The Tax Foundation recently released their 2017 State Business Tax Climate Index report detailing the rankings of all fifty states. The overall score is determined by the burdens of each state’s corporate income tax, individual income tax, sales tax, unemployment insurance, and property tax. The purpose of the report is to “show how well states structure their tax systems, and provides a roadmap for improvement.”
Chart 1 shows the ranking of each state. A common factor between a majority of the top performing states is the absence of at least one major tax, such as the individual income tax, and for states that do levy all the major taxes, they do so with low rates and broad bases. States ranked in the bottom bracket share similar shortcomings such as complex non-neutral taxes and comparatively high tax rates.
Texas’ overall ranking declined one position to 14th nationwide. While Texas excels in the unemployment insurance and individual income tax categories, the overall ranking decline can be attributed to poor scores for corporate income and property taxes.
Although the 2015 Texas Legislature cut the business franchise (margin) rates by 25 percent for a total value of $2.6 billion, the relative ranking of the corporate income tax remained unchanged at 49th, or second worst! This is due to the fact that the business tax is a gross receipts-style tax that is costly to comply with and pay. The Tax Foundation published a previous paper that finds the state’s overall business tax climate would increase to 3rd if the margin tax was eliminated. Moreover, the Texas Public Policy Foundation and the Legislative Budget Board (LBB) have estimated large economic gains from eliminating this onerous tax.
The Tax Foundation also notes that Texas’ local property taxes is a thorn in taxpayers’ side as the relative ranking of property taxes declined from 33rd to 37th, or 14th worst! Its structural complexity, unwarrantedly high rates, and lack of voter oversight continue to confuse and burden taxpayers. The 84th Legislature took steps to lower this burden by increasing the homestead exemption for school districts by $10,000 to $25,000. However, as the LBB recently noted, although homeowners paid a lower property tax amount than without the exemption increase, most homeowners paid more for their property taxes this year.
To overcome the overwhelming burden of local property taxes statewide, the Texas Public Policy Foundation published a paper highlighting key reforms that should be made in the short run and long run. Specifically, structural reforms should be made in the short run by giving voters a stronger voice in the growth of property taxes by requiring an automatic election for any local government whose revenues increase above a certain limit in any one year. In the longer run, we imagine Texas with substantially more economic growth and job creation from replacing the inefficient property tax system with a higher, broader-based efficient sales tax.
The 85th Legislature should take these rankings by the Tax Foundation and other reports into consideration to improve the state’s business tax climate. The goal is not necessarily to beat other states, but to give Texans the best chance to prosper, which can happen if we improve our rankings to encourage more new businesses and job creation.
New Texas Jobs Report Shows Unemployment Rate At or Below the U.S. Average for 116 Consecutive Months
Today, the Bureau of Labor Statistics released state-level labor market information for August 2016. The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued the following statement:
“Texans continue to have reason to cheer as employers increased net nonfarm jobs by 21,400 last month, bringing the remarkable streak to 69 of the last 71 months. Critics have tried to discount the vitality of the state’s economy that’s based on a diverse economy and pro-growth policies, but time and again those critics have been proven wrong,” said Dr. Ginn. “The 190,600 jobs created during the last twelve months contributed to a 4.7 percent unemployment rate that’s now been at or below the national average for 116 straight months; no other state comes close to this feat. There’s been slower job creation, so there’s room for improvement, but the results are clear: the Texas model sparks more voluntary exchange, which in turn creates more prosperity for Texans. Legislators should take note and double-down on last session’s efforts in the upcoming session.”
Vance Ginn, Ph.D. is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.
Registration for the 2017 Policy Orientation for the Texas Legislature is now open to media and the public!
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
Find us on Facebook
Follow us on Twitter
This commentary originally appeared in the Washington Examiner on September 15, 2016.
Hidden amidst all the sanctimonious verbal attacks and political over-promises to save people from Big Pharma's greedy clutches is a simple but painful truth, confirmed by the Epipen debacle. Though Washington decries Mylan's monopoly power and price gouging, it is Washington that created and protects Mylan's monopoly.
