April 1, 2013

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The push to keep states from regulating Internet Protocol-enabled services goes strong in 2013. Legislators in more than half a dozen states introduced such IP bills this year. More than two dozen states had already passed laws before 2013 began, California prominent among them (CD Oct 2 p7). The IP transition’s urgency escalated when AT&T introduced an FCC petition urging transition trials last November, and it’s widely accepted that much voice traffic will shift to VoIP and IP-enabled frameworks in the next decade amid these transforming state roles. Proponents and observers told us these state laws will keep appearing, while NASUCA and AARP fear they’ll create public safety and affordability risks.

States that introduced such bills include Arkansas, Arizona, Colorado, Connecticut, Iowa, Kansas, Nevada, North Dakota and Wyoming. Some bills lost their fire, while others have already become law. Industry coalitions helped craft some of these bills, as national trade groups urge them forward. They tend to exclude states from regulation but often include exceptions for 911 charges and other funding mechanisms.

“We like to keep these things neat,” said Voice on the Net Coalition Executive Director Glenn Richards, referring to the easier passage of bills that address specifically VoIP old VON Coalition comprises 11 companies including AT&T, Cisco, Google, Microsoft, Skype, TMobile, Vonage and Yahoo, and Richards has submitted testimony in and visited many state legislatures considering these bills. He’s pleased with 2013: “We’ve seen a lot of positive developments.”

“This is a clarion call for Congress and the FCC” to reform the Communications Act, the American Legislative Exchange Council’s John Stephenson told us. “It’s showing the federal government a possible way forward on communications law.” Stephenson, director of ALEC’s Communications and Technology Task Force, counts at least 26 jurisdictions that recognized the need for what he calls a “new regulatory framework,” no longer from the Ma Bell era. ALEC has advocated against state utility regulation of IP for years through model legislation, and Stephenson describes himself as an educator of different ALEC members. The 40-year-old council contains industry members, including AT&T, Verizon and

Time Warner Cable, as well as state legislators, who together collaborate on its model bills, all posted online this year. “What I am seeing more of is a recognition among policy makers this needs to happen,” Stephenson said, calling it “clearly a priority for the tech and telecommunications industries.”

Three states have acted decisively. Arkansas passed an emergency communications law March 19 with a provision exempting VoIP service and VoIP providers from Arkansas Public Service Commission regulation. Wyoming’s Legislature passed its bill in February, shepherded through industry and other stakeholder concerns largely by the office of Republican Gov. Matt Mead last year (CD Feb 1 p7). The governor signed the bill, according to Deputy Chief of Staff Tony Young, and it’ll become law July 1. Kansas’s bill awaits a governor’s signature after passing out of the Legislature Tuesday, with only a single no vote total in both legislative bodies. AT&T actively supported such bills, such as in California before and in Wyoming and Kansas. In those states, stakeholder coalitions hashed out bills’ details far in advance of them hitting the legislative floor. “We’ve been seeing a lot more stand-alone bills,” Stephenson said.

“I think there is inevitability,” National Regulatory Research Institute Principal Telecom Researcher Sherry Lichtenberg told us of the national move toward these IP bills. “Maybe this is all a generational change.” NRRI is NARUC’s research arm, and Lichtenberg studies state deregulation effects, with recent results showing few troubles. She suspects more than 30 jurisdictions will restrict IP regulation by the year’s end. “We may not have a whip, but we certainly have the kind of knowledge that might be used to collaborate,” Lichtenberg said, suggesting state regulators might move toward a coordination role.

NASUCA has “a tremendous amount of concern,” Acting Telecom Chair Regina Costa said. Industry has “virtually unlimited resources” and “has done a pretty good job of disguising the impact of these kinds of bills,” she said. She pointed to the role of states in ensuring affordable, reliable communications service, which she feels is best done by public utility commissions. “These bills are not about the Internet,” she said, dismissing the idea that they promote tech investment. AARP warned against Connecticut’s 2013 bill, as in some other states, and in testimony (http://1.usa.gov/YOHFTq) encouraged the state to “explicitly and unambiguously acknowledge that Connecticut now possesses the authority to regulate VoIP.” The association cautioned the new technology is vulnerable, citing “extreme” weather events and suggesting other states passed their IP laws “perhaps before these states had a chance to consider the implications.” The wave of bills came from “aggressive industry lobbying” despite and because of state regulators, such as in New Hampshire and Massachusetts, who had asserted jurisdiction over VoIP, AARP said, noting industry’s “veiled threats of withholding innovation and investment.” Costa noted the bill is “front and center” on her Connecticut NASUCA colleagues’ agendas.

