Bacon's Rebellion

  • College Drop Outs: the Latest Victims of the Politics of Compassion

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    James A. Bacon

    It’s finally dawning upon a broad ideological cross-section of policy wonks that not only does the United States have a problem with high-school drop-outs, it has a problem with college drop-outs.

    Conservative pundits have remarked upon the phenomenon for some time. Now they are joined by left-of-center wonks with the American Institutes of Research. In a new paper, “The High Cost of Low Graduation Rates: How Much Does Dropping Out of College Really Cost?,” Mark Schneider and Lu (Michelle) Yin estimate that the cost in lost income for just those students who started college in 2002 and dropped out — just one year — was $3.8 billion nationally (and $128 million in Virginia). Write the authors:

    College graduates earn, on average, far more than college dropouts, and these higher earnings translate directly into higher income tax payments that can help solve growing fiscal problems at the federal and state levels. But our colleges and universities are now graduating only slightly more than half the students who walk through their doors. Much of the cost of dropping out is borne by individual students, who may have accumulated large debts in their unsuccessful pursuit of a degree and who forfeit the higher earnings that accrue with a bachelor’s degree.

    Calculating the cost of college drop-outs is a worthwhile exercise. Unfortunately, Schneider and Yin exaggerate those costs to society and fail to grasp the implications of a policy that pushes people into squandering a year or more of their lives and racking up big debts chasing what, for many, is an unachievable dream.

    While recognizing that federal and state governments spend $1.5 billion annually on students who drop out of their first year of college, Schneider and Yin do not question the goal of sending those students to college in the first place. Recent research has shown that many students are grossly ill-prepared for college-level courses and learn little from the experience. The authors also exaggerate the level of lost income. They assume that (1) college drop-outs are endowed with the same level of college preparatory background,  intelligence, discipline and drive as those who graduate and (2) they would earn as much as their peers if they completed their college degrees. There is no basis for either assumption.

    Schneider and Yin acknowledge the devastating cost to students who incur thousands of dollars in loans with no sheepskin to generate the higher income it takes to pay off their debt. However, they fail to draw the obvious conclusion: that the policy of making college education available to an ever-broader swath of the population may be a bad idea. The impact upon the supposed beneficiaries of this social engineering is much the same as the well-intended — and equally devastating — policy of expanding home ownership to segments of the population that could not afford it. Once again, do gooders afflict disaster upon the very objects of their noble intentions.

    There are millions of jobs in the trades, manufacturing and services that Americans could fill productively with a year or two of community-college training. Perpetuating the illusion that everyone needs a bachelor’s degree not only impoverishes people who do not prosper in such an environment but it represents a massive misallocation of human and fiscal capital that hurts us all.

  • Big U.S. Firms Hide Overseas Jobs

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    Peter Galuszka

    By Peter Galuszka

    The immediate and critical question looming before the U.S. at the moment is how to create more jobs. It is Job One (pun intended).

    Without jobs, tax revenues will continue to languish. GDP will drop. The need to cut more government services will become more pressing, although cutting is something that should be a secondary priority to creating jobs. If you have a car wreck patient in an emergency room, you give him blood first and stabilize him. Only then do you look at his longer-term problems.

    President Barack Obama has been under the gun from the moment he was inaugurated from conservatives who are thumping the same old dogma that somehow Obama is anti-business. No matter what he does, he is wrong. Even when he tries business-friendly policies, such as proposing to end the payroll tax on Dec. 31, he is shot down.

    The truth about being anti-business is somewhat dodgy, however. Large corporations complain that the climate is bad. So they continue to horde more than $1 trillion in cash that could be used to hire American workers. They whine about high taxes while some enormous conglomerates such as General Electric pay no federal income taxes.

    Now comes a story in today’s Washington Post that shows that large U.S. companies, some of which are angling for tax breaks, do not reveal how many of their employees are based overseas and how many are in the U.S.

    This goes to the heart of the hiring problem. Despite the stock markets’ volatility and the debt gloom in the U.S. and Europe, there’s plenty of business buzzing along in places such as Asia and Brazil. U.S.-based companies maybe hiring, but just not in the U.S. It’s a dirty little secret they don’t want the U.S. public to know. Companies such as Apple and Pfizer are “pushing lawmakers to cut their tax bills in the name of job-creation in the U.S.,” the Post says.  But they won’t say how many of their employees are in the U.S. Other tight-lipped firms include Hewlett-Packard and AT&T. Consumer products giant Procter & Gamble at first said it doesn’t reveal location of employees. When the Post pointed out that P&G CEO Bob McDonald revealed how many were overseas in a newspaper opinion piece (35,000 out of 127,000 total), they relented. To its credit GE does provide such information.

