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On Tap in Pennsylvania: Liquor Privatization
Posted By:  - 11/23/10

Many of the nation’s new Republican governors have ruled out tax hikes to address billions in collective deficits.  Proposals to cut spending are taking center stage as a way to avoid the harmful effects of tax hikes during a recession. Governor-elect Tom Corbett of Pennsylvania appears to have embraced this philosophy as he considers a budget gap that could run as high as $5 billion this year. Pledging not to raise taxes, Corbett and Republican leaders in the Legislature have booze on the brain, pondering a plan to privatize the state-run liquor industry. 

Pennsylvania joins 18 other states that impose some form of control on liquor sales, ranging from controls on both wholesale and retail markets.  H.B. 2350 seeks to change all that. Introduced by state representative Mike Turzai, the legislation would privatize liquor stores in Pennsylvania, beginning with the auctioning of 750 retail licenses and 100 wholesale licenses to the highest bidder.  

Getting the state out of the booze business is one way to reduce the public payroll, save on operating expenses and improve customer service. Also, with the sale of licenses the state is slated to collect $2 billion in up-front revenue in 2011 and an additional $350 million annually in alcohol sales tax. All could be used to help close the state’s looming budget deficit.

However, pro-control advocates cite many disadvantages of privatization. Yes, they claim, the private sector shows it can provide higher quality products at a lower cost, but reducing alcohol consumption, underage drinking, and alcohol related traffic deaths are lofty goals the profit oriented, private market cannot achieve. On the contrary, a recent study from the Pennsylvania-based Commonwealth Foundation of 48 states shows that over time there is no link between market controls and these social goals. Based on consumption and traffic data over the last four decades they find no significant reduction in any of these three areas compared with non-controlled states. As a matter of fact, they show that states which recently privatized their liquor industries experienced a significant decline in per capital alcohol consumption. 

Another fear of the pro-control folks and even The New York Times is large scale layoffs of government workers that result from privatization. This may be true, but privatization doesn’t mean liquor stores disappear. The stores will still exist and continue to require workers. Most of the state jobs will simply shift to the private sector. And as evidenced by the 31 successful cases of private liquor sales there is little justification for government liquor salesmen. Jacob Sullum of Reason sums it up well, “[H]ow seriously can we take the argument that unnecessary government jobs should not be eliminated because then there will be fewer unnecessary government jobs?”  

When state governments are experiencing shaky budgets, policy makers need to be on the lookout for any and all ways to streamline. Pulling the cork on state-run liquor sales is surely a place to start.

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Election 2010: What a night
Posted By:  - 11/03/10

Oh what a night!


As of this morning, Republicans won 60 additional seats and control of the U.S. House of Representatives. Also, Republicans expanded the size of their caucus by six in the Senate. These two changes that will have serious implications for a host of economic policies at the national level, including energy production, taxes, entitlements, and the debt. My colleague Jordan Forbes will have more to say about the federal results soon.


But for all of the dramatic change at the federal level, what happened in Congress pales in comparison to the changes that voters made at the state level. Republicans picked up nine governorships, including several in the economically important Midwestern states, and won control of 18 state legislative bodies, including chambers in North Carolina and Alabama; today marks the first time since Reconstruction the GOP has controlled those chambers. The larger number of fiscal conservatives in state legislative chambers will have a significant impact on the next round of budget negotiations, when states will have to face no easy choices to balance the budget in the midst of uncertain economic times.


Voters also weighed in on hundreds of state and local ballot measures that affect tax and budget policies. There were several setbacks for taxpayers yesterday. It appears as though voters rejected efforts to reduce taxes income and property taxes in Colorado and sales taxes in Massachusetts. Additionally, California passed a measure that would allow the legislature to enact a budget with a simple majority vote, which will likely open the door to more tax hikes. Unfortunately, Californians also rejected an effort to repeal a costly cap-and-trade emissions program in the state. However, at the same time, Californians voted to require supermajority votes on fees and to prevent the state from raiding funds for local government.


But taxpayers did score several important victories. Despite rejecting a broad reduction in the sales tax, Massachusetts approved a cut in the sales tax on alcoholic beverages. Washington voters resoundingly rejected an effort to enact a new state income tax and approved a measure rolling back a tax on soda, candy, and bottled water. Washingtonians also voted for a measure to require a supermajority in the legislature for any tax increase. Missourians voted overwhelmingly to require votes on local earnings taxes. Meanwhile, Indiana approved a measure to enshrine caps on property tax increases in the state’s constitution.