Epinephrine (Epi) is our naturally occurring "Fight or Flight" hormone, intended to protect us in high stress situations. One of its manifold effects is to open the airways so more air can get in and out. This allows us to run away from an enemy (flight) or win a conflict we can't avoid (fight.) In patients with asthma and in those with allergies that suddenly close down the air tubes, called anaphylaxis, the immediate administration of Epi can be the difference between life and death.
Meridian Medical Technologies introduced the first autoinjectors of Epi for public use in 1997. Mylan acquired the patent for EpiPen in 2007, becoming the sole seller and marketer of this life-saving medication. In 2007, a two-pack of EpiPen autoinjectors was priced at less than $100. Today, Mylan charges $600, and gets it … or people must do without.
Epinephrine as a synthetic medication has been around since 1904. Therefore, it should be available in generic forms and subject to competitive market forces. It is Mylan's specific autoinjector technology, originally developed by the military, which they can sell exclusively because it is under patent protection. Mylan does not have a monopoly on the sale of the medicine epinephrine (adrenaline). Rather, they have a monopoly on the EpiPen autoinjection device, which is mechanically different from the various other autoinjectors available to the public such as for insulin.
Over the same period that Mylan increased the price of EpiPen 500 percent (2007-2016), the annual compensation of Mylan CEO, Heather Bresch, rose 670 percent.
Such increases in price and CEO paychecks meet anyone's definition of price gouging and exorbitant compensation. Isn't Mylan effectively holding asthmatics and people with allergies hostage to their corporate greed? One would think this is illegal. However, this extortion is perfectly legal.
Mylan has a government-created and government-protected monopoly, one that is maintained by "the federal government's own regulatory scheme," a scheme that actually encouraged "a billion-dollar market [to be] cornered by one supplier."
Adamis, Sanofi, and Teva are three pharmaceutical companies that want to compete with Mylan. They are prevented from entering the market by the federal government, specifically the FDA, which has repeatedly denied them approval to sell.
Another barrier to entry of market competitors is the fact that "the FDA maintains no clear and consistent principles for generic drug-delivery devices like auto injectors or asthma inhalers." How can anyone comply with the rules if there are no rules and the rules that do exist keep changing?
The government has another way of protecting Mylan's monopoly: cost. The average price for a company to get FDA approval is $2.56 billion (in 2013 dollars.) This cost of acquiring regulatory approval is, of course, reflected in the prices we must pay for drugs.
Federal patent laws add another barrier to potential competitors. Companies like Mylan can protect their monopoly position through extending nearly expired patents with very minor changes to existing products.
The Obama administration mandated that public schools must purchase EpiPens. With Mylan already having more than 90 percent market share for Epi, Washington actively facilitates Mylan's market dominance and control.
Like any good monopoly, Mylan can use its market control to gouge the public. This is not the fault of the free market—it is the fault of a federally controlled, "non-free" market.
If there were a free market, competitors would "keep Mylan honest." In a free market, Mylan could not simply dictate the price of a two-pack of EpiPen at $600 because market competition would create a bidding war that would drop the price closer to the cost of producing each one, which is certainly less than $20. This competition would create a situation where no one would buy Mylan's product at $600 if they could an effective alternative for, say, $25.
Condemnations of Mylan by Washington politicos are self-serving. The politicians want to distract the public from the government's complicity, through the FDA, in Mylan's price gouging.
Ironically, protection of commercial monopolies is actually not Washington's primary purpose. Nonetheless, monopoly is a predictable (and repeatedly predicted) consequence of the feds' real strategic goal: control. Most federal laws and executive orders, with their subsequent "necessary" rules and regulations, expand federal control and extend federal reach.
There are numerous examples of Washington's disdain for the free market in the Beltway's quest for control. Obamacare is a paradigm. As a result of Obama's namesake law, Washington mandates (controls) insurance benefits; dictates (controls) payment schedules; and even tells us (controls) what we must spend our money on: government-approved health insurance.