North Dakota is the rare state that dialed back its bill. Senate Bill 2234 calls for a “legislative management study” of VoIP but demands no regulatory changes (http://bit.ly/11nUBWE). But an earlier draft said the state can’t “directly or indirectly regulate the entry, rates, terms, or conditions” of IP or VoIP (http://bit.ly/XsnVon). The bill passed the Senate 47-0 in February, the House 88-5 Wednesday and now returns to the Senate. Industry in North Dakota hadn’t coalesced around that bill as well as in other states like Kansas, where stakeholders were “lock step,” according to Richards: “They just needed more time to think about it,” he said, noting the state’s short legislative season and a perception that the state commission wasn’t going to be “aggressive” in trying to regulate VoIP. He contrasted that with the Kansas Corporation Commission, which asserted authority over interconnected VoIP service in January — a position nullified under the pending Kansas bill (CD Feb 20 p5). In Iowa, the Legislature opted for a study bill as well to await a proceeding of the Iowa Utilities Board, Richards added. State regulators’ views “run the gamut but at the end of the day they are charged with enforcing their states’ laws,” Stephenson said.

New England remains less receptive. Stephenson emphasized New York and Connecticut as holdouts but pointed to New York’s emerging tech economy as a potential impetus for a bill’s passage. “I think that being a priority for the mayor [Michael Bloomberg of New York City] will really change the paradigm,” promoting greater awareness of regulatory costs, he said. Tech-focused Massachusetts adjusted IP regulations, he said. Richards also pointed to Connecticut and New York as holdouts. One of the biggest hurdles in putting together a successful bill tends to be rural phone companies “concerned about creating what they perceive to be an unlevel playing field,” Richards said. There’s also funding issues related to state USF and 911, he added, noting that VON never objects to those provisions as long as state and federal language is consistent.

Consumer concerns are minimal, bill proponents said. States retain a role — not carrier-of-last resort obligations or pricing but a general tax and consumer protection role, Stephenson added. ALEC is examining what IP-world policies should guide disaster recovery, focused on mobile technology and state tax treatment of companies, Stephenson said. “California was it,” Richards said of consumer outcry, pointing to The Utility Reform Network’s concerns voiced as that state passed legislation. “When have the states stepped back and reversed field? No states have done that.” There’s a “minuscule” number of complaints against VoIP providers, Richards warranted as a reason. States can and may reverse the laws if necessary, Costa said, noting they’re in their “infancy” and that the biggest companies like AT&T and

Verizon have not yet moved en masse to IP services.

“The IP transition is under way, and I’d argue it’s much further along on the state level,” Stephenson said. “They are experimenting with these different regulatory frameworks,” often turning to a “light touch” and “market-based” approach.

Richards hopes his job will get “easier” going forward and suggested it will as he’s able to tell legislators, “’Your neighboring states have done this.’” VON and the VoIP community will revisit these issues this fall to consider how circumstances have changed in certain states. This year’s legislative season is now “over the tipping point,” he said.

Bonner R. Cohen, a senior fellow with the National Center for Public Policy Research, examines the recent trend of state lawmakers who are calling to revise renewable energy mandates that have failed to produce meaningful results. Spurring debate over geographic limitations for building wind power farms to increased electricity costs and consumptions, Cohen gleans insights from Todd Wynn, director of the Energy, Environment, and Agriculture Task Force for the American Legislative Exchange Council:

“States all across the country are taking a second look at these mandates which foist higher-cost, intermittent electricity on the backs of ordinary citizens… North Carolina is taking a step forward by ensuring the generation of affordable and reliable energy and thus protecting low-income families that are hit hardest by costs imposed by state renewable energy mandates.”

