Categories
Local Government Tax and Budget

Take Time Booting Up Albuquerque Wi-Fi Deal

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The city is evaluating plans from five companies that submitted proposals last week to create a citywide wireless system for Internet and other communications.

The competitive process was kicked off by Mayor Martin Chávez as a way to bring free wireless to town and get more residents than ever before connected to the Internet.

The mayor envisions a two-tiered wireless Internet signal covering the entire city that will support not just the basics of Web surfing, e-mail and the like, but phone service and video as well. If this vision is fulfilled, the basic tier will be a free, 1 megabit signal for anyone and a premium service at 3 megabit for a reasonable cost. A secure 4.9 gigahertz signal for the city’s private use— fire, police, rescue and such— is also part of the proposal.

This all sounds great, and if a company is willing to step up and make what some analysts believe could be a $25 million investment for the privilege of providing this service, it would be hard for the city to say “no.”

But there are some very real stumbling blocks on the entrance ramp to the information superhighway that have tripped up our neighbors in Rio Rancho and Sandoval County.

Back in 2003, Rio Rancho contracted with a Michigan-based wireless company named Azulstar to provide eight hours of free wireless service to anyone accessing the network within city limits in return for use of the city’s rights of way.

The system is so dysfunctional that the agreement has been put on life-support until mid-August, at which point the deal may be terminated by the city. But, at least it hasn’t cost taxpayers anything.

Sandoval County, on the other hand, has wasted at least $1.2 million on a system that, according to County Commissioner David Bency, is no more usable than “a series of tomato cans attached to a string.”

The problems that have plagued both systems should serve as a warning to Albuquerque leaders that they also must carefully evaluate the city’s role in setting up such a system. At the very least, Albuquerque must stick to its guns by making sure that no taxpayer money be spent to subsidize a wireless system.

Additionally, while not a direct financial subsidy, it would also be a mistake to give one provider exclusive favors that it doesn’t offer to other potential entrants. This could be a major stumbling block as any company making a $25 million investment will likely want to lock in some kind of monopoly status in order to protect its investment. Of course, consumers would then be locked in to the municipal service as other providers leave the city unable to compete with a favored provider.

It is important to have a clear understanding that providing wireless service is much different than managing roads and sewers. Roads and sewers require investments that make their private provision quite difficult under current conditions. Will the new system put private industry out of business?

Assurances must be made to ensure that those who are willing to pay for Internet and wireless services above and beyond what the city’s chosen provider offers will have that option available and that existing competitors will not be driven out of the market.

The last issue is changing technology. New technologies known as GSM (global system for mobile communications) and CDMA (code division multiple access) are widely deployed by major commercial providers. Is Albuquerque’s provider going to be ready to change if another technology takes hold? What if wi-fi becomes irrelevant as a technology in just a few years?

It is human nature to want something for nothing. Nowhere is that attitude more prevalent than the fast-changing field of computing, where more powerful at a lower price is the expectation.

Before we delegate our choices over how we connect to the Internet to the city’s chosen contractor, Mayor Chávez and the council must have a firm grasp on the issues and be willing to walk away if no one can properly fulfill these requests.

Paul Gessing is president of the Rio Grande Foundation, a nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Categories
Health Care

Should Medicare be Means-Tested, Quite Simply, Yes.

Should Medicare be means-tested? Quite simply, I say “yes.” This solution to the well-documented problem of out-of-control entitlement spending may not be “fair,” assuming that further changes are not made and that high-income people will continue to contribute disproportionately to the program, but government programs are never “fair.”

That’s why, when I’m presented with the opportunity to shrink a major government program, I can’t help myself but to say “yes.”

After all, today’s productive workers are footing the bill for Medicare and Social Security programs that are far beyond what will benefit them. That is not fair, either.According to a New York Times article outlining concerns about means-testing provisions contained in the 2003 expansion of Medicare, the two major objections to means-testing are (1) wealthy retirees will abandon the program and rely on private insurance instead, leaving poorer, sicker people in Medicare; and (2) higher premiums could drive people with higher incomes out of Medicare, thus making Medicare a welfare program rather than a universal social insurance program.

