Public policy often seems that it should be intuitive. If a state needs more revenue, the easiest way to raise some is to increase taxes (easiest for elected officials, that is). Who has the most money to appropriate? Millionaires, obviously. Connect the dots, and raise taxes on millionaires.

Maryland did just that, but their experiment shows why political common sense and real life common sense are distinctly separate things. From the Wall Street Journal:

We reported in May that after passing a millionaire surtax nearly one-third of Maryland’s millionaires had gone missing, thus contributing to a decline in state revenues. The politicians in Annapolis had said they’d collect $106 million by raising its income tax rate on millionaire households to 6.25% from 4.75%. In cities like Baltimore and Bethesda, which apply add-on income taxes, the top tax rate with the surcharge now reaches as high as 9.3%—fifth highest in the nation. Liberals said this was based on incomplete data and that rich Marylanders hadn’t fled the state.

Well, the state comptroller’s office now has the final tax return data for 2008, the first year that the higher tax rates applied. The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million.

Don’t feel sorry for the poor poor millionaires; that’s not the point I’m trying to make. Taxes are a serious driver of out-migration, be it small states like Maine, or more populous states like New Jersey:

New Jersey out‐migrants tend to move to states that have much lower property values (35% lower), property taxes (41% lower) and overall costs of living (17%lower). Destination states also have notably lower average incomes, substantially higher crime rates, higher infant and child mortality; slightly lower school quality, but somewhat warmer winters. Overall, it appears that net out‐migration is due to the high cost of living (especially the high cost of housing and property tax) in New Jersey.

Policy makers and their hangers-on have often regard taxpayers as little more than fiscal sheep, and periodically shear them. But people, unlike sheep, can vote with their wallets and feet. Usually the powers that be see this as something akin to letting the home team down, or not doing one’s “fair share.” The word “selfishness” is also thrown around.

Policies like the levels of taxes, services, and entitlements that a government prescribes are hardly a form of science. Law makers and interest groups would like to portray them as a serious commitments, and not self-interested social experiments. Again from the Journal:

Thanks in part to its soak-the-rich theology, Maryland still has a $2 billion deficit and Montgomery County is $760 million in the red. Governor Martin O’Malley’s office tells us he wants the higher rates to expire “as scheduled at the end of 2010.” But there are bills in both chambers of the legislature to extend the surcharge. The state’s best hope is that politicians in other states are as self-destructive as those in Annapolis.

The “Soak the Rich” phenomenon is a common-sense argument for redistributive policies, but it has significant flaws beyond the simple fact that it doesn’t work. Take a look at this chart of how tax burdens are distributed in Federal taxation. (here, either insert or link to this: http://www.mint.com/blog/wp-content/uploads/2009/11/MINT-TAXES-R4.png)

Libertarians and liberals can mostly agree that there is too much money and influence in politics, but the policy prescriptions each group suggests are dramatically different. Advocates of punishing the rich ignore the simple fact that when a certain group bears so much of the tax burden, they have massive incentives to care about and influence politics. It’s that or leave the country, or just stop making money (by, for instance, not hiring new employees.)

See this graphic (or click below) for a good visual explanation:

Maine’s legislature recently engaged in a strange exercise. A representative introduced a bill to eliminate local referenda on educational budgets. The bill read in part:

A regional school unit’s budget must be approved at a regional school unit budget meeting and by a budget validation referendum as provided in section 1486.

The very next day, the bill’s sponsor disavowed the measure, after he was inundated by constituent mail opposing the proposal. After hearing Representative Howard McFadden’s mea culpa, the education committee unanimously voted the bill down, allowing localities to retain control of local education spending.

The issue was far from dead, however. The education committee was also considering a separate bill which contained a referendum-killing provision, ostensibly to enable easier school-consolidation measures.

Ultimately, a “tidal wave” of constituent input convinced the education committee to unanimously abandon the measure. For now Mainers retain the right to control local education spending, and judging by the hue-and-cry voters raised, by a significantly popular margin.

School consolidation in Maine is problematic. The state is divided into two radically different polities. Southern/Coastal Maine is relatively affluent and densely populated, while Northern and Central Maine are sparsely populated and less affluent.