Read the full article here.

Stephenson stresses that the privacy discussion is nuanced and policymakers must realize that any future legislation addressing this topic must not interfere with future innovation. Here are some other key takeaways:

• Privacy is a vague concept that some consider a fundamental right, though the Constitution does not explicitly mention a right to privacy.
• As new technologies develop and Internet usage continues to become more prevalent, what is considered private is constantly up for discussion, particularly since the advent of social networking.
• The concept of what privacy entails on the Internet, and whether it includes consent and sensitive data, is important considering the staggering amount of information that is created every day.

Read the full post here.

New Chairman Provides Leadership And Vision For The Next 40 Years 

WASHINGTON, DC (March 8, 2013) – The American Legislative Exchange Council today announced the appointment of C. Stevens Seale as Chairman of the Private Enterprise Advisory Council, a group of business, trade association, nonprofit and academic leaders that provides counsel and support to ALEC legislative members. This appointment is of particular importance as ALEC enters its 40^th year focusing on economic issues and pro-growth policies that create opportunity for all Americans.

“Steve brings extensive expertise and a personal commitment to free markets to his position as Private Enterprise Advisory Council Chairman,” said Ron Scheberle, Executive Director of the American Legislative Exchange Council. “Steve’s experience and leadership as both a state legislator and advocate for business will be a tremendous asset to our organization.”

As a State Senator, Seale served as Chairman of the Tax and Fiscal Policy Task Force and also served on the on the Civil Justice Task Force. Following his service as a legislative member, Seale continued his strong support of ALEC and represents SAP America as a private enterprise member of the Communications and Technology Task Force. Seale will serve as Chairman of the Council for 2013 and 2014.

“SAP America’s strong commitment to the American Legislative Exchange Council is due to the nonprofit’s significant impact and the opportunities it creates for the exchange of ideas,” said Seale. “I’m honored to help lead the Private Enterprise Advisory Council to further increase the organization’s ability to engage with legislators and business leaders in an academic context.”

Seale was a two-term Mississippi State Senator and served as Chief Counsel on the staff of U.S. Senate Majority Leader Trent Lott.  In addition to representing SAP America, Seale represents clients from a broad spectrum of interests with policy concerns of a legislative and/or regulatory nature at the federal and state levels of government.

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The American Legislative Exchange Council is the largest nonpartisan, voluntary membership organization of state legislators in the United States. The Council is governed by state legislators who comprise the Board of Directors and is advised by the Private Enterprise Advisory Council, a group of private, foundation and think tank members. For more information about the American Legislative Exchange Council, please visit: www.alec.org.  

Media Contact: Bill Meierling
202.742.8536
BMeierling@alec.org

NPR

Kansas Gov. Sam Brownback has put the state on what he calls a “glide path to zero” income tax. But that glide path is far from being clear or smooth.

On the face of it, Brownback seems to enjoy a remarkably strong political position. He’s a conservative Republican, flanked by GOP supermajorities in both legislative chambers. His allies helped purge moderate Republicans from the state Senate in last year’s election.

“I think the road is open,” Brownback says. “I think we do provide an alternative model. I think we do provide a red-state model.”

In 2012, Kansas eliminated the state income tax for about 190,000 small businesses and cut the rate substantially for high-income individuals.

“We’re going from the highest-tax state in the region, to the lowest-tax state in the region,” Brownback says.

Jonathan Williams, director of the Tax and Fiscal Policy Task Force for the American Legislative Exchange Council, says no other state has eliminated the income tax for small businesses. The group has ties to politically active corporations, like Wichita-based Koch Industries.

“Well, Gov. Brownback has made very bold moves towards making Kansas a more competitive place to do business and to create jobs,” Williams says.

And that move is causing a stir in Kansas City, along the state line that divides the community between Kansas and Missouri.

Seizing A No-Tax Opportunity

Steve Browne is a partner at Meara Welch Browne, an accounting firm that’s relocating to Kansas from Missouri.

“Well, we moved from just a mile or two miles on the east side of state line to literally … a few hundred yards on the west side of state line now,” he says.