The second point is the key, because it follows directly from the first. Many supporters of means testing will quibble with these facts and attempt to gloss over the very real political issues associated with transforming Medicare into a welfare program, but I do not.

Calling Medicare “welfare” only articulates what has always been true about it: Any entitlement program that annually transfers $418 billion from one group of people to another (as Medicare did in 2006) must be considered “welfare.” The only difference is that one welfare program (the current version of Medicare) essentially buys the support of higher-income Americans by giving them access to basically the same welfare as low income recipients.

Taking money from productive taxpayers and arbitrarily allocating it to another group, no matter how wealthy, is still welfare. We see this regularly with “corporate welfare” that is given to multi-billion-dollar corporations. All of this is not to say that people who oppose Medicare means-testing are being disingenuous. They really do have the right to be afraid that if welfare were means-tested, political pressure might build to alter or even eliminate the program.

Of course, the end of Medicare in its current form is exactly what I (and presumably most advocates of limited government) want. Many conservatives and nearly all libertarians believe that Medicare is a deeply flawed program and even a regrettable mistake. That said, if we simply move forward under the assumption that some kind of health care program for seniors will always be with us, then means testing could help open the door for other reforms. These include the adoption of more market-based insurance mechanisms such as health savings accounts, which allow patients to plan for medical expenses and retirement as a whole, or some form of block-granting of Medicare money, as was done in 1996 with welfare reform.

Empowering patients would be a major positive step in reducing the burden of this program on taxpayers and, along with means-testing, would serve the very people who need help without shoe-horning everyone into the same unsustainable government program. Means testing may not be the silver bullet needed to put Medicare on a path to sustainability, but by altering political calculations, needed reforms may be in the offing.

Paul Gessing is president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico, based on principles of limited government, economic freedom, and individual responsibility (www.riograndefoundation.org).

 

The full symposium document can be found at:http://www.americanexperiment.org/uploaded/files/should_medicare_be_meanstested.pdf

Categories
Health Care

Beware of Health Care Cure-All

I had the opportunity to attend the recent New Mexico First event on health care. I was pleased to see so many concerned citizens take time out of their busy lives to get together and work out solutions to one of our state’s most pressing problems, but amazed at how complicated and convoluted the health care issue has become.

Much of the blame must be placed at the feet of Congress and the federal government that has created the misguided and bizarre incentives under which all states must operate. Health Savings Accounts, which give individuals greater control over their health care needs, were a necessary first step. But these somewhat complicated accounts would be unnecessary if Congress would heed President Bush’s call to offer to individuals the same tax incentives now given only to companies.

The fact that these tax incentives are given to employers is a historical anachronism that does nothing but place health insurance companies between health care consumers and their providers. Whereas socialized medicine and other “universal” models simply replace health care companies with government bureaucrats as our health care gatekeepers, giving individuals control over their health care dollars would restore that patient-doctor relationship. Unfortunately, corporate and union interests have teamed up to strangle this needed reform in the cradle.

Another change that Congress needs to make is to bring federalism to health care. One of the great strokes of genius made by the Founding Fathers, federalism forces states to compete with each other.

Unfortunately, in the area of health insurance, this concept has been lost as insurance companies have successfully walled off each state, thus protecting themselves from competition and subjecting consumers to costly mandates and regulations imposed by the individual states.

New Mexico, for example, has 45 mandates covering everything from alcoholism and acupuncture to TMJ Disorders. While such coverage may be nice to have, they add significantly to the cost of health insurance. The costs associated with New Mexico’s large number of mandates contribute to our having the second-highest rate of uninsured.

Legislation that would have allowed individuals to purchase insurance across state lines was proposed by Rep. John Shadegg, R-Ariz., and then-speaker Dennis Hastert, R-Ill., last year, but died. Absent congressional action, New Mexico can and should allow residents to purchase health insurance from out-of-state.

Any discussion of health care in New Mexico would be incomplete without an analysis of the perverse incentives created by Medicaid. Due in part to the generous federal subsidy the federal government gives New Mexico (a 3-1 match depending on the specific program), many of our elected leaders view Medicaid as a means of generating economic growth at the expense of taxpayers in other states.