Hypocrisy is thick on the ground. Washington's authoritarianism gives Mylan a monopoly. Mylan uses its control of the market to gouge the public. What does the architect of Obamacare, Dr. Ezekiel Emmanuel, recommend to protect us from pharmaceutical monopolies and their market control? Tighter control of the market in the form of government monopoly, called price controls!
Every good psychiatrist will tell you the first steps to cure are recognizing that there is a problem and accepting that you have it. If Americans want to regain the liberties penned by our Founding Fathers, we must start by recognizing why we lost them: A progressive federal drive to concentrate power in the hands of Washington, D.C.
This commentary originally appeared in Forbes on September 14th, 2016
Aphorisms like “the pot calling the kettle black” persist because they keep being proven relevant. Such is the case with politicians’ outrage over Mylan Pharmaceuticals’ price gouging for its life-saving EpiPen: their price has risen from less than $100 for a two-pack in 2007 to $600 today.
The government (“pot”) is loudly and very publicly calling Mylan (“the kettle”) “black”—at fault—for something the government itself did.
Epinephrine (Epi) is a naturally occurring hormone our bodies use for Fight or Flight. Epi makes our hearts pump harder, it heightens the senses, strengthens our muscles, and opens up the airways. In patients with sudden constriction of the airways, such as in asthma or respiratory allergies with anaphylaxis, Epi can be lifesaving.
Meridian Medical Technologies introduced the first autoinjectors of Epi for sale to the public in 1997. Mylan Pharmaceuticals became the sole seller and marketer in 2007. After multiple denials by the FDA of competing Epi devices and President Obama’s 2013 legislation forcing public schools to purchase EpiPens, Mylan gained market share to reach its present level of 90 percent.
Why can Mylan get away with a 500% price increase? Because it has a monopoly, one that is maintained by “the federal government’s own regulatory scheme” which allowed, in fact encouraged, “a billion-dollar market [to be] cornered by one supplier.” Government officials decry Mylan’s behavior to distract the public from government complicity.
Sanofi , Teva, and Adamis are three pharmaceutical companies that would like to compete with Mylan; however, they cannot sell Epi because they do not have the FDA’s okay. The feds keep changing their administrative rules and regulations. In fact, “the FDA maintains no clear and consistent principles for generic drug-delivery devices like auto injectors or asthma inhalers.”
Another barrier to competition is a patent process that allows companies to make minor changes to products with nearly expired patents so they can restore patent protection and protect monopoly.
Finally, cost raises the barrier to market competitors to unscalable heights. The cost to obtain FDA approval is $2.56 billion (in 2013 dollars). This expense will be passed on to consumers.
Collectively, the federal regulatory apparatus has allowed Mylan to preserve its monopoly. Mylan can charge whatever it wants for its product and earn obscene profits at the expense of price-gouged consumers. At the same time that the price of EpiPen increased 500 percent, Mylan CEO Heather Bresch’s annual compensation rose from $2,453,456 to $18,931,068.The consumer doesn’t pay for pharmaceuticals—insurance does, usually the government. So where is the incentive to economize? Economists call this “moral hazard,” where the person who spends has no reason to save money or demand value because he or she is spending other people’s money. If you wonder why the spending curve for healthcare keeps rising, look no further than the moral hazard.
Dr. Ezekiel Emmanuel, one of the architects of Obamacare, admits that a free—“uncontrolled”—market would bring down prices. Yet, his solution is more government control, specifically price controls.
What does history teach us about price controls?
The U.S.S.R., Cuba, Korea, Spain, and Venezuela amongst others have all used strict government price controls. The results were: shortages of everything, viz., long lines of Russians standing in the snow waiting for government-issued shoes or toilet paper; poor worker productivity; very low standards of living; and no innovation. This is precisely what we don’t want.
