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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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A-B-See ya later? Liquor Store Privatization on the Table in VA
Posted By:  - 09/10/10

Is the sale and distribution of Jack Daniels a core function of government? Most would think not however, since the days of Prohibition the Old Dominion has held monopoly control over both the sale and distribution of distilled spirits. And as is the case with any monopoly, the consumer is left with fewer choices, poor service, and higher prices. With this in mind, Governor Bob McDonnell has pledged to pull the cork on the sale of alcohol and join the other 32 states nationwide that currently follow a more free market approach to liquor sales. 

 Presently, Virginia owns and operates some 332 stores, each with their own distinctive blah ambiance, a staff with very little liquor knowledge and overall limited selection (a big problem for those of us who enjoy a specialty cocktail or two). As a current resident and drinker in Virginia I usually find myself crossing the river into DC to shop in the city’s various privately owned stores. In comparison, DC shops have the specially liquor I’m looking for, a knowledgeable staff, and a comfortable shopping environment. Now, why such a difference? Well, in the absence of government monopoly DC store owners are forced to compete on price, quality and choice to retain customers. They do so in an independent but regulated market.

 In response to Virginia’s budgetary problems, Governor Bob McDonnell has had his radar set on the privatization of the wholesale, distribution, and retail sale of alcohol. His hope is that privatization will provide customers with better service and convenience while still allowing the state to regulate consumption, generate needed transportation revenue, and streamline costs. On Wednesday, September 8, senior members of McDonnell’s staff unveiled the official staff recommendation for ABC privatization at a meeting of the Simplification and Operations Committee of the Virginia Commission Government Reform and Restructuring  in Richmond.

 Some highlights of the plan include auctioning off 1,000 retail licenses to the highest bidders. These licenses will be broken into three categories: 600 licenses for large establishments such as grocery stores; 150 for smaller establishments such as package stores and wine and beer shops; 250 for convenience stores/retail pharmacies. 332 licenses will be guaranteed for areas currently served by an existing ABC outlet, while the additional 668 licenses will be granted based on population density. The wholesale side will also be privatized, allowing the state to completely focus on law enforcement and regulation.    

 Administration staff claim there is no tax increase in the proposal. However, there are reports of a $17.50-per-gallon excise tax on distilled spirits, which would exceed the national average.  In addition, there would be a 1 percent tax on the gross receipts of wholesalers to be paid each year and a 2.5 percent tax on restaurants. McDonnell’s staff mention this restaurant tax in their memos to the public but say it’s optional. They claim that this is because they would only pay if they chose to buy liquor at discounted prices from wholesalers.

 Additional forms of annual revenue would come from annual license fees for new private liquor retailers, varying from $500 to $2,000 a year depending on the size of the store, and the continuation of $13 million a year in existing fees on restaurants.

We will see what happens. Changes are bound to occur between now and October 4 when the full commission will vote on the proposal.

 Nevertheless , the concern over state revenue will linger as lawmakers consider give up their 76 year-old monopoly. According to the Washington Post, “Virginia's Alcoholic Beverage Control board deposited $248 million in liquor profits, as well as excise and sales taxes, into state coffers during fiscal 2009.” This is because in Virginia, more than $13 of the retail price goes to the state as opposed to the dollar or two generated from that same bottle sold in Maryland and DC.

 Yet, it is important to remember what privatization would mean: more stores and therefore a larger tax base to generate more tax revenue.  Administration officials estimate that selling ABC assets and new liquor licenses could bring in $300 million to $500 million to the state to be used for improving roads. In addition, private businesses would now be subject to corporate income and property taxes representing additional revenue streams to the state and local governments. Secondly, the state could regain the estimated 15-20 percent of Virginians (including me) who drive to DC’s more than 500 privately run liquor stores. Once Virginia establishes its own competitive market, a multitude of convenient specialty shops would emerge, thus recapturing those out-of-state shoppers. And lastly, Leonard Gilroy of the Reason Foundation notes that with privatization the state would no longer be spending millions in overhead, salaries and benefits for nearly 3,000 public employees, and store space. He notes that these operating costs currently swallow a significant amount of state revenue.