This rationale was among the justifications for successful efforts to raise from $4,000 to $10,200, the earnings threshold for low-income adults under which they can still qualify for Medicaid. The change is expected to add an additional 18,000 adults to the program, costing the state “only” $11 million— and costing taxpayers in other states probably three times as much.

While the incentives are certainly there for New Mexico to expand Medicaid to the greatest extent possible, this is not going to lift the poor out of poverty or improve health care coverage. Instead, Gov. Bill Richardson and the Legislature should request that the federal government allow New Mexico to follow the successful welfare reform model developed in the 1990s by receiving its Medicaid money in the form of a block grant and developing unique, New Mexico-centric solutions to our health care mess.

Unfortunately, while each reform I have outlined above would simplify and restore some logic to the health care system we all know and despise, each faces strong opposition from certain entrenched interests. Nevertheless, there are sensible free-market solutions to our health care problems that will expand coverage dramatically while also enhancing the patient-doctor relationship and cutting costs.

It may seem easier to throw up our hands and demand “universal coverage” with the government in charge, but government policies created many of these problems in the first place. We should hardly expect the government, the insurance companies, and other special interests to give up their power under a “socialized” scheme.

Paul Gessing is president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Categories
Local Government Tax and Budget

County Should Stay Out of Wi-Fi Business

Sandoval County’s scandal-plagued effort to create a county-wide publicly financed broadband system has been widely-reported on. The project has received $3 million in state and county funding for the supposed purpose of providing cheap, ultra-high-speed wireless access countywide, but much of this money has been wasted or perhaps even stolen. State auditor Hector Balderas is now looking at the situation.

Though it would be easy to simply blame the contractors and government officials who are attempting to get the project up and running by 2009 for being corrupt and/or incompetent, the fact is that Sandoval County should not be involved in such a project in the first place.

As Sonia Arrison, Dr. Ronald Rizzuto, and Vince Vasquez, report in their recent report, “Wi-Fi Waste: The Disaster of Municipal Communications Networks,” published by the Pacific Research Institute, publicly-financed broadband systems invariably cost more and deliver less than promised.

The survey examined 52 government-owned networks that compete in the cable, broadband, and telephone markets. It concludes the government-owned systems are “financial disasters.”

Among the major problems with these systems is that they rely heavily on loans and transfers from established municipal utilities such as electricity and water. Even with the power of the public purse, 77 percent of the time municipal networks can’t pay their way, the report observes.

Those subsidies enable the government-aided networks to use their funding advantage to drive out more efficient private-sector competitors.

As government officials rush to show leadership and take credit for delivering the goods, they often trade short-term political benefits for serious, long-term financial problems: cost overruns, mounting debt, and tepid profits, the report observes. The report clearly shows what Sandoval County now knows: “Public telecom networks are risky gambles, regardless of the technology or the business model.”

The report also reveals the extent to which these operations rely on interest-free loans, inter-utility transfers, and permanent subsidies, the details of which in many cases are buried in financial reports, if reported at all.

“The footnotes in most of the networks’ financial statements have omitted any discussion of cost allocation between the telecom utility and other utilities, which suggests that utility accountants may be shifting around costs to enhance the appearance of telecom profitability,” the authors report.

The utilities also appear to be hiding other significant costs. “There is also the issue of system accountants’ failing to divulge major financial transactions on the printed public record. For example, at the end of the 2003 fiscal year, the telecom network of Harlan, Iowa, received an intra-utility loan for $768,025. In 2004, this intra-utility loan was forgiven but the financial-statement disclosures did not provide any explanation for this transaction,” the report says.

Even with access to subsidies and loans not available to private-sector companies, municipal systems can’t break even, let alone establish positive cash flow, the report notes.

“Adding all the operating years together, our select sample of publicly-financed systems has been in existence for 294 years,” the authors write. “Of these 294 years, these operations have incurred negative free cash flow in 227 years. In other words, 77.2 percent of the time, these networks have not paid their way.

Sandoval County is not alone. The county’s venture into providing the latest in high-speed Internet access was likely to cost taxpayers more and deliver less than was expected from the very start. The fact that governments run businesses poorly is a lesson that needs to be reinforced regularly lest other New Mexico governments repeat Sandoval County’s mistakes.