The solution to the exorbitant price of EpiPen is not public shaming, such as claiming that Mylan is “just the latest troubling example of a company taking advantage of its consumers.” The solution is not Mylan’s proposed coupon program or its introduction of a “generic.” Most definitely, the solution is not more government controls through regulation.
The answer lies in releasing market forces from government suppression. If government bureaucratic barriers were eliminated, sellers could compete, and the supply of goods would increase. If the government were not the third party payer for health care, that is, if consumers controlled their healthcare dollars, spending would drop. Prices would plummet from these market forces.
In a free market, Mylan might charge $600 for EpiPen but they would sell no units because people could buy a competitor’s medication for, say, $15. If politicians really want to help save Americans by making life-saving drugs readily available, they should get the government out of healthcare and unshackle the free market.
This commentay originally appeared on the Austin American-Statesmen on September 1, 2016
Football season is almost here. No matter which team is your favorite, there are certain players that you root for because they are an influential part of the team’s success. If those players are injured or not playing at their full capacity, that team is unlikely to perform well. It’s one thing for a team to play well for a year or two, but it’s another thing entirely to sustain that over many years, which is often called a dynasty.
Recently, Julián Castro, the U.S. secretary of Housing and Urban Development and former mayor of San Antonio, compared two economic heavyweights: California and Texas. Specifically, he said, “California is kicking our butt, creating more jobs and more economic growth than Texas.” He claimed this means that progressive, big-government policies in California produce better results than Texas’ conservative, limited-government policies.
PolitiFact released an article in the Statesman that rated this claim as “true.” However, as in sports, one or two years of winning seasons by California doesn’t come close to the extraordinary success in Texas during the last decade of what could be considered an economic opportunity dynasty.
One of every five people live in these two states. One of every four dollars of production nationwide are produced there. Ranking each state against countries, California would rank sixth and Texas would rank 10th. The list could go on.
Given their size and importance, Americans really need both states to prosper.
After descending into a deep valley during the recession, California’s economy has recently grown at a faster rate than in Texas, where the drop in oil prices and higher value of the dollar have negatively affected the mining and manufacturing sectors. However, during the last decade, the productive, real private sector growth has increased by 13.6 percent in California compared with a robust 29.1 percent in Texas.
This growth translates into output per person in Texas increasing almost four times more than in California in that period, meaning economic output has far outpaced population growth.
Although contemporary economic growth in California has led to a higher annual job creation rate than in Texas since April 2015, this only tells part of the story.
Since December 2007 when the last national recession started, total civilian employment increased in California by 1.2 million while it increased by 1.7 million in Texas, with a labor force two-thirds the size of California’s. This increase in employment in Texas constitutes about one-third of all jobs created nationwide — truly remarkable given recent headwinds!
This phenomenal job creation contributed to Texas’ unemployment rate (4.6 percent) being at or below California’s rate (5.5 percent) for 121 straight months, or since July 2006. But the official unemployment rate only accounts for those actually looking for work, a better gauge of labor force health would be the share of the population employed, which has been higher in Texas than in California since at least 2000.
More economic output and job creation over time in Texas has contributed to less poverty. The Bureau of Labor Statistics’ supplemental poverty measure, which accounts for the local cost of living, shows that Texas’ rate matches the national average while California has the nation’s highest poverty rate
Income inequality has also been higher in California than in Texas for years. For example, the average of total income held by the top 10 percent of income earners from 2000 to 2012 was 49.9 percent in California compared with 48.8 percent in Texas.
The results are pretty clear that California’s progressive policies of having the highest marginal personal income tax rate, cumbersome regulations, huge unfunded pension obligations, an out of control lawsuit environment, and other policies reduce economic opportunity.
We need both of the key players in the U.S. to perform at their full potential, as we do the best players on our favorite football team. California and Texas need to not only win but also be dynasties with pro-growth policies that support a strong foundation for continued economic growth.
The Texas model of low taxes, no personal income tax and stable regulation would help Californians and all Americans prosper if the last decade is any indication of future activity.
Vance Ginn, Ph.D.