Browne says that none of the firm’s employees needs to move. By trading one office building for another, though, and shredding most state taxes, the firm is boosting its income by more than 6 percent. It was a no-brainer for the business move.

But the important calculation here is whether the firm’s gain, and Missouri’s loss, is actually a win for Kansas.

‘It Hurts The People’

“That benefits no one in the end. And it hurts the people because the tax money is gone,” says Republican state Rep. Barbara Bollier.

Bollier lives in Mission Hills, Kan., just north of where the accounting business is moving. She’s pro-business but can’t swallow the size of last year’s tax cuts, which will cost the state more than $850 million annually — with the bulk of it going to higher-income earners.

“The governor’s been very clear it’s an experiment, and it is,” she says. “We were the [only state] in the country that did this. So it’s either a huge win or a horrible loss.”

Bollier points out that income tax produces more than a third of state revenues. She says several neighboring states are talking about cutting or eliminating the same taxes.

She fears a race to the bottom, which could possibly limit new jobs and bring too little new money for Kansas to avoid painful consequences.

“I have a hard time looking at the schoolchildren in my neighborhood and saying, ‘I’m going to do an experiment on you, and if we lose, your schools are going down the tubes,’ ” Bollier says.

Brownback promises that he’s not going to let that happen, but there’s a problem: lost revenue from the income tax cuts. So he’s proposed something radical for a conservative Republican: a serious tax increase, one he hopes will be short term.

An Arduous Process

The governor wants to extend a sales tax that’s set to expire and end some tax deductions. When you add it all up, projected tax revenues actually go up by as much as $455 million.

Democrats are calling it “Robin Hood in reverse,” stealing from the poor to give to the rich. And it’s not going quite smoothly with Kansas Republicans like Rep. Scott Schwab.

“So you’re asking me to raise taxes today for a tax cut in five years,” Schwab says. People who campaigned in the summer promoted “cutting taxes today,” he adds.

But tax cuts today — on top of big ones from last year — would likely crater the state budget, which would also be unpopular.

It’s messy. Brownback says the transition is the arduous part of the process.

“If you ask people, ‘Do you want to do away with the state income tax?’ a good portion would say yes,” he says. “OK, now how do you do that?”

How indeed? It’s a question vexing Kansas, as it struggles to develop a new “red-state model.”

This article was originally published on NPR.org by Frank Morriss

At first blush, amending the state’s founding document to protect something as pedestrian as funding for the Department of Transportation just doesn’t have the kind of wow factor I look for in a constitutional amendment.

But then, we’re an old democracy and maybe most of the really good amendments — free speech, the right to privacy, women’s suffrage, etc. — have been taken.

Constitutionally enshrining transportation certainly isn’t as dumb as, say, banning gay marriage or making English the official language or lots of other proposed amendments over the years.

In 2011, the DOT amendment passed the Legislature by wide bipartisan margins. It passed the Assembly again on Tuesday and will need to pass the Senate again this session before going to a statewide vote, probably in November 2014.

It reserves transportation-related taxes such as the motor fuel tax and license registration fees for transportation projects — and that’s transportation in a broad sense.

People worried about our car-centric culture and its effect on global warming can take heart that, in theory at least, DOT can spend as much on alternative-fuel-powered mass transit as it does on eight-lane highways.

Plus, seeing as how we don’t have a mandatory bike registration tax or toll booths dotting our sidewalks to help pay for the wear and tear of hoofing it to work, one could argue the amendment is partly about using taxes on environment-destroying transit to subsidize environment-protecting transit.

The amendment’s catch-all definition of transportation is partly why the state’s chapter of the Sierra Club isn’t fighting it, although it will “if (mass) transit is removed from the transportation fund,” said Shahla Werner, director of the John Muir Chapter of the organization.

Indeed, groups as diverse as conservative policy pusher American Legislative Exchange Council and legislative Democrats are either in favor of it or neutral.

The most pushback I’ve seen came from the money-in-politics watchdog Wisconsin Democracy Campaign, which last month pointed out that the industries with the most to gain from the amendment — manufacturers and road builders — are the same ones giving tons of money to the politicians who are championing the amendment, though in this case, the objectives of deep-pocketed campaign contributors might actually reflect our own.