Rather than throwing more money at a wireless project that is clearly going to cost taxpayers far more than the original $9 million estimate, Sandoval County should “pull the plug” on this foolhardy taxpayer-financed venture immediately.

Some people are clearly willing to pay for high-speed wi-fi access in their own homes or at their local coffee shop. Why should they make the rest of us pay for a county-wide system?

PAUL GESSING is president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Categories
Health Care

The Mental Health Parity Act is All Wrong

Although Sen. Domenici’s role in the ongoing flap over the fired U.S. Attorneys has garnered New Mexico’s senior senator a good deal of unwanted attention recently, another more substantive policy matter should be of greater concern to conservatives. Polls indicate that health care is one of the most important issues on voters’ minds. To this end, the concept of making health care more affordable is a mantra that has been adopted by politicians of both parties.

Domenici — working in conjunction with the usually conservative Mike Enzi (R.-Wyo.) and the reliably left-wing Ted Kennedy (D.-Mass.) — is now leading an effort that would ultimately drive up the costs of health insurance and may even inflict harm on the very people the senators are trying to help.

The legislation, which has already passed out of one Senate committee, is known as the “Mental Health Parity Act.”

While the desire to help those with mental illness is noble, the senators’ proposal will inevitably, if inadvertently, harm both the mentally ill and the uninsured.

This bill would require health insurance policies that provide coverage for mental illness provide it in the same way that they provide benefits for other conditions. Thus, if the co-pay to see a family doctor is $20, then the co-pay to see a psychiatrist must also be $20.

In a free market, the decision of how to cover mental health benefits is left to the insurer and the insured. A mandate to require that mental health coverage be given parity eliminates that freedom. Proponents of the mandate claim that it adds little to no extra cost to health insurance. They point to a study showing that there was no costs increase in mental health benefits when mental health parity was enacted in the Federal Employee Health Benefits (FEHB) program.

The reason costs didn’t increase is that the use of mental health benefits didn’t increase either. Most of the plans in the FEHB used managed care organizations to manage the mental health benefits, suggesting that use didn’t increase because the insurance programs restricted access to benefits.

Other research, which examines programs that didn’t restrict access, suggests that mental health parity is one of the most costly of benefit mandates. Using actuarial data, the Council for Affordable Health Insurance, an insurance industry group, estimates that it can add between five and ten percent to the cost of a health insurance policy.

More expensive health insurance means that means more businesses will increase their insurance premiums or drop their insurance altogether, resulting in an increase in the number of uninsured. Another route that businesses might pursue is simply dropping their mental illness coverage from their insurance policies, meaning that employees will have less access to mental health benefits.

A reading of the Mental Health Parity Act suggests that its supporters recognize that it will lead to higher costs. The bill tries to shield small businesses from rising health insurance costs by exempting any business with fewer than fifty employees. It also exempts any business whose health insurance costs rise more than 2% due to the mental health parity mandate.

Attempts to ask any of the three Senators what they thought about the cost of the bill proved fruitless. All three Senate offices responded to our calls, made over a two-week period, by saying the staff members who could address our questions were out of the office.

Thus far, only four benefit mandates exist at federal level.

Unfortunately, benefit mandates are extremely common among the states, as most states have dozens, mandating everything from hair prostheses to massage therapists.  New Mexico, for example, has 45 such mandates while Maryland has the most in the nation with 60 and Idaho has the least with only 14.

State level mandates have become such a problem that one of the most promising — albeit unsuccessful — efforts to reform health care in recent years was led by then-House Speaker Dennis Hastert (R-IL) and Rep. John Shadegg (R-AZ), both of whom wanted to change federal law to allow individuals to purchase insurance across state lines. This effort essentially would have forced insurance companies to compete across state lines.  That, in turn, would have pressured states to tailor their health care regulations in order to compete against each other.

Costs aside, what makes federal mental health parity legislation so troubling is that it could start a trend that shifts mandates from the state to the federal level, thus closing off a potential route to reform and future cost reductions. Instead of creating new mandates, Congress should be working to cut health care costs by allowing consumers to purchase health insurance — including mental health insurance — across state lines.