    It’s the same old story with big corporations. What they say has to be verified and pinned down. Take Wells Fargo which snarfed up Wachovia in the 2008 bank crisis. They are finally renaming and rebranding themselves in Virginia at old Wachovia banks. They took ads that look like phony front pages of such newspapers at the Richmond Times-Dispatch and the Roanoke Times (ethical questions there) to announce themselves as our new best friends. Yet, Wells Fargo is also jamming it to its customers in test markets (not Virginia, at least yet) by charging them a new monthly fee for using their debit cards.

    Wachovia, of course, is another story of a large, regional corporation gone bad. The bank had been founded by dour Moravians in Piedmont North Carolina. It had a reputation for reliable service (I have been a customer since 1970). Then First Union, a wild and wooly Southern bank with a lousy reputation, bought Wachovia and its name. Soon Wachovia was getting fined for laundering money from Mexican drug traffickers and was tanking by buying a firm known for dicey subprime mortgages. Goodbye, Wachovia.

    What the jobs data suggests is how the U.S. has not kept with the pace of the globalizing economy. As once-U.S. firms broaden their overseas markets, they become less “American.” There’s nothing wrong with that, as long as the U.S. voters and government understand and respond in kind. As such corporations want things in a one-sided way to take advantage of overseas jobs and profits, the rest of us should be grown-up enough to respond in kind.

    That means stopping this Easter Bunny belief that they are out for the good ole’ U.S.A. If they are hiring foreign workers over American ones, tax and regulate accordingly. If they are not contributing to the economic recovery by hiring here, keep that in mind.

    We’ve been hearing plenty of fairy stories about the benefits of globalization for 20 or 30 years now. They date back to the go-go years of Ronald Reagan and Margaret Thatcher and the end of the Evil Empire. Results include the Euro and a quasi-united Europe. Look at those messes today. And don’t let the big companies get away with tax breaks while they deny Americans jobs.

  • The Wonk Salon, August 22, 2011

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    James A. Bacon

    Physician-Owned Hospitals Promote Health Care Competition
    Texas Public Policy Foundation
    Physician-owned hospitals promote consumer choice, innovation, quality of care and patient satisfaction. But a provision in Obamacare has foreclosed any future expansion in this sector.

    Texas Tax Experiment Gone Awry
    Tax Foundation
    Texas may be experiencing an economic miracle, but it’s not due to this bungled corporate tax.

    2011: A Great Year for School Choice
    Heritage Foundation
    Twelve states created or expanded new school choice options in 2011. Too bad Virginia wasn’t one of them.

    Mass Transit and Job Access
    Brookings Institution
    Hundreds of thousands of households without automobiles live in areas, especially in the South and the suburbs, where mass transit is out of reach.

  • Chart of the Day: Education Gap vs. Income Gap

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    James A. Bacon

    by James A. Bacon

    The wealth gap in the United States is wide and getting worse. One presumed remedy, broadly accepted across the ideological spectrum, is to equalize educational opportunities for all. It may come as a surprise — it certainly did to me — to find that educational inequality, as measured by the number of years of education, has dramatically declined in the United States since 1960, even as the gulf in income has grown ever wider.

    The chart to the left, taken from “Educational Inequality in the United States: Methodology and Historical Estimation of Education Gini Coefficients,” shows the trend lines. (Click on chart for more legible image.)

    What could explain the divergence? One possible explanation is the decline of labor unions in the private-sector economy. Americans could earn a solid middle-class income in 1960 as working in the unionized work force even without completing a high school education. Another factor may be the declining return on investment in a college degree. Yet another explanation may be that the path to super wealth in today’s entrepreneurial economy requires attributes other than a college education.

    Whatever the explanation, this chart calls into question the mindless acceptance of the idea — propagated by politicians as diverse as President Obama and Gov. Bob McDonnell — that increasing the number of college graduates will necessarily lead to an increase in income. If higher education has reached the point of diminishing returns, we may have more productive ways to invest students’ time and taxpayers’ money than pushing an increasing percentage of the population into college.