Because unless this “sustainability” trend really catches on and we can survive with little more than a backyard composter and a couple of chickens, we will rely on the state’s transportation infrastructure to deliver many of the basic necessities of life.

That the amendment amounts to “a form of protection that nobody else gets,” as WDC executive director Mike McCabe put it, isn’t the same as saying transportation isn’t worth protecting.

Besides, a car-centric transportation infrastructure already enjoys plenty of protection from a citizenry that regularly eschews biking, mass transit and walking for getting behind the wheel.

This article was originally published by the Wisconsin State Journal on February 14, 2013.

Over a decade, 48 percent of all job growth in the United States occurred in just nine states.

What did these states have in common? They are the nine states in the country that do not have a personal income tax.

That astonishing datum should be a bit of shock therapy in Arizona, where the discussion about how to achieve economic growth has gotten unproductive and distressingly misguided.

It’s not that these nine states are bigger than other states, and that explains why they got the lion’s share of the job growth. From 2001-2010, these states nabbed nearly half the nation’s job creation while constituting, at the end of the decade, just 20 percent of the country’s population.

Although, during the decade, they did add population considerably faster than the national average, as the country experienced a substantial migration from high-tax states to low-tax states.

This phenomenon is explored in greater depth in a recent study for the American Legislative Exchange Council, “Rich States, Poor States,” by Arthur Laffer, Stephen Moore and Jonathan Williams.

In contrast with the nine states without personal income taxes, the nine states with the highest rates had considerably slower population growth than the rest of the country and lost jobs over the decade.

This is not an argument for Arizona to abolish its personal income tax, although that would be good as a long-term goal.

Arizona’s current tax and regulatory structure is conducive to economic growth. Our job-growth rate during this period was fully competitive with the no-tax states, despite suffering from the bursting of the housing bubble at the end of it. Laffer develops a forward-looking competitiveness index to evaluate how state economies are likely to fare in the future. Arizona ranks ninth-highest.

Moreover, economic growth isn’t the only purpose of a polity. I think Arizona state government is underfunded, and I opposed the last round of tax cuts for that reason.

But to the extent the question is how to achieve economic growth, the answer is to get the fundamentals right. Arizona’s fundamentals are relatively sound. But we are losing sight of how much that matters and becoming focused, and lost, in things that don’t really matter.

Job growth over the past decade didn’t go to the states whose economic-development bureaucrats had the most and best tools in their toolboxes. Job growth didn’t go to those states with the biggest corporate give-away programs. Job growth went to those states that allow every resident to keep more of what they make.

The discussion of economic growth in Arizona is hampered and polluted by misconceptions, myths and illusions.

Arizona does not have a real-estate-dependent, low-wage economy. A real-estate-dependent economy isn’t possible, because real estate doesn’t create its own demand. Something else drives the demand for real-estate development. And if you look at cost-of-living adjusted wages and not per capita income, which is hugely influenced by demography, the Phoenix area does fine compared with other big cities.

Economic growth doesn’t come from importing capital and exporting goods. This mercantilist fallacy was disproved for nations centuries ago by Adam Smith and David Ricardo. That it should reappear today as an explanation for state economic growth is intellectually bizarre.

All voluntary trade creates wealth, intraregional as much as inter-regional. And importing goods of higher quality or lower cost improves living standards just as much as exporting the same to other regions.

Economic growth isn’t driven by corporate incentives. If the fundamentals are sound, such incentives for the most part subsidize job creation that would have occurred anyway.

What’s most distressing is that a supposedly “tea party” Republican Legislature is acting on these misconceptions, myths and illusions and leaping deeply into the quicksand of industrial policy.

Arizona’s economic fundamentals are still generally sound. But there’s reason to worry that policy makers are becoming too enamored of baubles.

This article was originally posted at Azcentral.com by Robert Robb on February 7, 2013.

The report condemns progressive policies that it says are responsible for the Great Recession and for slowing an economic recovery, and it encourages free-market approaches for economic growth.

The report also highlights seven widely circulated beliefs about fiscal policy that it says are “mythological or, at a minimum, are open to serious debate.” They include the ideas that lowering taxes during a recession is bad for the economy and that raising tax rates on the rich will not harm the economy.

