With Super Sunday just around corner, we will cite the Apple commercial that introduced the Apple Macintosh personal computer in January 1984. It had the punch line: “You’ll see why 1984 won’t be like Nineteen Eighty-Four.”

That was an allusion to the dystopian future described in George Orwell’s book, 1984. The ad opens with a lone woman on the run. She bursts into an auditorium, where Big Brother—speaking not in person, but from a towering television screen—is haranguing a frightened mass of people. Then, spinning like a top, she hurls a sledgehammer at the figure on the screen. It flies high and right. Big Brother is silenced. The voice-over followed.

In this 60-second spot that aired during Super Bowl XVIII, the first Macintosh ad captured the one thing that an all-powerful or monolithic state cannot easily afford to tolerate. That is, any real expression of individual freedom and initiative.

We believe that is a timely message not just on the eve of another Super Bowl, but still more in the context of the current debate over economic and public policies.

Following a long period of stagnation, the U.S. economy has come roaring back to life. We now have full employment, a booming stock market, and rising wages for most workers, including the lowest paid.

How did that happen? Fast answer: Over the past three years, the free market became a whole lot freer.

In its first year in office, the current administration delivered on its promise of sweeping regulatory relief. Suddenly, the regulatory state, which had expanded by leaps and bounds during the previous administration, began to contract . . . and that has continued, as a result of major changes in policy and direction at the Environmental Protection Agency, the Labor Department, the Department of Health and Human Services, and other arms of government.

Then came the biggest tax cuts and tax reforms since the Reagan era. With the passage of the Tax Cuts and Jobs Act of 2017, the administration lowered income taxes across the board and left more money in the pockets of individuals and business entities alike.

So, we are now living in the best of times economically. How could anyone argue otherwise? But they can—and are. Never mind what the numbers say.

Among leaders on the Left, there is a broad consensus that we are living not in the best of times, but in the most desperate of times—almost as if we were back in the early years of the Great Depression, when industrial production plunged, unemployment soared, and more than a quarter of the population was without any income at all.

In the badly mistaken belief that capitalism and free enterprise have run amok, they are promoting economic policies and ideas that are diametrically opposed to those that got us where we are today.

With little disagreement between them, these same leaders want free college, free health care for all, universal child care, and the banning of fossil fuels as part of a many-splendored Green New Deal—and they don’t appear to care what anything costs or what the adverse impact may be on ordinary people.

Apart from the astronomically high price tags associated with all of these programs—which would quickly bring the economy to a shuddering halt if any serious attempt were made to implement them—it is worth thinking about the underlying message that the leaders who are espousing this great agglomeration of multi-trillion-dollar programs want to send to the American people.

The real take-away message comes down to this:

·         “If you or any of your children want to go to college, don’t worry about being able to afford the college tuition. We’ll take care of the problem for you.”

·         “If you’re worried about health care, don’t think you have to buy health insurance or do anything else. We’ll take care of you.”

·         “Got young children at home and want to go to work? We’ll take care of the kids, too.”

If all that sounds too good to be true, it’s because it is too good to be true. Someone has to pay for college tuition—and all the other freebies—and that can only mean higher taxes on working people at all levels of income.

As George Orwell, the author of 1984, understood very well, a free people who stop taking care of themselves and rely on the state to do everything for them make a very bad bargain. It is one of the insights you find on almost every page of his book.

When people cease to make their own plans—and trust government to make decisions for them in more and more areas of their lives—they commit the error of failing to make full use of their capacities as individual human beings. In failing to make the most of their own gifts and talents, and their own dreams and aspirations, they sell themselves short . . . and lead less-fulfilling lives.

How prophetic was Orwell’s book? Not that this was the author’s intention, but how well did the book foretell the future of socialism in his native country—this being Britain in the first few years after World War II?

The British elections in mid-1945 marked a major turning point—not only sweeping Winston Churchill and a Tory-led government out of office, but also standing as an unquestioned affirmation of the desire of most of the British electorate to bring a new government to power that was fully committed to socialism.

So how did things work out in Britain during the three and a half decades when socialism, as opposed to free-market capitalism, was the prevailing mode of government—a period lasting from 1945 to 1979, when Margaret Thatcher came to power?

Socialist Britain did not become a police state. But it did undergo a metamorphosis. It changed from a powerful and dynamic country into the perennial “sick man of Europe,” reeling from one financial crisis to another in a sustained period of economic stagnation and decline. It became a country obsessed with issues of job security and income redistribution as different groups competed with one another in trying to wring more favors out of an increasingly improvident state. There was little or no new business formation—none of the spark provided by people like Steve Jobs and products like the first Macintosh computer.