  • The Wonk Salon, August 21, 2011

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    James A. Bacon

    No Verdict Yet on Patient-Centered Medical Homes
    Urban Institute
    Patient-centered medical homes are the hot new idea in health care reform. The idea has lots of potential but policy makers should await the results of numerous pilot projects before adopting the model wholesale.

    Pollution Still Impacts Infant Mortality
    National Bureau of Economic Research
    Although air pollution is much reduced by the Clean Air Act, exhaust from automobile driving still negatively effects human health

    Climate Change Impact on Louisiana: Minimal
    Science & Public Policy Institute
    Temperatures haven’t increased in Louisiana a century, rainfall has increased slightly and two-thirds the rise in sea levels is due to subsidence, not the melting of icecaps.

    Nursing Home Quality Suffers Little After Private Investment
    Government Accountability Office
    Does the quality of care provided by nursing homes deteriorate after private-investment companies take them over? On average, the GAO says, no.

    Do Franchise Schools Out-Perform Independents? In Chile, Yes
    Cato Institute
    The experience in Chile suggests that franchise schools, which are part of larger organizations, out-perform smaller, independent schools when measured by student achievement.

    The Case for End-of-Life Counseling
    American Enterprise Institute
    End-of-life counseling is a good idea. It lets patients and families know their options and reduces unnecessarily heroic life-prolonging measures. Just don’t expect it to end runaway health care costs.

  • The EMP Embroglio

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    James A. Bacon

    by James A. Bacon

    One of the most frightening end-of-the-world scenarios that bedevils my apocalyptic mind — scarier even than Boomergeddon — is the threat of an electromagnetic pulse over the United States. Whether caused by the detonation of a rogue nuclear weapon above the atmosphere or a blast of solar radiation, an EMP could wipe out the electric grid across the continental United States. Without electricity, modern civilization would collapse. Within no time at all, most of us would be reduced to subsisting on eight-year-old jars of artichoke hearts in the back of the pantry and, when they ran out, trapped chipmunks, squirrels and other suburban fauna.

    People far more knowledgeable than I are worried about this. U.S. preparations for an EMP are woefully inadequate, says the Heritage Institute in a new backgrounder, “Before the Lights Go Out.” The military has hardened may of its facilities, but civilians have not. There are some initiatives afoot at the Congressional level, says Heritage, but state and local governments remain poorly prepared.

    What’s happening in Virginia? Regulation of the electric power industry is a state responsibility. Is anyone even looking at this issue? (It would be asking too much to actually expect anyone to be doing something about it. I’ll be happy if someone is merely looking.)

    Follow up question: Which is easier to harden against EMPs — an electric power grid in which power and distribution facilities are concentrated in a relatively few corporate hands? Or a distributed grid characterized by many small, local power providers? I’d like to know.

  • The weak suit that could undermine challenges to the health care law

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    Norm Leahy

    By Norm Leahy

    Ken Cuccinelli is worried.

    It’s not a familiar feeling for Virginia’s Attorney General. Mid-way through his first term in office, Cuccinelli has translated his firm conservative beliefs into a series of court cases challenging what he, and his supporters, sees as federal government excesses. So often has he taken the feds to court that Cuccinelli can joke about how many Obama Justice Department officials he knows.

    But what has Virginia’s otherwise confident top lawyer concerned isn’t one of his court challenges, but a case rising out of the 6th Circuit Court of Appeals. In late June, a divided appeals court upheld the individual mandate that’s at the heart of the President’s health care law. But it’s more complicated than that. As Cuccinelli explained to me in an interview, Judge Jeffrey Sutton, appointed to the bench by George W. Bush, decided that the way the health care law is constructed might make it unconstitutional sometimes, but not in this particular case. Cuccinelli said that “This ruling is so narrow that I don’t know how much impact it’s going to have on other courts.”

    But it was the first appellate court to rule in any of the 30 lawsuits currently pending against the health care law. Cuccinelli’s own case, Virginia v. Sebelius, was argued before the 4th Circuit Court of Appeals in Richmond three months ago.

    The plaintiffs in the 6th Circuit case, the Thomas More Law Center and a group of individuals challenging the mandate, have filed an appeal to the United States Supreme Court. And that’s where Cuccinelli’s uneasiness begins.

    “I am concerned about the 6th Circuit case because it has not been strongly argued by those plaintiffs.” Both the district and appeals court ruled against Thomas More’s challenge.