Mr. Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Mr. Hogberg, formerly with Capital Research Center, is a senior policy analyst at the National Center for Public Policy Research.

Categories
Economy

New Mexico Has Surplus of Government Employees

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Big government is a fact of life here in New Mexico. With large military installations, Indian reservations, and federal lands (42 percent of the state is federally-owned), it is perhaps not surprising that the state receives a larger proportion of federal money relative to what its citizens pay in taxes than any other state. Also, not surprisingly, a relatively high proportion of New Mexicans work for the federal government.

While there is debate over whether the tremendous federal presence is a good thing or a bad thing for New Mexico’s economic health, there is little that New Mexicans can do about it one way or another. Our history, our wide-open spaces and our weather are responsible for bringing much of this federal largesse to our state.

According to data from the Census Bureau, New Mexico’s “big government” is not limited to the federal presence here. In fact, New Mexico taxpayers are burdened with the third-largest contingent of state and local employees per capita in the nation. And, unlike their federal counterparts, the expense of New Mexico’s large state and local bureaucracies is borne entirely by New Mexico taxpayers, not federal.

According to the Census data, 6.6 percent of New Mexico’s entire population (not just workforce) is employed by a state or a local government. As a percentage of overall economic activity, New Mexico’s state and local governments are bigger than those of any other state.

The governments of Alaska and Wyoming do employ greater percentages of their populations than we do, but lest one believe that state and local employment is related to land mass, it is worth noting that Nevada governments have the smallest workforce in the nation at 4.2 percent of the state’s population.

Economists going back to at least the days of Adam Smith have noted that governments, by their very nature, are relatively ineffective tools for creating wealth (such activity is best left to entrepreneurs in the private sector). The fact that government employees must be paid by redistributing wealth away from productive uses explains, in part, why New Mexico is one of the poorest states in the country.

Of course, wealth redistribution doesn’t account for all of the negative impacts of big-government. After all, those government employees are not being paid to do nothing; they are busy taxing, regulating, and redistributing wealth. Thus, having large numbers of government employees has been associated with a degree of economic harm beyond the so-called “dead weight” loss of taxation.

With all of the problems associated with having large numbers of government employees, it should be no surprise that Nevada, with its small state and local work force, is the fastest-growing state in the nation in terms of population. Given the choice, Americans usually prefer a small government that leaves them alone to relying on big government.

If big government is a problem, then what is the solution? It is imperative that governments avoid expanding their payrolls and taking on new tasks without looking for cuts elsewhere. This can mean systemic limitations on taxes and spending along the lines of those contained in the Taxpayer Protection Act as introduced by House Minority Leader Tom Taylor, R-Farmington, and Sen. Kent Cravens, R-Albuquerque, that would force government to grow more slowly, thus creating incentives for finding alternatives to expanding government and hiring new bureaucrats.

Barring such systemic changes, government could find private-sector companies that are willing to do the same job, but for less money. Local governments in particular should consider contracting with private-sector providers for garbage and recycling services, the provision of water, public hospitals, and the construction and operation of prisons and jails. These are just a few innovative ideas that have been successfully adopted by hundreds of governments across the country. If taken here in New Mexico, they would save taxpayers or customers millions of dollars.

There are many reasons why New Mexicans continue to suffer from high poverty levels. Having a bigger government than citizens can afford is a big one. Our elected officials need to recognize the problem and start implementing these and other creative ways to cut spending and reduce the size of government.

Paul Gessing is the president of the Rio Grande Foundation, a nonpartisan, tax-exempt research and educational organization dedicated to principles of limited government, economic freedom and individual responsibility.

Categories
Health Care

Senators’ Health Care Plans are Misguided

Outside of the Iraq War, the debate over health care reform is one of the most contentious issues in politics today. With ongoing debate in Washington and a flurry of activity in the states, the need to make health care more affordable is a mantra being adopted by politicians of both parties.