Elsewhere, Arizona and Oklahoma approved measures that projected the right to choose a health care plan from the individual insurance mandate in Obamacare. Several states, including Oklahoma, South Carolina, and Virginia approved measures to increase the size of their rainy day funds to weather bad economic times. Other states also approved measures that would provide property tax exemptions, impose term limits, and improve government accountability.


Of course, these are just a sample of the hundreds of measures that NTU is analyzing for its report showing how taxpayers fared at the ballot box yesterday. Stay tuned.

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Happy Election Day!
Posted By:  - 11/02/10

Happy Election Day!

Don't forget to vote!

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NTU Joins with Liberal Group to Identify $600 Billion in Waste
Posted By: Andrew Moylan - 10/28/10

Today, NTU joined with the liberal group U.S. PIRG to release a report called "Toward Common Ground: Bridging the Political Divide to Reduce Spending." This report debuts a list of $600 billion worth of specific federal spending reductions. With all the talk about debt and deficits, we saw an opportunity to put together a true left-right coalition in order to begin the conversation about the difficult choices we’ll have to make as a nation. We thought it would be useful to reach across the ideological divide to identify specific items that we could cut from the federal budget without reducing the quality of government services or neglecting the government's basic commitments.

The U.S. PIRG and NTU study identifies 30 specific, actionable items to cut in federal spending, including:    

  • $62 billion in savings by eliminating wasteful subsidies to farmers and large corporations.
  • $354 billion in savings from reforming inefficient contract and acquisition procedures.
  • $77 billion in savings by improving execution of existing government programs as well as eliminating unneeded programs.
  • $108 billion in savings from ending low-priority or unnecessary weapons systems, along with rightsizing other programs.

While we're under no illusions that every group or individual on the left and right will agree with our list, we think that it can serve as something of a consensus document from which Congress and the President's Fiscal Commission can work. Simply stated, we can't continue to kick the can down the road on reducing the size of the federal government.  In order to head off a debt crisis like that facing Greece today, we need to begin scaling back our unsustainable spending habits.  This list can help to do that without starting a political food fight.

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New Jersey abandons toothless reforms
Posted By:  - 10/27/10

What a difference a day makes!

On Monday, I blogged about New Jersey's General Assembly taking up a toothless reform to public employee pay and benefits. The measure, AB 3393, would have required arbitrators to consider but not actually limit costs of benefits to government in determining their awards.

The General Assembly was poised to take up the bill, but dropped it after a caucus meeting of the Democrats, who have a majority in the chamber, revealed that there were not enough votes in support of the plan. According to the Ashbury Park Press, lawmakers from Essex County complained, rightly so, that AB 3393 would not do enough to control costs faced by local government. Two of the strongest critics of AB 3393 have been the New Jersey League of Municipalities and Joseph DiVincenzo, the Essex County Executive. The measure in its current form appears to be dead. All sides in the debate are taking about going back to the drawing board and finding a compromise.

For the sake of New Jersey taxpayers, let's hope they come up with something better than toothless reforms...and soon.

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New Jersey's General Assembly votes on toothless reforms today
Posted By:  - 10/25/10

So much for reform.

This afternoon, the New Jersey General Assembly will vote on Assembly Bill 3393, a measure that would make several changes to the process by which municipal governments and police and fire unions negotiate contracts. Among the changes in the bill is a new method for choosing an arbitrator, including new requirements for arbitrators and a new appeals process. Additionally, arbitrators will be required to consider the impact of their award amount on the governing authority, but there is nothing in the bill to require restrain the awards.

Although Assembly Bill 3393 is being called a "reform," it is a toothless reform at best.

New Jersey police officers and firefighters use arbitrators to settle disputes arising from their contracts. But over the years, the arbitration process has been abused. Over the past 30 years, the salaries of police officers and firefighters have risen faster than all others, according to the New Jersey League of Municipalities. These increases in salaries have been the primary driver of increased government costs, which have led to New Jersey's highest in the nation property taxes. Although New Jersey passed a historic 2% property tax cap earlier this year, those taxes will continue to rise unless the cost of government is brought under control. The only way to do that is to enact a cap on the arbitrators awards like the cap on property taxes.

Unfortunately, New Jersey's General Assembly seems more interested in protecting the union interests rather than the taxpayers interests. By moving toothless legislation, the General Assembly does not address the underlying problem of controlling the costs of government. What it does do is rob the effort to reform New Jersey of momentum, which is badly needed in Trenton given the unsustainable fiscal situation in the Garden State.

Hopefully, the State Senate will demonstrate that it has a better understanding of the problems facing New Jersey. Stay tuned...