    “For something this important, I’d like to see our side put its best foot forward,” Cuccinelli said. “I think we’ve demonstrated that we’ve got the best legal argument (in the Virginia case), and I’m comfortable with what’s come out of the Florida case in the 11th Circuit.

    He should. Last week, the 11th Circuit Court of Appeals ruled that the individual mandate at the heart of the health care law was unconstitutional. At the same time, though, the court refused to invalidate the entire law. Federal District Court Judge Roger Vinson did just that earlier this year. Last December, District Court Judge Henry Hudson, who presided over the Cuccinelli lawsuit, held the individual mandate unconstitutional, but, like the 11th Circuit Court of Appeals, let the rest of the health care law stand.

    There is one area where even courts siding with the Obama administration have been unanimous: none of them have bought the federal government’s argument that the financial penalty the law imposes on individuals for not buying health insurance is permissible under the Constitution’s grant of taxing power.

    “Even Judge Sutton didn’t go along with that. And really, it’s at the core of our case, too, this notion that the federal government can basically force you to buy anything it deems necessary and impose a financial penalty on you if you don’t.”

    Cuccinelli told me it’s possible the Supreme Court could ignore the appeal of the 6th Circuit ruling and wait until more appeals courts, like the 11th, have weighed-in. It’s also possible, he said, that the high court could take the 6th circuit appeal and then “reach down into the other appeals courts” and bring all the cases before it. Or it could have them run in parallel, or even decide to take them one at a time. “Nobody knows what they might do,” he said.

    How might the Supremes rule? That’s another unknown. But when I asked Cuccinelli to address the calls on the right for Justice Elena Kagan, the former Obama administration Solicitor General, to recuse herself from any health care case that might reach the high court, he said there’s no indication she will do so. Earlier in the Virginia lawsuit, Cuccinelli’s office filed an appeal with the Supreme Court to take the case directly, skipping the court of appeals. The Supreme Court declined, but in doing so, Kagan made no move to remove herself from considering Virginia’s petition. That strongly indicates she will also be on the bench when a health care suit reaches the Supreme Court.

    Cuccinelli expects a ruling “literally any day now” on the Virginia lawsuit and he stated that if he loses, he will appeal that “rather promptly” to the Supreme Court.

  • Connaughton changes his tune on the gas tax

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    Norm Leahy

    by Norm Leahy

    Virginia Transportation Secretary Sean Connaughton told a group of road contractors in March that the state was going to have to “adjust” the gas tax to keep it as a viable source of revenue. As “adjust” does not mean “lower” in government-speak, Connaughton was promising the assorted tax consumers that he would push for a hike in the 2012 session.

    Today we learn that the Secretary is still worried about VDOT’s fund balances, but he’s backing off of his call for a gas tax increase:

    The former Prince William Board of County Supervisors chairman told a Prince William Chamber of Commerce lunch crowd at Old Hickory Golf Club on Wednesday that the state’s main goal is to plug a $400 to $500 million hole each year that could be devoted to capital projects but instead is funneled to pay for road upkeep.

    However, other than speaking to the possibility of public-private partnerships, Connaughton did not provide any details on how to stop this trend. He also reiterated Gov. Bob McDonnell’s opposition to raising the gasoline tax in a one-on-one interview with the News & Messenger.

    It would seem that Connaughton’s freelancing days on the gas tax are over — not only because of the Governor’s stance against general tax increases, but more importantly, because of McDonnell’s possible vice-presidential ambitions (what would John Nance Garner have to say about that?).

    This still leaves open the question of how the state intends to raise the monies it thinks it needs for new construction. Rest area advertising is mentioned as a possibility. It’s a fine idea, but hardly likely to pump $500 million a year into the state’s road building account.

    Connaughton talks of public-private partnerships. Those are fine things, too, and Virginia should pursue those whenever possible. But even these don’t begin to close the construction gap.

    But a “menu of potential options” needs to go much further. Some appetizers Connaughton might like to add include:

    * Ensuring that the General Assembly can no longer raid the transportation trust fund to pay for other government programs. Constitutional amendments to put the fund off limits have been introduced, but have failed, because Democrats and Republicans can’t agree on the particulars of how it would all work.

    * Overhauling VDOT. The current system is a Byrd machine relic that insists on the state having to maintain local roads. This isn’t just inefficient, it’s insane. Harry Byrd is dead. It’s time to put his road agency in the urn along with him and replace it with one that puts the responsibility for local roads in local hands.