Unfortunately, despite the high-minded rhetoric, political intervention more often results in higher medical costs. One of New Mexico’s own senators, Republican Senator Pete Domenici – in conjunction with Senators Mike Enzi (R-WY) and Ted Kennedy (D-MA) – is now leading an effort that would ultimately drive up the costs of health insurance and may even inflict harm on the very people the Senators are trying to help.

The legislation, which has already passed out of one Senate committee, is known as the “Mental Health Parity Act.”

Although, Domenici’s desire to help those with mental illness is noble, it has led him to support a proposal that inevitably, if inadvertently, will harm both the mentally ill and the uninsured.

This bill would require that health insurance policies that provide coverage for mental illness must provide it in the same way that they provide benefits for other conditions. Thus, if the co-pay to see a family doctor is $20, then the co-pay to see a psychiatrist must also be $20.

In a free market, the decision of how to cover mental health benefits is left to the insurer and the insured. A mandate to require that mental health coverage be given parity eliminates that freedom.  Furthermore, mental health parity is one of the most costly of benefit mandates. Using actuarial data, the Council for Affordable Health Insurance, an insurance industry group, estimates that it can add between five and ten percent to the cost of a health insurance policy.

Few of the likely consequences of imposing a mental health parity mandate are good for employees. Forcing insurance programs to cover mental health the same way they cover physical illnesses and conditions will result in more expensive health insurance. That means more businesses will increase their insurance premiums or drop their insurance altogether, resulting in an increase in the number of uninsured. Another route that businesses might pursue is simply dropping their mental illness coverage from their insurance policies, meaning that employees will have less access to mental health benefits.

A reading of the Mental Health Parity Act suggests that Domenici recognizes that it will lead to higher costs. The bill tries to shield small businesses from rising health insurance costs by exempting any business with fewer than fifty employees. It also exempts any business whose health insurance costs rise more than 2% due to the mental health parity mandate.

Attempts to ask any of the three Senators what they thought about the cost of the bill proved fruitless. All three Senate offices responded to our calls, made over a two-week period, by saying the staff members who could address our questions were out of the office.

Thus far, only four benefit mandates exist at federal level. Unfortunately, benefit mandates are extremely common among the states, as most states have dozens, mandating everything from hair prostheses to massage therapists.  New Mexico, for example, has 45 such mandates.

Health care mandates at the state level have become such a problem that one of the most promising – albeit unsuccessful – efforts to reform health care in recent years was led by then-House Speaker Dennis Hastert (R-IL) and Rep. John Shadegg (R-AZ), both of whom wanted to change federal law to allow individuals to purchase insurance across state lines. This effort essentially would have forced insurance companies to compete across state lines.  That, in turn, would have pressured states to tailor their health care regulations in order to compete against each other.

Aside from the inherent cost, what makes federal mental health parity legislation so troubling is that it could start a trend that shifts mandates from the state to the federal level, thus closing off a potential route to reform and future cost reductions. Instead of raising costs by creating new mandates, Domenici, Enzi, and Kennedy and others should be working to cut health care costs by allowing consumers to purchase health insurance –including mental health insurance – across state lines.

Paul Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

David Hogberg is a Senior Policy Analyst for the National Center for Public Policy Research, a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems.

Categories
Economy Research Taxes

Cut Taxes and Reduce Spending to Fight Poverty?

Conventional wisdom is that bleeding-heart liberals care deeply about poverty while conservatives and libertarians would let children and the poor starve in the streets. A new study by Dr. Matthew Ladner and I that was published recently by the Rio Grande Foundation should dispel this notion and add weight to the argument that limited government is a better tool for lifting people out of poverty than bigger government.

Stepping back a bit to take in a broader world view, the case for limited government as a tool for reducing poverty has already been made on a global scale. The Cato Institute, Heritage Foundation, and a handful of other think tanks produce annual indices that clearly show the superior economic performance of nations with relatively limited governments like the United States, New Zealand, and Hong Kong when compared to the unlimited government and relatively impoverished nations of North Korea, Cuba, and Zimbabwe.

Those who support big government offer any array of excuses to justify the large gaps in living standards among free and un-free nations; our study demolishes these arguments by focusing narrowly on the relative performance of the 50 states on the issue of reducing poverty during the 1990s. Thus, it is more difficult to blame the poverty gap on cultural or resource differences.