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Got questions about ballot measures? NTU's Ballot Guide has answers
Posted By:  - 10/14/10

Voters face many important decisions in the upcoming elections, which are now less than three weeks away. But many of these critical decisions will not involve choosing between the names of candidates. Instead, voters will have to choose between letters and numbers identifiying hundreds of state and local ballot measures, many of which could have an especially profound impact on tax, spending, and other fiscal policies for years to come and regardless of which political party triumphs in the state houses. To help taxpayers better understand these measures, NTU has produced and made available on our website "The 2010 Ballot Guide: The Taxpayers Perspective."

Our Guide is more than just a list of measures. The Guide is an analysis of these measures on the state and local ballots across the country, providing evaluations of how these measures grow the size of government and increase the tax burden on hard-working families. Unfortunately, there are many such measures on the ballot according to the Guide. However, many other measures on the ballot will give taxpayers opportunities to exercise a greater degree of control over government tax, spending, and regulatory powers.

Here are some highlights from the pages of the Guide:

  • In Washington State, Initiative 1098 would impose a state-level income tax there for the first time, beginning on individuals with incomes above $200,000 but later possibly extending to other groups at the Legislature’s discretion.  This would knock Washington off the list of just nine states without a broad-based income tax. On the other hand, Initiative 1053 would require two-thirds of the Legislature or a majority of voters to raise taxes in the future, while Initative 1107 would roll back taxes on candy, bottled water, and soft drinks.
  • In California, Proposition 23 on the statewide ballot would suspend the California Global Warming Act, and all of its mandates until unemployment eases. Taxpayer advocates in the state argue that this measure would prevent substantial hikes in energy costs on struggling consumers. Meanwhile, Proposition 25 would do away with a two-thirds legislative vote requirement to pass a budget but Proposition 26 would extend a two-thirds vote stricture on increases in many fees.
  • Voters in Massachusetts will consider a measure that would reduce the state’s sales tax from 6.25 percent to 3 percent, as well as one repealing in most cases the sales tax on alcoholic beverages.
  • Proposition A on the Missouri statewide ballot would take away the authority for cities to levy an earnings tax, require voter approval for the continuation of earnings taxes where they currently exist, and provide for their eventual phase-out.
  • At the local level, voters in California's San Diego County, as well as voters in Illinois' DuPage County, will vote on measures that would either require voter approval for increases in public safety pension benefit formulas or call upon the state to undertake serious pension reforms immediately.

We hope you find the Guide useful in evaluating the choices awaiting you at the polls. Be sure to check back with NTU after the election for our report on how taxpayers fared.

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Gov. McDonnell Makes Changes to VA Liquor Privatization Plan
Posted By:  - 10/04/10

Governor Bob McDonnell has pledged to pull the cork on the state-run sale of alcohol in Virginia, joining the 32 other states nationwide with privatized systems. On September 8th he and his policy staff unveiled liquor privatization recommendations to the Virginia Commission on Government Reform and Restructuring. Since then the plan has undergone some modifications as McDonnell attempts to garnish legislative support. Modifications include the removal of certain taxes and changes in licensing practices.

Firstly, McDonnell’s initial plan called for a $17.50-per-gallon excise tax on distilled spirits, a 1 percent tax on the gross receipts of wholesalers, and a 2.5 percent tax on restaurants that chose to buy liquor from wholesalers. These were put in place to ensure the state would continue to collect revenue close to the $248 million in liquor profits, excise, and sales taxes the state collected in fiscal 2009. However, the new plan calls for eliminating the wholesaler tax and the restaurant fee. The $17.50-per-gallon excise tax will remain.  

Secondly, McDonnell had said that retail licenses should be divided into three categories, with 600 reserved for big stores, 150 for free-standing package stores, and 250 for drug and convenience stores. He now proposes a fourth category, taking 100 of the 250 licenses reserved for drug and convenience stores and earmarking them for very small stores owned by companies that employ no more than 50 people. Also, small stores would be able to finance their bids for licenses over several years.

The governor is trying to gain support from lawmakers concerned about tax hikes and those worried about state revenue decreases. With the proposed removal of certain taxes many lawmakers are now weary about the plan. They claim yearly revenue losses would double if the taxes were removed. Further changes can be expected as debate over the proposal progresses. We will keep you updated on further modifications.

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Think like a Stakeholder, not like a Dependent A New Take on Unemployment Insurance
Posted By:  - 09/22/10

Paying people not to work will ease unemployment.