“Prominent economists are counseling the states to move away from high tax policies that discourage growth and instead consider policies that stimulate business, investment, and job growth,” the report says, referencing the work of such economists as Arthur Laffer.

The report also calls out Peter Fisher, research director with the Iowa Policy Project, for his critique of ALEC’s “Rich States, Poor States,” an annual report that ranks states’ pro-market policies. (Prior coverage .)

“We find that Fisher’s findings — though widely distributed as authoritative — in fact are the result of amateurish and incorrect analysis and misinterpretation of data,” the report says.

In an e-mail to Tax Analysts, Fisher said ALEC officials clearly do not understand the regression analyses he used to challenge their assertions.

ALEC claims that its “policies lead to prosperity,” Fisher said. “They don’t, and ALEC’s staff has not provided any evidence that they do, or any counter evidence to my arguments and analysis that show that ALEC policies are a prescription for lower incomes and higher poverty rates.”

Jonathan Williams, director of ALEC’s Center for State Fiscal Reform, said he would be surprised if Randall Pozdena, one of the report’s authors and a former vice president of the Federal Reserve Bank of San Francisco, doesn’t understand regression analysis.

Further, Williams said, the report references a large amount of academic evidence that “backs up the point of view that lower taxes and reasonable tax policy does bring about better economic results, regardless of what Peter Fisher and his study would show.”

This article was originally posted at TaxAnalysts.com

The California Legislature will be back in business on Monday Jan. 7. As the new and returning legislators prepare for legislating a very damaged California, I recommend they read “Rich States, Poor States,” published by the American Legislative Exchange Council.

Prosperity is no laughing matter when the fate of a state is on the line. The numbers don’t lie. With 50 years of solid economic data, what makes a state prosperous is as evident as what kills a state’s economy.

California is not dead yet, and the fate of the state can be determined by the 2013 Legislature.

ALEC Looks Ahead

Jonathan Williams, one of the authors of the 2012 “Rich States, Poor States,”  told me recently that with a few smart, pro-growth policy changes, California could get back in the game and be the economic leader it once was.

But if the state’s leaders do not make some immediate, dramatic structural moves, the dismal economic forecast will overshadow the stunning weather forecast, and could eventually turn California into the least desirable state in the union.
Taxing the way to failure

States with low or no income tax outperform high tax states in across-the-board gross state product growth, population growth, job growth, and even in tax revenue growth, according to Art Laffer, Stephen Moore and Jonathan Williams of the [American Legislative Exchange Council]. They recently co-wrote the fifth edition of “Rich States, Poor States,” an economic competitiveness index of American states.

Why then did California Gov. Jerry Brown, together with a Democratic supermajority in the state Legislature, push for even more and higher taxes?

The Laffer Curve proved many years ago that, if tax rates become too high, they lead to a reduction in overall tax revenues. But an economically sound tax system with a broad base and lower tax rates leads to statewide prosperity.

“When you tax something more, you get less of it, and when you tax something less, you get more of it,” they wrote. “Taxes create a wedge between the cost of working and the rewards from working.”
“Be more like Texas and less like California”

“Texas versus California has become the most stark example,” said Rich States, Poor States author Jonathan Williams. “The left wing tries to impune Texas, but the job creation, low unemployment, income growth and GDP growth is undeniable.”

“California has become the primary example of how not to govern a state,” Laffer, Moore and Williams said. And sadly, California has become a shadow of its former economically vibrant self.

Besides just dropping from the fifth largest economy in the world, California has suffered a net loss in domestic migration. ALEC predicts that this economic decline is not going to end any time soon.

So what should California do?

“A state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country,” said U.S. Supreme Court Justice Louis D. Brandeis.

Sadly, California’s experiment is not only failing, it is impacting the rest of the country.

Good Weather is Not Enough

“Over the last 20 years, 3.6 million more Americans have moved out of California than have moved in, and 130,000 more Americans have moved from Hawaii than to it,” Rich States, Poor States reported.

Yet every year California legislators brag openly about how the good weather trumps economic policy and low taxes.