Even the Labor Party could see the futility of its centralized, interventionist approach. Jim Callaghan, the last Labor prime minister before Thatcher, admitted in Parliament: “Let me say that of course there has been a fall in peoples’ standard of life. It has fallen this year and will fall again next year.”

Fortunately, Thatcher supplied the leadership that was necessary to pull Britain out of the decades-long decline that began with the wrong turn that it took at the end of World War II.

Is there any possibility that we as a country could make the same mistake that Britain made in 1945?

The danger is there. It is time to throw another hammer—or sledge-hammer—into the works of another historic wrong turn—this time involving the United States.

This does not require heroic action on the part of a solitary individual. But it does require a willingness on the part of many people to play the same kind of role within their own group of friends and relatives that Thatcher played in Britain—in stressing the paramount importance of individual freedom and initiative in securing the future we want for ourselves and future generations.

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GDP Growth during the Expansions of the Post-WWII Period

Source: CRS calculations based on data from the Bureau of Economic Analysis (BEA).

Note: Economic expansions as identified by the National Bureau of Economic Research.

This result is not just bad—it is catastrophic. The average American should not be wondering if his income is a bit above or below 2007 levels. Just by historical averages, the average American should be 20% better off than in 2007. And this slow growth is settling in as a permanent new-abnormal.

I believe the root cause of abysmal growth is the huge tax increases imposed by President Obama and Congress since 2008. The most harmful were the increase in the capital gains tax from 15 to 20 percent, the increase in top bracket income from 35 to 39.6 percent, and the new tax of 3.8 percent on investment income in the Affordable Care Act (ACA). The massive increase in regulatory burden through the ACA and Dodd-Frank bills are also crushing, but unfortunately are harder to measure.

The three tax increases mentioned above (plus higher state and local taxes) directly lower expected returns on all investments. Our government grabs the fruits of investment and then is puzzled when businesses do not invest. This causes billions of dollars of investment projects to come off the table.

Weak investment is the signature feature and cause of the abysmal "recovery" under President Obama. The aggregate of all investments in the United States is Net Private Domestic Investment (NPDI), computed by the Bureau of Economic Analysis. Relative to GDP, NPDI averaged 7% per year from1960 to 2008. The average was 7 to 8 percent from 1960 to 1990, and 6.5 percent in the Clinton and George W. Bush years. However, for the Obama years NPDI was an astoundingly low 2% of GDP!

In every year of Obama’s presidency but 2015, NPDI was worse than in any year from 1960 to his inauguration. This isn't bad luck. If nothing changed in the economy, the likelihood of having a period as bad as Obama’s just by chance would be 1 in 1000.

The numbers for GDP and NPDI are interesting, but they’re still just lifeless statistics. The human toll is terrible, taking the form of millions of Americans who can’t find jobs or can’t make ends meet in the jobs they do have.

Dismal investment levels are the predictable result of taxing investment and income at high rates. This terrible economic performance will continue until income and investment taxes are slashed. The government can still raise needed revenue with a broad-base approach, eliminating all the special deductions and credits and allowing very low rates.

On the other hand, maintaining the current high rates will entrench lackluster investment and stagnant incomes and trap far too many Americans in a bleak economic future.

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Courage does not tremble in the face of coercion. It does not beg for forgiveness for non-existent crimes.  It stands tall in the defense of freedom . . . and in opposition to the dangers of mob rule or jackbooted tyranny.

All of which brings us to the wave of student protests that hit colleges and universities across the country in the fall of 2015. In one college after another, college presidents and administrators capitulated to unreasonable demands and went out of their way to curry favor with unruly protestors. In doing so, the titular leaders of these citadels of higher education acted both unwisely and with a shameful lack of courage.

The wave of protests began at the University of Missouri in Columbia, and it was here that assault on free speech became crystallized in the now-infamous picture of an MU communications professor calling for “some muscle” to bar campus journalists from a public area occupied by protestors.

Showing real courage in the face of taunts and physical intimidation, Tim Tai, a student photographer on assignment from ESPN, refused to leave the scene and asserted his First Amendment right to videotape in a public place—telling the protestors that his desire was to protect free speech for them no less than for himself.

In a quick succession of events in early November, protesters toppled University of Missouri system President Tim Wolfe, who was unpopular for reasons that had little or nothing to do with race. It began when a black graduate student (the son of a wealthy business executive) went on a hunger strike demanding Wolfe’s resignation. A few days later, black football players (coming to the end of a losing season) joined in a sympathy strike—refusing to play and  exposing the university to a $1 million fine if it were forced to forfeit an upcoming game against Brigham Young University. Then head football coach Gary Pinkel (only days before announcing his retirement for health reasons) chose to play Fletcher Christian to Wolfe’s Captain Bligh – supporting his players in the mutiny against a sitting university president. On the very next day, Wolfe resigned—and black football players agreed to end their strike.

