not make up weirder set of idiocy, racism, sexism, alleged sexual assault, and lyng if you tried.

That’s enough political class sleaze and stupidity for today, nasty, depressing stuff: economic ignorance in new York and just plain hurtful, sad weirdness in Virginia. More insanity to follow.

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