    * Stop using gas tax money to pay for mass transit. This is a wealth transfer, plain and simple. Worse, it breaks the implicit contract between the drivers and the government that their gas taxes will be used to maintain roads. It’s time for transit to pay its own way and stop leeching off the guy stuck in traffic.

    * Begin experimenting with the next tax regime – whether it’s a miles-driven tax, congestion fees, tolls or something else – that will replace the per-gallon tax. Higher fuel economy and inflation have seriously eroded the gas tax’s purchasing power.

    It would be very helpful, too, if Connaughton would use his bully pulpit to advocate against federal meddling in state road construction (points on which Heritage Foundation transportation expert Ron Utt elaborated in our radio interview with him in June).

    If Connaughton is really interested in a full menu of alternatives that can generate the cash and policy freedom he wants, I’ve got Ron’s number…

  • Is the Boomergeddon Sky Really Falling?

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    Peter Galuszka

    By Peter Galuszka

    Here’s a little reality check.

    Baconauts and Boomergedons have been ecstatic, if not orgasmic, over the totally unnecessary and dangerous debt ceiling standoff in Congress and Standard & Poor’s downgrading of U.S. credit. It has been amusing to see them wash themselves in glory as they congratulate each other on their prescience. If only the book had sold better!

    Still reality does sneak back on little cat feet. Today’s news is that Fitch Ratings did not downgrade U.S. credit, but kept it at a AAA+ rating. A downgrade could come if Congress keeps acting as a bunch of Tea-drunk imbeciles. Moody’s also has kept Washington at AAA+. That leaves S&P, a firm I know well, since I used to work for its parent firm and I understand just how dicey S&P can be, especially when it applies its genius to the likes of Enron or subprime mortgages.

    Another countervailing indicator is Alan Blinder, a Princeton professor and former vice chair at the Fed. Blinder is not exactly Baconaut material. He’s not bankrolled by the Koch Brothers and he’s not associated with some neo-con, libertarian outfit in the shadow of George Mason University, that hallowed, Tier One  institution of higher learning.

    Blinder, who isn’t all that impressed with the S&P downgrade considering the source, points out that if the U.S.’s credit-worthiness is so dodgy, how come so many spooked investors ran to Treasury bills when the S–T (sorry I’m not James Young, so I won’t spell it out) hit the fan last week. I mean, if the U.S. government is ready to fall flat on its face, as the author of “Boomergeddon” would have you believe, why the run on T-bills?  This is “not exactly what you would expect from a downgrade. In practice, S&P downgraded itself,” he writes in today’s Wall Street Journal.

    To be sure, Blinder is truly concerned about what the Federal Reserve, in its usual euphemism, has said about the state of the nation’s economy — namely that it’s really, really bad. He’s troubled that Fed Chief Ben Bernanke has stated so obviously he’s going to keep the federal funds rate very low for the near term. After all Uncle Ben is running out of bullets.

    Blinder’s message is watch the Fed and forget S&P. Also, forget all the doom and gloom you read on this blog. Take some to heart, but keep in mind there’s a strong undercurrent of negative thinking here. It’s a kind of financial nannyism (“Eat up your peas and carrots because the financial end is near and here’s an exact timetable for our misery.”).

    I take a different view. Last week I was relaxing on the sand near Cape Hatteras. A small school of dolphins (symbol of good luck)  was swishing in and out of the waves. Their message: “Don’t worry, this, too, will pass.”

  • Helping At-Risk Teens through Online Learning

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    James A. Bacon

    by James A. Bacon

    More evidence that the virtual-school phenomenon is making inroads into traditional public education: An article in Educationnext profiles Performance Learning Center programs in Hampton and Richmond. Communities in Schools, an outside contractor, runs special programs geared to high school kids in danger of dropping out. Writes June Kronholz:

    In a summary of its 2009–10 academic year, Virginia’s Communities in Schools reported that one-third of the students at its four PLCs were at least two years behind in academic credits when they arrived. They were a year or two older than their conventional-school peers and, in the previous year, averaged six suspensions and 24 absences each at their former schools.

    The PLCs use NovaNET, an online curriculum marketed by Pearson Education Inc. The program tests a student at the end of each lesson, module and course. When a student doesn’t pass, the computer singles out the content he or she seemed not to understand, reteaches it and retests. Students progress at their own pace; they don’t get bored when the class moves too slowly or bewildered when it moves too fast.