There is something wrong with this statement. Nevertheless, when it comes down to it this is exactly the rationale some have regarding the current state-sponsored unemployment insurance (UI) systems. They are programs that attempt to help people through difficult times after involuntary layoffs. The hope is to get people on their feet, by providing them an income as they look for a new and acceptable job. No argument there.  However, study after study (even those conducted by economists in the Obama Administration) have shown that the current UI system actually prolongs unemployment, stalls economic growth, and discourages individual savings.

In an attempt to mitigate these problems, and preserve an unemployment insurance program, the Oregon-based Cascade Institute has proposed an interesting solution. It calls for a hybrid program consisting of tax-free Individual Asset Accounts (IAA) and a small federal common-pool fund. The idea is to make workers stakeholders in their own plans and use current tax dollars to increase private wealth.

Currently, the Social Security Act compels the states to operate Unemployment Insurance (UI) systems. The plans are predominantly run by the states and funded through payroll taxes paid by the employer based on their layoff history. Those who layoff more, pay a higher rate.

Overall, there are three problems in the current UI system worth noting.

First, studies show that unemployed workers who receive benefits take more than twice the time to find a job than those who are not eligible for benefits. Why? Alan Reynolds from the Cato Institute says it best:  “When the government [in some cases] pays people 50 or 60 percent of their previous wage to stay home for a year or more, many of them do just that.” It’s the classic “when you subsidize something, you get more of it” routine.  The promise of benefits discourages the unemployed from looking harder for new work.  Reynolds cites a survey conducted by Bruce Meyers of the University of Chicago showing that the probability of a person leaving unemployment rises dramatically just prior to when benefits run out. For example, if benefits are extended to 79 weeks – as they were in the “stimulus” bill – there is a higher likelihood that many people will not accept work until the 76th or 78th week.

Second, the supposed economic benefits of unemployment insurance are balderdash.  Spending money over a long period of time to sustain a person who is not working is not an investment in economic growth.  As a matter of fact, research done by economist Sylvain Leduc shows that government spending produces a lower fiscal multiplier than do tax cuts. In other words, a dollar of added federal debt added as a result of increased spending added far less than a dollar to GDP.

Third, safety nets like UI discourage personal savings and responsibility.  This occurs under the assumption the government will protect people in the event of job loss. Saving helps the economy by generating a greater supply of loanable funds, thus lowering interest rates and stimulating capital investments.

The Cascade Policy Institute has an interesting solution to the current problems of the UI system, which they hope to pilot in Oregon. Their plan calls for a hybrid system that features Individual Asset Accounts (IAA) and a small common-pool fund. Employers would still pay state payroll taxes but the funds would be put into the employee’s IAA, while the federal payroll tax would fund the common fund. The tax rate for employers to fund the IAA’s would be 1.6 percent of wages, while the federal common fund rate would remain at its current 0.8 percent of the first $7,000 of wages.  This common fund would be used to subsidize qualified low balance accounts for a limited time. 

The IAA would accumulate tax free for life and could be used at the discretion of each worker for unemployment insurance. At retirement, the accounts balance would be deposited into the worker’s IRA, turned into an annuity, given as a lump sum transfer, or passed onto heirs.

This innovative plan would encourage individuals to think like stakeholders, since they are the ones who own the account. In the event of layoff, individuals could draw from their account. At the same time they would be more cost conscious and encouraged to step up their job search efforts. In addition, the savings being built up with the IAA’s would have a positive effect on the economy by providing more capital for businesses to expand. And lastly, many who currently pay into the Oregon UI system but are not eligible for benefits (either because they have not worked the required minimum 500 hours or have not earned sufficient wages) would now be able to participate in the system.

At a time when the country faces high unemployment rates all options should be on the table for policymakers. Evidence shows that the current UI system actually prolongs unemployment and economic recovery. As such, reforms to this system should be front and center on the minds of those in state governments. IAA’s are a good start.  

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Happy Constitution Day!
Posted By:  - 09/17/10

In honor of the formation and signing of the U.S. Constitution by 39 men on September 17, 1787, let's take today and reflect on our nation's founding ideals and the once supreme law of the land. We don't have to look too far to find these very principles and freedoms under attack: a $2.5 trillion health care bill (now law) with unprecedented mandates, highly regulatory financial reform legislation (also law), and an ever-growing federal government whose policies (and spending sprees!) could make it virtually impossible to bounce back from the current economic crisis. Just look at Dan's post below! An occupational license to speak? Hardly what James Madison intended when he wrote, “The powers delegated by the proposed Constitution to the federal government are few and defined.” There's no question our founding fathers feared a government that was too powerful.

Thankfully, many of you are fed up and already speaking out on the government's failure to abide by the Constitution. Check out this video from the Heritage Foundation, become even more inspired, and continue to hold your elected officials accountable.

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