Consolidation makes sense in many respects, but the economics are questionable. Some towns, like Fayette, have no higher education facilities, but have a voucher-style tuition system to send students to any of the surrounding high-schools, including a local private high school.

This kind of school choice introduces a modicum of competition into local systems, and allows families to choose the school that is best suited to their particular needs.

Instead of removing local control via consolidation measures, Maine’s education committee should consider measures introducing more personal and local choice.

Previously on Neighborhood Effects, Emily Washington wrote about education competition and Eileen Norcross detailed the struggles of D.C.’s controversial voucher system. Eileen also recently co-authored an issue of Mercatus On Policy on educational competition.

(H/T Maine Heritage Policy Center.)

In 2008, Maine set a shameful record. This past year we sent more money to Augusta, as a percentage of income, than ever before. Unfortunately, it gets even worse. According to the U.S. Department of Commerce, Maine is on pace to send almost forty cents of each dollar to the capitol in 2009.

For over a decade now, Augusta has been getting bigger. As a result, we have lost jobs, tax revenue, businesses, teachers and public services. Despite all this evidence, unions, legislators and bureaucrats want us to think that they can spend our money responsibly. There has to be a way to make the state both effective and affordable. Question four, the Taxpayer Bill of Rights, while not perfect, is the best solution for our cancerous growth of government.

Mainers trust each other; it’s one of the best things about life here. We know that if we ask for directions, get a flat, or need a hand, our neighbors will be right along to help. We take pride in our communities, and it makes living here special. TABOR allows Mainers to take responsibility for their choices, and use our famous common sense. The only alternative, the way things are now, is letting Augusta arbitrarily decide whether our communities thrive or die.

TABOR is less about how much money is spent, and more about who decides where it goes. Currently, unions and special interests are running ads that claim TABOR would cut vital public services Mainers rely on. These are simply empty threats they use as scare tactics.

TABOR isn’t the ‘cap’ opponents claim, but an extra dose of accountability. It allows Mainers to hold Augusta responsible for how and why they spend our money. It will force the state spend more intelligently. With only a ‘good enough’ policy, Maine has wasted millions on education that doesn’t teach kids, on healthcare that doesn’t keep us healthy, and on public services that only benefit special interests. We deserve better.

By relying on direct democracy and operating under a simple rule, TABOR fosters transparency and fiscal discipline. Augusta must present the amount, purpose, and time in which they want to spend extra funds for citizen approval. If there is a tax surplus, taxpayers can decide what happens to the money. The state is forced to reduce the level of taxation within the limit set by inflation and population growth, automatically restricting government growth to a level chosen by citizens. Who doesn’t want to be more effective and save money?

When programs aren’t working, Augusta’s solution is to spend more money and raise taxes. Bureaucrats said Dirigo would cover 30,000 Mainers, but it only covers a third of that number. When the program proved inefficient and overly expensive, their solution was to tax soda, wine and beer. Maine voted that down, and held Augusta accountable for wasteful spending. This opportunity is what we want to protect with TABOR. It is much better than good enough.

When Mainers go grocery shopping, we don’t just rush into Hannaford’s or Whole Foods with a wad of cash and throw items in a cart until we’re broke. We take our time and bargain shop; we want the best quality and nutrition for our dollar. However, when it comes to state spending, for decades Augusta has thrown everything into the cart. When money runs out they demand more. Is our education or fire department dollar less important than our grocery bill?

Colorado learned that TABOR can help stretch a dollar. In 1992, before TABOR, Colorado was leading the nation in education spending. However, their students’ results hovered below the national average. Since TABOR, Colorado spends less than the average on schooling and their students achieve at a much higher rate. People can argue if Colorado’s education
system is better or worse, but it’s clearly more efficient. They pay less and get more. Maine pays more and gets less.

TABOR opponents want to prevent us from voting on spending increases. They insist rushing wasteful spending through the legislature is the best way for Maine to prosper. It’s not working, because legislators don’t want their constituents to see where the money goes. TABOR is the only way to show Augusta we are paying attention, and care about how the state is operating. Bureaucrats hate TABOR because they know Mainers won’t accept bloated unions and wasteful government any more. Colorado did better than good enough, and so can Maine.