    The results? Kronholz again:

    In 2009–10, the 432 youngsters who attended the four schools arrived with D averages in math, English, science, and social studies, and, except for math—which was still stuck in the basement—raised them to a C. But the averages include the 30 percent of kids who dropped out, switched to a GED program, or left for some other reason, probably lowering the grades.

    Obviously, online teaching is no panacea for high school drop-outs, but it does provide educators an option. One big advantage: School districts can drop programs that don’t show results a lot easier than they can drop teachers who don’t deliver. The key is to establish objective metrics against which the contractors can be evaluated. The more competition and accountability we can inject into the system, the better.

  • Virginia’s Very Own Boomergeddon Scenario

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    James A. Bacon

    by James A. Bacon

    Virginians take great pride in their status as a state with a AAA credit rating. But if you put any credence in a set of projections made by Jeffrey Miron with the Mercatus Center, increasing indebtedness could start to unravel the commonwealth’s fiscal integrity by 2034… if not long before. We have 23 years before we reach the point of no return.

    What happens in 2034? That’s when Virginia’s indebtedness-to-GDP ratio reaches 90%, the point at which, research has shown, sovereign states reach a tipping point at which indebtedness slows economic growth and a fiscal crisis becomes nearly inevitable. So argues Miron in a new paper, “The Fiscal Health of U.S. States.”

    The paper draws five broad conclusions about the fiscal condition of the 50 states:

    First, state government finances are not on a stable path; if spending patterns continue to follow those of recent decades, the ratio of state debt to output will increase without bound. Second, the key driver of increasing state and local expenditures is health-care costs, especially Medicaid and subsidies for health-insurance exchanges under the Patient Protection and Affordable Care Act of 2009. Third, states have large implicit debts for unfunded pension liabilities, making their net debt positions substantially worse than official debt statistics indicate. Fourth, if spending trends continue and tax revenues remain near their historical levels relative to output, most states will reach dangerous ratios of debt to GDP within 20 to 30 years. Fifth, states differ in their degrees of fiscal imbalance, but the overriding fact is that all states face fiscal meltdown in the foreseeable future.

    Underlying his projections, Miron makes a number of assumptions, which he insists are biased, if anything, toward more optimistic outcomes. He expects that state spending will continue to increase at a rate comparable to the average growth rate of the 1962-2008 time frame. Future expenditure growth will be hard to restrain, he contends, because it will be dominated by Medicaid and other health-care spending. He assumes that interest rates on government debt will remain stable, despite a significant risk that it could run higher, and that economic growth will continue at historical rates despite some evidence that it might be slower. But, critically, he also assumes that tax revenues as a percentage of the economy will not increase as a percentage of the GDP. Political pressures will prevent politicians from raising taxes, so legislators will resort to budgetary gimmickry and off-balance sheet borrowing to make ends meet.

    If you find those assumptions to be reasonable, or even somewhat optimistic, then you should be very worried. One very important assumption Miron does not make is that the federal government experiences a fiscal crisis between now and then, cutting back on federal aid to states and localities and crippling the national economy. If you believe that a Boomergeddon-style scenario will occur within the next 15 to 20  years, as I do, then the day of reckoning for the states will come all the sooner.

    Virginia is in better condition than the average state, though that will buy it a reprieve of only a few years. The commonwealth’s adjusted debt-to-GDP ratio in 2008 was 7.5%, compared to 11.2% nationally. While states with weaker finances will reach the dreaded 90% debt-to-GDP ratio by as early as 2023, it will take Virginia until 2034. If Virginia manages to reduce expenditure growth by 0.5% less than historical averages, it will delay Doomsday until 2041. By eking out a growth rate 0.5% faster than historical averages, it can delay crunch time until 2042. (Miron does not consider a scenario of a slower rate of spending growth and a higher rate of economic growth.)

    As with all such long-term projections, these assume that past trends continue indefinitely as before, which, of course, they won’t. What I fear most is a global investor revolt against sovereign debt, triggered most likely by a default by Spain, Italy and other European Union countries, which drives up risk premiums for sovereign debt in all advanced democratic societies. The contagion could easily spread to California, Illinois, New Jersey and New York. If one of those states defaulted, all states would wind up paying higher interest rates on their debt. States don’t use long-term debt to finance day-to-day government operations, but they do use it to fund critical educational and infrastructure investments needed for economic growth.