 But, is there any real life evidence of this?  Well, yes!  Gilroy notes that since 1987, West Virginia, Iowa and Alberta (Canada) have each fully privatized the retail side of their ABC operations and as a result saw tax revenue increases. He writes, “Each of these jurisdictions had to lower their alcohol markup rates after privatization—effectively lowering taxes on consumers—to maintain revenue neutrality because revenues to the state increased after privatization and operational costs to the state declined.”

 When state governments are experiencing shaky budgets, policy makers need to be on the look out for any and all innovative ways to streamline or cut functions that are not inherently governmental. Many claim that liquor sales surely are an example of this, considering most other states allow the private sector to handle it.

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States Ready to “Break the Glass” on Public Pensions
Posted By:  - 08/12/10

Several states want to "break the glass" to save their public pensions from fiscal ruin. The only question is, will the courts allow them to do so?

For decades, the defined-benefit retirement plans relied on by millions of government employees such as schoolteachers, police, and transit workers have been sacrosanct; few if any state lawmakers dared to suggest adjusting benefits promised to retirees as a way to save money and ensure the long-term viability of the pensions for fear of enraging the politically powerful public employees unions. The most any state has been willing to do is adjust benefits for new government employees, as Illinois and New Jersey did earlier this year.

But times have changed. A new study by the National Center for Policy Analysis shows that the public employee pensions are underfunded by an estimated $3.1 trillion – three times higher than reported previously. There are now whispers in some circles that the states, already overwhelmed by the recession and years of overspending, cannot afford the pensions and plan on seeking a federal bailout of the pensions. Besides the economic ramifications, a federal bailout of public pensions also has political, legal, and social aspects that we are only beginning to understand. In these extraordinary times, states must take extraordinary measures.

Now, some states are willing to adjust benefits for future and current retirees because no good alternative exists for shoring up the pensions. This year, Minnesota, Colorado, and South Dakota voted to limit cost-of-living adjustments (COLAs) enacted in previous years because they cannot afford to pay them. According to Stateline, Colorado, in the face of projections that the state's pensions will run out of money within 30 years  eliminated the 3.5 percent COLA planned for this year. All future increases will be set at 2 percent, unless the funds investments experience another huge decline in value. Meanwhile, Minnesota eliminated a 2.5 percent COLA and set any future increase for its pension plans to between 1 and 2 percent. South Dakota reduced its COLA by 1 percent and tied future increases to the market.

Unsurprisingly, current retirees are challenging these decisions in court. The retirees argue that their pensions are contracts and, therefore, are protected against impairment by the contracts clause of the Constitution. Conversely, the states are arguing that the economic crisis is like nothing ever seen before and the states, out of “actuarial necessity,” need the ability to adjust pension benefits to save the plans from collapse. The Minnesota case shall be the first to be heard on September 15. If these states win, others may be emboldened to make the difficult choices necessary to protect the pensions from fiscal collapse. But if the retirees win, then the pressures on the plans will increase and the states will not have many options short of massive tax increases and borrowing. With all that is happening in pensions today, these cases are worth your time following.

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Cry Me A River
Posted By:  - 08/04/10

One thing politicians love to whine about is an increasingly common rule that requires a 2/3 majority vote in favor of any tax increase. "It's minority rule!," they shout. "We have no money for schools!," they gripe. "We must raise revenue in this time of economic despair!," they preach. They also conveniently overlook their responsibilities to the taxpayers who repeatedly show their abhorrence for higher taxes and the laws that allow them to pump up the state's coffers through a simple majority vote. Some California politicians and their allies in public employee unions are now trying to change the rules of the game by pushing Proposition 25, a scheme to make it easier for those crybabies in Sacramento to take your money.

Supporters of Proposition 25 will tell you that the legislation only allows for "bills providing for appropriations related to the budget bill" to be passed with a simply majority vote. What they won't tell you is that there is nothing in Proposition 25 (or California's Constitution for that matter) that prohibits tax increases from being included in the same legislation as budget appropriations. Given the latest trend in American politics of passing legislation that rivals War and Peace in length, it doesn't take a crystal ball to see that the first "appropriations" bill to be passed under Proposition 25 would be little more than a Trojan horse delivering malicious tax hikes to unsuspecting Californians.

