By: Dave Trabert
January 3, 2011
Word Count: 481
“The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.
” -- Thomas Sowell, The Hoover Institution, Stanford University
Sowell’s point about the scarcity of resources is essential to understanding economics, which may be as much about human behavior as supply, demand and other commonly-associated factors. Taxpayers have finite resources, so the more they must pay in taxes, the less they have to spend on goods and services. Accordingly, raising taxes always has a negative impact and especially so when taxes rise faster than the ability to pay.
Unfortunately, the last ten years were defined by Sowell’s first law of politics. State and local governments in Kansas ignored the implications of finite resources and significantly increased the tax burden. From 2000 to 2009, state and local taxes increased 59% but personal income available to pay taxes only rose 44%. (The 2010 figures aren’t yet published but last year’s increase in sales, unemployment and property taxes certainly didn’t ease the burden.)
Predictably, we suffered the consequences.
Kansas had 18,800 fewer private sector jobs in 2009 than in 2000, a reduction of 1.7%. There was job growth prior to the recession but it was well below the national average. From 1998 to 2008 (Kansas employment peaked in April, 2008) private sector jobs increased 7.9% nationwide but only 5.2% in Kansas. And comparing the performance of low-burden and high-burden states (as ranked by the non-partisan Tax Foundation) makes the implications of defying Sowell’s first law of economics even more clear. The ten states with the highest combined state and local tax burden averaged 6.1% private sector job growth, whereas the ten states with the lowest burdens averaged a remarkable 16.5% gain.
Domestic migration (U.S. residents moving in and out of states) is another good measure. Between 2000 and 2009, the ten states with the lowest tax burdens averaged a 3.8% population increase from domestic migration; the ten states with the highest burdens lost an average of 3.3%. Kansas lost 2.5% population from domestic migration.
Jobs and people naturally gravitate toward low-burden states where they get to keep more of their hard-earned, finite resources. The next ten years must therefore be defined by Sowell’s first law of economics or Kansas will continue to suffer the consequences. In order to compete for jobs and attract new residents, the state and local tax burden must be reduced – and that means government must spend less.
Fortunately, there are many ways to reduce spending and still provide essential services. Ineffective and unnecessary programs have to go and government must operate much more efficiently.
Change won’t be easy but the choice is simple – reduce the tax burden and create an environment that attracts jobs and new taxpayers or preserve big government and continue to suffer the consequences.