    I see no evidence that state leaders are on the same wavelength as Miron: They persist in thinking of the commonwealth’s sterling credit rating as unshakable. We still have time to enact fundamental deep-structure reforms to transportation, land use, health care delivery and education that would bring costs in line with revenues, but not as much as we think. The requisite sense of urgency does not exist. Unless the public temperament changes soon, Boomergeddon will not spare Virginia.

  • The Rise of Virtual Schools

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    James A. Bacon

    Image credit: Thomas Jefferson Institute for Public Policy

    by James A. Bacon

    One of Gov. Bob McDonnell’s signature educational initiatives has been to promote “virtual schools.” In June the state Department of education approved 13 virtual school programs aligned with the commonwealth’s Standards of Learning (SOL) and delivered by licensed teachers.

    Approved online providers include full-time virtual schools, programs offering supplemental instruction, and blended-instruction programs in which students have a trained, on-site mentor in addition to an online teacher. “School divisions now can broaden the array of courses they offer – and reach out to more non-traditional students — by contracting with virtual schools or online providers that meet criteria and standards set by the Board of Education,” said Superintendent of Public Instruction Patricia I. Wright in making the announcement.

    Who will avail themselves of virtual education? In a new virtual school brochure, the Thomas Jefferson Institute for Public Policy suggests several niche categories that could benefit, including:

    • Military families who move frequently
    • Students on homebound instruction with medical needs
    • Students with special education needs, such as the autism spectrum or ADHD
    • Students with gifted education needs , who need to be challenged and move at their own pace
    • Students who need credit recovery to graduate
    • Competitive athletes with conflicts in traditional school day hours
    • Any student who is dissatisfied with their current traditional public school as a result of overcrowding, bullying, lack of rigor.

    I’ll be really interested to see how the virtual schools pan out. The increased choice and access provided by the technology is a good thing. Hopefully, we’ll see increased competition and innovation among providers. Perhaps it’s wishful thinking but virtual schools could augur a more sweeping transformation of Virginia’s moribund public education system.

  • Tax the Rich!

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    Peter Galuszka

    By Peter Galuszka

    One the recurring themes of James A. Bacon, the Bacon-In-Chief, and his Baconauts, is that while the vast, unwashed masses of Americans must endure cutbacks in their lifestyles and spending to prevent “Boomergeddon,” the rich are strangely left out of the equation.

    Keep in mind that in the past 30 years, the percentage of the super rich has risen dramatically, while the middle class, the backbone of America, has stagnated. So, as we face years of spending cuts and pressures, for better or worse, to rein in taxes, it is interesting what one of the richest man in the world has to say.

    Writing in this morning’s New York Times, Warren Buffett, sage of Omaha and investment king, writes that the tax breaks for the super-rich have gotten way out of control. “While poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” he writes.

    A few examples:

    • The billionaire last year had a tax bill of $6,938,744. As big as that may seem, it was only 17.4 percent of Buffett’s taxable income and significantly below what ordinary Americans pay percentagewise.
    • The rich are allowed to classify some of their income as “carried interest” taxable at a 15 percent rate.
    • If the rich trade stock futures for all of 15 minutes, some 60 percent of their gain can be taxed at the 15 percent rate.
    • Go back to 1976. Capital gains rates were 39.9 percent. Yet, in 1992,  the highest-earning individuals — and that must include income from investments — paid only 29.2 percent to the feds. By 2008, that rate had slipped to 21.5 percent.

    Buffett’s not alone in pointing out the inequities with the Daddy Warbucks. Writing today in The Washington Post, economist Robert Samuelson notes that with capital gains at a paltry 15 percent, they represent the lowest tax rates of all. What’s more, two thirds of capital gains go to the wealthiest one percent of the population.

    Now if you read this blog, you get a Fox News Warp of reality. The Baconauts and Boomergeddons out there will insist that even thinking about raising the tax rates for the ultra-rich is “redistribution of wealth” more suitable for mangy, flea-bitten Bolsheviks. They argue that the richest earned their wealth, a point that is Looney Tunes since the vast majority got it by being lucky enough to have been born into the right family. I am constantly amazed at the lengths these people go in apologizing for the rich since they, themselves, are not all that rich.

