The further to the left or the right you move, the more your lens on life distorts.

Monday, March 06, 2023

Hotel California

I'm traveling internationally and have visited a number of countries that are all socially democratic. At the moment I'm currently in Argentina. In speaking with locals, they applaud the general availability of " free" health care, "free" college tuition, and a variety of other benefits that accrue to the "worker" class. Those are undoubtedly very nice perks, although accessing them is limited by demand, and many, many of their citizens have to wait in very long lines* to get their free stuff.  But those same citizens also lament high taxes, the consequent impediments to social and economic mobility, and accept rampant inflation with resignation. The government of Argentina revalues it currency every other week!

The problem of course is governments that have adopted fantasy thinking. High levels of spending and the debt that is a natural consequence of it (there simply isn't enough money available regardless of how high taxes become or how much they attempt to tax the "rich"), are shrugged off as necessary and socially just. The problem is that this approach is unsustainable over the long term.

And that brings us to the United States. Socialists like Bernie Sanders** or his acolytes (think: AOC) use the tired trope that demands that the rich MUST pay their "fair share." The fact that the top five percent of income earners provide well over 50 percent of all income taxes is irrelevant because ... social justice!! It appears that the Biden administration has adopted Bernie's philosophy and regularly espouses his "fair share" trope.

The same is occurring at the state level in far too many blue states. As I have mentioned in a number of posts over the years, the states have a unique challenge. When voting at the ballot box changes nothing, people can vote with their feet. Arthur Laffer and Stephen Moore report:

Lawmakers in California, Illinois, New York and Washington state have proposed new taxes on wealth, and higher income taxes for the rich are on the table in Connecticut, Maryland and Massachusetts.

Residents of these seven blue states are already among the highest-taxed. The states are also in financial trouble. California and New York impose income tax rates that can exceed 13%, but their budget deficits are mounting. Lawmakers in Sacramento and Albany think the answer is to soak the rich even more. Yet Florida, Tennessee and Texas impose no state income tax and all have sturdy surpluses. Their coffers are so full, they are looking to cut taxes. How is that possible?

One reason is that low-tax red states are importing capital and wealth from the high-tax blue states. For more than three decades we have examined state-by-state financial and demographic data collected by the Internal Revenue Service and the Census Bureau. The latest numbers make clear this trend is accelerating.

In the past 10 years, six of the seven high-tax blue states have had a net loss of population to other states, totaling nearly five million residents. (Washington, which has no income tax, has gained over the decade.) They’ve also lost almost a quarter-trillion dollars in cumulative taxable income: California $50 billion, Connecticut $14 billion, Illinois $47 billion, Maryland $14 billion, Massachusetts $13 billion, New Jersey $26 billion and New York $79 billion. That’s only the money on personal income-tax returns. It doesn’t count lost revenue from corporate profits or sales.

Desperate for revenue to feed their attempt at social justice, Laffer and Moore suggest that these blue states may become much like Hotel California—a fictional place memorialized by the Eagles where you can check in, but you can't check out. This approach may be unconstitutional (one can only hope) but regardless, it smacks of political anxiety.

The last three stanzas of the Eagles' classic song are these:

Welcome to the Hotel California
Such a lovely place (such a lovely place)
Such a lovely face
They livin' it up at the Hotel California
What a nice surprise (what a nice surprise)
Bring your alibis
Mirrors on the ceiling
The pink champagne on ice
And she said, 'We are all just prisoners here
Of our own device"
And in the master's chambers
They gathered for the feast
They stab it with their steely knives
But they just can't kill the beast

Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
"Relax, " said the night man
"We are programmed to receive
You can check out any time you like
But you can never leave

The metaphor is there. All you have to do is see it. 


*  e.g., In every country I've visited, "free university" is achieved only after a student passes difficult and rigorous entrance exams. In some of these countries fewer than 30 percent gain entrance to "free" universities and others go to trade school or enter the work force.

** Even a broken clock is correct twice a day. I&I comments on Bernie's sensible differentiation between equity and equality, and political popularity.