“This is too stark to deny, particularly as it relates to regulatory policy in states,” Williams said. “And, we will never know how many people and businesses decided not to move to California.”

Beautiful weather may attract tourists, but if the economic policy isn’t sound, even the beautiful states can’t keep or attract residents. “California charges a premium for nice weather,” Williams said.

Residents of California’s coastal communities may turn their noses up at North and South Dakota, and mock anyone wanting to move there, but Williams said that with the strong economic policies, the Dakotas have a 2.9 percent unemployment rate. This has led to a new house building market that can’t keep up with the rising demand. “Capital is blind to weather. The numbers don’t lie,” Williams added.

Alaska has one of the harshest climates in the entire Western Hemisphere, but according to the authors, Alaska is performing better economically than California and Hawaii.

Hawaii has the highest state income tax in the country, and California’s high taxes and penalizing regulations drive people away. Alaska however, has no state income tax.

The authors of Rich States, Poor States found that over the last 10 years, more than 4.2 million people have moved out of the highest income tax states, and states with the highest local tax burdens.
To reform or not to reform? That is the question.

Pension reform is a key component of a state’s economic health. Moore, Laffer and Williams contrasted Illinois and Wisconsin, and found starkly different approaches and results.

Wisconsin Gov. Scott Walker tackled his state’s $3.6 billion budget deficit by facing pension reform as part of a multi-faceted reform plan. While his plan was met with historical protesting from labor unions, Walker eventually succeeded, and Wisconsin is well on the way to economic prosperity. The pension system is also now fully funded.

However, Illinois has rebuffed all attempts at pension reform, carrying a pension liability of anywhere between $54 billion and $192 billion, according to Rich States, Poor States. Instead of putting reform policies in place, Illinois increased corporate and personal income taxes, which according to ALEC, merely went to the pension liability debt.

Similar to California, Illinois has experienced a downgrade to its credit rating, resulting in many Illinois businesses moving to Wisconsin to escape increasing business taxes.
Other responsible states are getting results

Rich States, Poor States reported some good news:

• Ohio Gov. John Kasich, a Republican, closed a massive budget shortfall without a tax increase.
• Nebraska Gov. Dave Heineman reduced the inheritance tax as well as income and corporate tax rates.
• New Hampshire and Tennessee are both considering constitutional amendments to ban personal income tax.
• The Iowa Legislature proposed to cut its property tax.
• New Mexico Gov. Susana Martinez eliminated the gross tax receipts for businesses earning $50,000 or less, is working to end double and triple taxation, and plans on introducing pension reform in 2012.
• Kansas Gov. Sam Brownback, a Republican, has a plan to phase out the income tax over the next decade. In the meantime, Brownback has reduced the tax rate from 6.45 percent to 4.9 percent. Compare that to California’s 10.30 percent top personal income tax rate in California.

Prosperity is One Reform Policy Away

California has implemented no real reform, nor does Democratic Gov. Jerry Brown seem interested in making any of these pro-growth economic moves. If Brown merely adopted the tax reform policies of Kansas, California would see immediate improvement in the business sector, job growth and unemployment rate.

Williams said that since they published Rich States, Poor States, Kansas flattened the income tax, dropped three tax brackets to two, lowered the income tax rate from 6.45 percent to 4.9 percent, and eliminated personal income tax for small business owners.

“This pro-growth policy would put California back in play, and jump start the economy,” Williams said. “It would tell the entire country that the private sector still matters… that competition matters.”

California is gaining in population but losing in economic market share and competitiveness. “California must do one or the other; you can’t print money, so the state must do pro-growth at some point.”

Intel CEO Paul Otellini recently told the Wall Street Journal that Intel has not added a job in California in 10 or 12 years and closed its last factory in the state around six years ago. “Oh God. I was born and raised here. I’m fifth or sixth generation. It’s one of the nicest pieces of real estate on the planet, and we’re so close to screwing it up, it’s pathetic,” Otellini said. “I’d like to be bullish, but I worry that we have to hit the abyss before we can fix things, and I worry that the abyss will be more like Greece.”

This article was originally posted at FlashReport.org by Katy Grimes on January 4, 2013 and is republished with permission.