It is said that desperate times call for desperate measures, and this attempt to circumvent the 2/3’s majority vote requirement to increase taxes is nothing more than a desperate scramble for money by the California legislature trying to fill a $19 billion budget gap without addressing the spending that dug the hole in the first place. We have said it a thousand times on this blog and we will say it a thousand more if we have to: the only way to resolve deficits without smothering the economy under a heavy tax burden is to decrease spending. The fact that a state is running a deficit in the first place is sign that they are spending too much, not that they aren’t bringing enough money in. It’s time for politicians to wake up and the longer you hang on to the idea of spending your way to prosperity, the longer your state will remained mired in the pitch and tar of economic ruin. And if that happens, we will all have something to cry about.

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New Poll Shows Ohioans Want Reform, Not More of the Same
Posted By:  - 07/28/10

Winds of change appear to be blowing across Ohio. This morning, the Buckeye Institute released the results of a poll it commissioned from Magellan Data and Mapping Strategies. A statewide survey of 1,900 Ohioans reveals that they are very concerned with the current state of affairs and want some serious reform to solve the major fiscal problems in the state. But what stands out from this poll is the finding that Ohioans do not want increases in government spending and higher taxes to cure the fiscal maladies that plague the state. Instead, Ohioans want public employee compensation reduced first and foremost, and they think the tax burden is already too high. What's more, Ohioans think that the regulatory burden on business is excessive, employees should enjoy the right to work, and energy policy needs be comprehensive. Here are highlights from the poll, which had 2.31% margin of error:

Budget

  • 50% think Ohio government leaders should first reduce government worker compensation to eliminate the $8 billion state budget deficit;
  • Only 16% think taxes should be increased to eliminate the Ohio deficit;

Taxes

  • 52% think Ohio's state and local taxes are too high;

Regulation

  • 56% think Ohio's regulatory environment makes it harder for businesses to create jobs and grow;
  • 85% think workers should be free to choose whether to join a labor union to get a job; and;

Energy

  • 67% think Ohio should stick with coal or add nuclear and natural gas energy;

Politicians in Columbus should not ignore this poll. The poll clearly shows substantial majorities of residents, from across the state, are concerned about Ohio's fiscal problems and the tax and regulatory burdens. By zeroing in on public employee compensation, Ohioans demonstrate that they understand government spending, which includes generous public employee salaries and pension benefits, needs to be addressed. The Buckeye Institute has found that public employees earn more than their private sector counterparts by an average of almost 25 percent. Ohioans also recognize that the state's tax burden, which includes the onerous Commercial Activity Tax and the draconian death tax, is far too high to encourage long-term economic growth, something that is sorely needed in this former industrial powerhouse. Ohio, like other states across the country, have spending and regulatory, not revenue problems. As the State Legislature begins to figure out how to resolve the upcoming deficits and candidates for elected office present their solutions for Ohio, they should take heed the results in this poll. The results are clear: Ohioans want reform in their state, not more of the same.

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For County Government, One Vacation Just Isn't Enough
Posted By:  - 07/27/10

Have you ever wondered how to extend your vacation? The answer, surprisingly, is to work for the Montgomery County (MD) government. County Executive Isiah Leggett has just announced that county government employees will receive additional paid vacation days that total to more than 100 years. Actually, 117 years to be exact if all of the 87,000 government employees take their new vacation hours that range from 26 for general government and police officers to 48 for firefighters. While Leggett claims that this is a cost cutting measure, it is actually part of a deal with the unions who were upset with recent budget cuts.  But cutting a deal with the unions will have a price that rivals some of the "cuts" in the recent $4.27 billion budget. The County Council's Office of Legislative Oversight estimates the new comp days are valued at around $7 million. After all the hand wringing to close a $1 billion shortfall, where's the Council's concerns for this new $7 million cost?

These new comp days create the ultimate lose-lose dilemma. If the employees take these new days along with their vacation, then there will be a significant decrease in the services received per government expenditure. However, if the employees take these days in lieu of their vacation then they can log their vacation time and cash in later.  This option creates a "newly accrued liability assumed by the County and will eventually result in the direct expenditure of public dollars," according to the Office of Legislative Oversight. There are other, better ways to save tax dollars, such as reducing spending on wasteful programs and reforming the tax code to foster economic growth. Hopefully, County Executive Leggett will think about better ways to save taxpayers' money while he is on vacation this summer. If not, overburdened taxpayers may consider giving Leggett and other spendthrift members of the Montgomery County Council a much longer vacation come the next Election Day.

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