Lessons learned?

We are all limited to our own experience, so no one can tell how prevalent bias and racism may be at an institution the size of the University of Missouri (with 35,000 students).  However, putting aside undocumented claims of deep and widespread bias by a few protestors (including a much-trumpeted but spurious report of a large Ku Klux Klan presence on the MU campus), we will cite three lessons.

First, there is a clear free-speech problem at the University of Missouri and other campuses. People are not allowed to express certain opinions, and even media coverage of protesting students is prohibited by those whose self-righteousness is overwhelming.

Second, you can tell that the values of the university have been misplaced—and indeed corrupted—when the football team and its coach play a decisive role in the resolution of a major conflict. 

Third, it seems to us that the obsessive insistence by protest leaders (not just at MU but within the larger Black Lives Matter movement) that almost everything that is wrong in our society reduces to a single problem—white racism and supremacy in an ongoing saga that casts blacks in the role of victims—is not only unfair but truly unhelpful. More than anything else, it is a major distraction in the way of any serious attempt to come to grips with problems that disproportionately affect black people living in poorer neighborhoods—everything from low rates of K-12 educational achievement to high rates of unemployment and crime among black youth, and from government programs that discourage work to the sharp decline in recent decades of intact two-parent families.

At the end of the day, it may be that what happened at Mizzou last November will serve a useful purpose—alerting many people to the danger of falling into an intellectual trap: supporting calls for greater “diversity” that are more realistically described as an attempt to enforce an unquestioning and frightened conformity.

We hope that the new leaders of the university will have the wisdom and courage to reject an anti-free speech conformity that masquerades as a paradigm-busting “diversity.”

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But all isn’t well. Missouri’s economic development and growth rates are chronically below average. During the past 10 years, employment has grown 8.8 percent nationally, while Missouri has boosted jobs by only 6 percent. In their study, Laffer, Moore, and Williams provide one explanation for the state’s lagging performance: Missouri’s personal income tax rates.

The post Why a Sales Tax Is Better for Missouri than an Income Tax appeared first on Show-Me Institute.

The state of Missouri, like other state governments, offers tax credits that can be applied against both corporate and individual tax bills. Presently, the Missouri legislature is considering a so-called “mega-project” tax credit worth, in present value, $550 million for Bombardier Aerospace, a large Canadian firm, to build a manufacturing plant in Kansas City.

Tax credits sound like a great idea for enticing businesses to expand, relocate, or build in Missouri. With the Bombardier project, though, it might be useful to consider the basic economics of tax credits.

Tax credits can be divided into two broad categories. Those that focus on social goals can be called “public good” credits. The Historic Preservation Tax Credit, for instance, subsidizes renovations for historic buildings. Another example, the Earned Income Tax Credit, is available to assist state residents who are employed but whose annual income is low.  Social goals may compete for preference, but show that Missouri recognizes the need to support public goods.

The second category targets economic development, or — as some would put it — “corporate welfare.” Such credits are designed to stimulate economic development. In practice, these credits reduce tax bills for businesses located within the boundaries of the credit. In exchange, the business typically must bring something to the equation, such as offering jobs that pay at or above the area average.

Regardless of whether tax credits are of the public good or economic development variety, they share one common feature: For recipients, tax credits lower their individual or corporate income tax bills, which in turn impacts the state budget.

Missouri’s discretionary budget consists of dollars paid into the General Revenue Fund. Individual income, corporate income, sales taxes, and use taxes are the largest contributors to this fund, and tax credits affect the dollar amount collected.

That impact is significant. For the state’s fiscal year that ended June 30, 2007, for example, the General Revenue Fund collected $7.7 billion. In that same fiscal year, Missouri redeemed $485.6 million in tax credits.

Less flow in the General Revenue Fund results in fewer dollars available for state programs and potential cuts to programs such as public schools, prisons, and health care. Alternatively, the General Assembly can seek to offset reductions by increasing taxes.

Tax credit proponents contend that no such tradeoffs exist, particularly for economic development credits. Their tenuous argument is built on the proposition that if a business locates in Missouri, the tax base naturally will increase, and any lost revenues from the tax credit will be offset by greater individual income and sales taxes, and through the “multiplier” process as corporate and private income expands.

Unfortunately, this almost certainly is wrong. Historically, the General Revenue Fund receives between three and four cents of every dollar of final goods and services produced within Missouri’s borders. Thus, for every dollar of tax credit, Missouri’s economy has to produce between $25 and $33 worth of final goods and services in order for the General Assembly Fund to break even.

