Unions, Workers Should Favor Repeal of MA Income Tax

(Vote Yes on Question 1)

Massachusetts voters have the opportunity to repeal the state income tax in the upcoming election. In the simplest of terms, it is a choice between sending tax dollars to Beacon Hill to spend, or to keep them in a taxpayer’s pocket. More broadly, lowering income taxes by definition increases take-home wages, spurs economic growth, and creates jobs. The loudest opponent of Question 1 is the unions. This vehement opposition could be the most puzzling aspect of the 2008 election. Unions and workers should actually be firmly in favor of Question 1, and eliminating the state income tax.

The basic goal of a union is to maximize the compensation of its members. A union provides a means of collective bargaining to enhance the ability of workers to increase their wages and benefits. The mistaken logic in the decision of union leaders to oppose Question 1 is that by limiting the pool of resources of the state government, the amount of money available for compensation will be lower, and jobs will be scarcer. This line of thinking is counter to simple economics.

First, and easiest to understand, is the direct increase in compensation which results from eliminating the state income tax. Massachusetts currently taxes income at 5.3%. By eliminating this tax, a worker will receive a raise of more than 5.3%. This is a permanent raise (well, as long as the income tax is not subsequently re-enacted). Most negotiators would be pleased to walk away from the table locking in that level of a permanent raise. Especially given the current economic difficulties, this kind of an increase to take home pay is significant, and cannot be dismissed.

Nor can the impact on the state economy be ignored. Massachusetts has lagged the rest of the country in growth and job creation. The unemployment rate is only dampened down by the fact that we have seen an out-migration of population (as in, those without jobs simply leave the state). A lower income tax, empirically and logically, leads to economic growth. Economic growth is what leads to job creation. Economic growth and job creation lead to higher compensation and a higher standard of living. With one ballot issue, unions and workers will have not only directly given themselves a raise of over 5%, but also enabled an economic environment that promotes growth and job creation and thus further increases in wages.

However, the argument is made that by denying funds to the state government, jobs for teachers, fire fighters, and policemen will become scarcer. Again, this line of reasoning ignores basic economic principles. Efficiency is created when spending is sourced from the lowest common denominator. In other words, hiring for local jobs is best done at the local level. The current system sends tax dollars to Beacon Hill, which then in turn disperses it to municipalities. Yet this occurs only through a filter of mandates, restrictions, guidelines, and of course special and powerful interests. Waste, by definition, clogs the system. Yes, local taxes (generally in the form of property) will go up. Yet given the inefficiencies of the current system, they will go up by less than the reduction in income taxes. Jobs that are based at the local level and that are also funded at the local level are more secure jobs, and are thus more effectively compensated jobs. With a lower income tax burden, local residents will be more open to increased local expenditures. Further, with the increased economic growth that results from eliminating the state income tax, other sources of revenue will increase at both the state and local level (more spending will lead to more sales tax revenue while higher demand for housing and commerce will increase property tax revenue).

Union members and workers need to carefully consider their position on eliminating the state income tax. A yes vote on question 1 is, by definition, in complete lock-step with the goal of a union: to maximize the compensation of workers. Eliminating the state income tax will cause a direct increase of after-tax income by more than 5%, at a time when it is especially needed. It will promote economic growth and thus job creation and higher wages. It will force more efficiency and shift hiring to the local level, eliminating the waste that comes from bureaucratic decision-making. Eliminating the state income tax will be an enormous benefit to union members and workers in the state of Massachusetts for a long, long time.

Markets (and Economy) Tanking Is Now On Obama

The Director of Common Sense has finally acquiesced and allowed the release of important statistical information: Since Obama entered the race, there is nearly a 90% negative correlation between the S&P Total Return Index and Obama Presidential Contracts (on InTrade). This means that as Obama rises, the market tanks.

That information was withheld until now because in the Director's words the argument is "specious". However, two issues compelled the release. First, Obama's lead is now dominant. He is trading above 80 (predicting a near-certain victory), and he has a substantial lead in the important state-by-state polls. Second, markets are forward looking. They are not mired in the blame game of Bush, Fannie/Freddie, CRA, Barney Frank, sub-prime, Greenspan, etc. They have moved past that. They are, as they have always been, the net present value of expected future cash flows.

And therein lies the rub. The expectations are for malaise, and the brand of economic woes that come hand in hand with socialistic, anti-growth, high tax, more government policies (please excuse the redundancies). As the stock market opening bell approaches, the futures are calling for a substantial decline - that on top of already being down roughly 20% this month (and potentially making October 2008 the worst month on record for the S&P). Now it is firmly on Obama.

It is on Obama because the argument has been settled by history and logic. Again, the markets care not about how we got here. They tell a story about where we are going. The path that Obama plans to lead us down is one of economic disaster. Amazingly, that path has been gone down before. Periods of government control via taxation and spending and programs lead to economic downturns (see 1930's, 1970s). Periods of government reduction lead to economic growth and job creation (see 1960s, 1980s).

The future course is clear to see, and the markets are showing the way. Obama wins the election and Democrats strengthen their majority. Income tax rates go up. Taxes on investment go up (capital gains, dividends, interest). Wealth is redistributed. Less people actually pay any taxes at all, thus making it more difficult to fix the problem. Social security transforms further into welfare. Health care is socialized. The economy suffers. There is no growth. No job creation. And then there is no more wealth to redistribute.

At that point, which is quite possibly a decade into the future (if history is any indication), we might restore rationality.

Instead of suffering, why not simply reject Obamanomics?

Spreading the Wealth IS Good

Hold on to your hats loyal Modern Economic Freedom readers, this post might perplex at first.
A few days ago, Obama said, "When you spread the wealth around, it's good for everybody."

So here's the shocker: He was absolutely correct.

Yes, you are at the correct site. There has been no fundamental shift to socialism here.

The key word in the statement is "YOU". Of course, Obama meant the big G (government). But what we all know is that "you" means "you the people". If Joe the Plumber, with his knew found fame, spreads the wealth around, of his own volition, it is good for everyone.

Spreading the wealth is simply the backbone of any economy. In many ways, it actually defines an economy. It is the exchange of goods and services amongst a population. Spreading the wealth is a necessity. It is the prerequisite for economic growth, and thus job creation and rising incomes.

Again, that is based on the incredibly important assumption that "you" means "you the people". There are numerous ways that wealth can be spread around. One person can buy something from another person. One person might also hire another person to perform a service. That would be "you the people" spreading the wealth and helping the economy.

The big G that Obama meant can also spread the wealth. That is when government taxes one person and distributes it to another person. Certainly there are some cases where this is desirable. But those aren't the cases that are "good for everybody" - those are the cases where necessity compels collective action, and we aspire for those to be rare.

Of course, there is a good way that the big G can spread the wealth. Since it already accounts for a major portion of the wealth of the country, it can actually give it back to the people to do the spreading. Clearly spreading the wealth by "you the people" is the best way to spur economic growth. If government feels the need to get involved and assist the process, the one time-tested method that is empirically and logically proven to work is the reduction of taxes on income and investment. Now THAT would be good for everybody.