    Anyway, when the Congressional Gang of 15 gets around to reviewing budget and debt cutting strategies, let’s hope they take a gander at the super rich. That’s what Warren Buffett would have them do, and he’s not often wrong.

  • Are People Fleeing High Taxes — or the Blue State Governance Model?

    Posted on

    by

    James A. Bacon

    by James A. Bacon

    It’s one of the most contentious issues in state-level tax policy: To what extent are higher taxes self defeating? Do higher taxes drive people into other states and, thereby, undermine the tax base and defeat the purpose of higher taxes in the first place? Throughout my Bacon’s Rebellion commentary, I have always contended that taxes are one factor — a significant one — that influence peoples’ decisions where to live.

    Now comes a thoughtful, if not entirely convincing, study from the Center for Budget and Policies Priorities that suggests otherwise. The authors of “Tax Flight Is a Myth: Higher State Taxes Bring More Revenue, Not More Migration,” argue that the effects of tax flight are so small that state governments can raise taxes and be assured of a substantial gain in revenue.

    The study makes a number of points worth considering. First, inter-state migration is not common; only 1.7% of U.S. residents move from state to state in a given year. Second, low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. And third, migration is more likely to be driven by cheaper housing than higher taxes.

    Here’s how I would respond. First, while only 1.7% of U.S. residents move from one state to another in any given year, that movement can add up over time. That figure implies that 17% of U.S. residents undertake an interstate move over the course of the decade. That is enough to affect a state’s tax base. In the short run, a state can raise taxes with impunity. But the consequences can be severe over the longer run.

    Second, higher taxes do not necessarily contribute to better public services. Sometimes they do. But sometimes they just support featherbedding and expensive pensions for public employees. Sometimes they underwrite boondoggle public works projects that favor the politically connected. Sometimes they support entitlement programs that make life easier for the poor but do nothing for the people who pay the taxes.

    Third, housing prices are a factor influencing where people move. So are average wage levels and the general cost of living. Also, as economic geographer Richard Florida has illuminated, members of the “creative” class (who are desirable from an income and tax-generating viewpoint) are drawn by a metropolitan region’s character — its openness to newcomers, its tolerance for diversity, and its cultural vibrancy and authenticity. To those factors I would dd the role of human settlement patterns: Some regions are more livable than others. Finally, I would hazard a guess that the single-most important factor driving inter-state migration is simply the availability of jobs. If you can’t find work, none of the other factors really matter. Taxes are only one factor in the mix, and it is important not to over-sell them.

    But tax levels are correlated with job creation and income growth. (For evidence, click here.) That’s not because they are the critical driving variable, I suspect, but because they are a proxy for a larger mindset, what Walter Russell Mead terms the “blue state governance model” of high taxes, public employee unions and heavy regulation. (For a taste of Meade’s thinking, read “Blue State Schools: Shame of a Nation.”) Overall, the Red State policy mix is better at creating jobs and raising incomes than the Blue State policy mix.

    Bacon’s bottom line: Taxes don’t matter as much as some conservative analysts think they do. But they are a proxy for the Red State policy mix that has been proven to be far more robust than the Blue State model.

  • The Wonk Salon, August 12, 2011

    Posted on

    by

    James A. Bacon

    Snuff Out Tax Hikes on Cigarettes
    Heartland Institute
    In most states (but not Virginia) smokers already pay more in taxes than the costs they impose on society. Raising taxes even higher would punish the poor, encourage black markets and potentially lose revenue.

    Digital Tax Reform Still Needs Work
    Center for Budget and Policy Priorities
    Proposed federal legislation would regulate how states and localities tax downloaded movies, music and online services. As currently worded, though, it would reduce state and local revenue.

    Immigrant Workers Hit Hardest by Construction Downturn
    Economic Policy Institute
    Immigrants were hit harder by the construction downturn than native-born Americans. They were more likely to get laid off and to suffer reduced wages.

Now Available

Book cover of 'Dust Mites: A Second American Revolution' by James A. Bacon, featuring astronauts planting a flag with a blue and white emblem on a lunar landscape, with Earth visible in the background.
For sale on Amazon.com

The year: 2075. The American colonies on the Moon are getting restless under Washington’s tyrannical rule….

This second edition of “Dust Mites” has a snazzy new cover, includes helpful lunar maps, and is 5,000 words tighter than the original. The sequel, “Trogs,” is scheduled for publication this summer.

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