This is akin to investing $1 and receiving a guaranteed $30 in return. While some projects may offer such robust yields, there are no guarantees. Indeed, in the last century, the average annual return from equities in the United States, after adjusting for inflation, is $1.07 for every dollar invested. To bank on higher future tax revenues flowing from today’s tax credits is simply folly.

The risk of long-lasting economic damage looms much larger with “mega-tax credits” of the Bombardier variety, which are unprecedented in Missouri. If large corporations such as Bombardier are given lower tax rates, the marginal tax rates for everyone else must become higher in order to raise the same amount of revenue. However, high marginal tax rates actually eliminate more jobs than are created through tax credit beneficiaries.

A much better economic development policy would be to keep a level playing field and lower marginal tax rates for all individuals and businesses. Better yet, get rid of the income tax altogether, as our neighbor Tennessee has done and whose growth has outstripped Missouri’s for the last decade.

Letting politicians and state bureaucrats guide private-sector investment is not an economic development policy. It’s an economic stagnation policy.

Rex Sinquefield received a bachelor’s degree in business from Saint Louis University and an MBA from the University of Chicago, where he studied under Nobel Prize–winning economist Merton Miller. In the 1970s, he coauthored a series of papers and books titled Stocks, Bonds, Bills and Inflation, providing the first seminal data on the performance of the financial market in the United States. Sinquefield, who pioneered many of the nation’s first index funds, retired in 2005 and co-founded the Show-Me Institute, the state’s only free-market think tank.

Joseph Haslag is a professor in the Economics Department at the University of Missouri–Columbia and executive vice president of the Show-Me Institute.

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Saint Louis faces a sad irony. It boasts cultural institutions that many larger cities envy — its symphony, opera theatre, botanical garden, art museums, and zoo are among the best in the nation. Its professional and collegiate sports teams have a history of success and draw from the across the Midwest. The entire world recognizes the arch. The city is home to prominent universities, one of the nation’s top-ranked medical schools and a thriving biotechnology corridor. It is filled with beautiful parks, neighborhoods and architecture. All of these advantages ought to draw residents and businesses into the city.

Sadly, however, the city has been on a downhill slide for over 30 years. After adjusting for inflation, total personal income within the city limits has been falling since the 1970s. While the Saint Louis suburbs have been growing steadily, city residents collectively take home less money, in inflation-adjusted dollars, than they did three decades ago. Businesses have been leaving too. In 1970, the majority of Saint Louis area workers had jobs in the city. Today, only 20 percent work within the city limits. Most of the region’s businesses are now in the suburbs.

How can a city that has so much going for it turn in such a depressing economic performance? We believe that the city earnings tax is a major culprit. Of course, many factors contribute to a city’s economic performance. But compare Saint Louis’s performance with that of Missouri’s largest city without an earnings tax — Springfield. Over the same 35-year period, as Saint Louis has been stagnating, total personal income in Springfield has tripled. And Springfield has managed to keep the overwhelming majority of its jobs in the city. Springfield’s share of employment in its metro area has fallen only slightly, from 92 percent to 88 percent.

The same pattern can be seen across the nation. A new Show-Me Institute Policy Study by Mizzou professor Joseph Haslag collects data on per-capita income in 101 of the nation’s largest cities, 23 of which have an earnings tax. He finds a consistent pattern: cities with earnings taxes are falling behind their suburbs in per capita income faster than the cities without earnings taxes.

As Haslag’s report explains, this is what economic theory predicts. Economics tells us that businesses and workers will both seek to locate where their after-tax returns are the highest. The earnings tax penalizes workers and businesses for doing business or residing within the city limits. It’s hardly a surprise, therefore, that the vast majority of Saint Louis–area job creation occurs in the suburbs.

Of course, few will dispute that the earnings tax harms the city. It is not a popular tax. But because it accounts for 16 percent of the city budget, some people consider eliminating it politically impossible. They ask “What services would you cut to get rid of this tax?”

This is the wrong question and the wrong way of thinking about this issue. The earnings tax is killing the city. If we continue as we have, driving residents and businesses into the suburbs, the bad economic news will continue as well. Thirty years of decline will become 40, then 50. The city’s budget woes will only become more severe, and cuts to city services will become inevitable.

On the other hand, if we replace the earnings tax with something more benign, the city will boom once again. That will mean new tax revenues, which will create plenty of room in the budget for improved city services.

Show-Me Institute scholars are actively exploring ways to fix the problem and will present these ideas in the coming months. But the one thing we know is that something has got to change. As long as the earnings tax is on the books, it will continue to hold back the city we all love. Some ask how we can afford to cut the earnings tax, but we ask: can we afford not to?

Rex Sinquefield is the president and Timothy B. Lee is the editor of the Show-Me Institute.

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