The numbers are striking and clearly show that taxes and spending have a tremendous impact on poverty, but it is not the necessarily the impact that those who would spend ever more taxpayer money on government poverty programs will like. For starters, we wanted to explore the impact of taxation levels on poverty. So, we chose the 10 highest tax states and compared their performance over the decade to the 10 lowest-tax states. The low-tax states saw a decline in poverty rates more than 9% while poverty rates actually increased in the high tax states by approximately 2%.

Similar results were found when we looked only at childhood poverty. In the high tax states, poverty rates declined by a modest 2.8% while in the low tax states poverty rates dropped by a robust 10.3%. In a similar vein, childhood poverty in low tax states dropped by 9.26% while childhood poverty in high tax states actually rose by 3.4%.

The relative success of low-tax states in reducing poverty is somewhat unsurprising. Sure, less taxation spurs the economy, thus creating jobs and economic growth. But, what about spending? This time the authors compared the 10 states with the lowest per-capita spending during the 1990s with the top 10 states in per capita spending. In the low-spending states, overall poverty rates declined by a robust 8.42% while the big-spenders not only failed to reduce poverty rates, but they actually suffered an increase in poverty rates of 7.6%.

It is worth noting that New Mexico is among the top ten states in spending per capita and it ranks just behind Louisiana and Mississippi with one of the highest poverty levels nationwide. It is also noteworthy that Colorado led the nation in reducing childhood poverty during the 1990s while it had the fourth best record of reducing overall poverty. Colorado’s Taxpayers’ Bill of Rights was enacted in 1992 and implemented in 1993, so there can be no doubt that the law’s tax and spending reductions had a salutary impact on poverty, not the “doom-and-gloom” impact that opponents expected.

New Mexico Gov. Bill Richardson proposed (and received) an 11% budget increase for FY 2008. Not coincidentally, Republicans in New Mexico’s Legislature this year proposed a Constitutional spending limit amendment that is similar in many ways to Colorado’s. The path out of poverty is clear, but will New Mexico take it?

Mr. Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Dr. Ladner is vice president for research at the Arizona-based Goldwater Institute and is an adjunct scholar with the Rio Grande Foundation.

Categories
Economy

Less Government, Less Poverty

New Mexico is a poor state. Most of us already know this, but what is less clear is what, if anything, can be done about it.

There are plenty of well-funded advocates for the poor – New Mexico Voices for Children is the probably the most well known – but their prescription for poverty relief often boils down to simply raising taxes to pay for more government poverty programs.

Needless to say, this policy prescription leaves many productive, tax-paying citizens with a bad taste in their mouths.

After all, nearly 30 percent of the money the average New Mexican earns is already taxed away by the federal, state or local governments.

Surely, if government programs that spent billions of dollars were the answer, we’d have the problem licked by now.

A new paper by the authors of this this column takes a close look at poverty trends here in New Mexico and nationwide and finds that lowering taxes and reducing spending, not bigger government, is the answer to poverty eradication.

For starters, Ladner and I found that the majority of the decline in poverty occurred before the advent of War on Poverty programs of the mid-1960s. In 1948, the national poverty rate was 30 percent. By 1966, the poverty rate had fallen to 15 percent. Since then, poverty rates have hovered in double-digits with the current rate residing at 12.6 percent. Clearly, the “Great Society” programs introduced in the 1960s have not done as much to lower poverty rates as the post-World War II economic boom did.

To analyze how poverty trends among the states, Ladner and I studied poverty data from the 1990s and compared the results of the top 10 and bottom 10 states in both spending per capita and in overall tax burdens.

The results will undoubtedly come as a surprise to those who think that government has the answers to reducing poverty.

Over the decade, the low-tax states saw poverty rates fall by more than 9 percent while poverty rates actually increased by approximately 2 percent in the high-tax states.

In the high-tax states, poverty rates declined by a modest 2.8 percent, while in the low-tax states, poverty rates dropped by a robust 10.3 percent.

In a similar vein, childhood poverty in low-tax states dropped by 9.26 percent, while childhood poverty in high-tax states rose by 3.4 percent.

The story was the same when we took a look at the impact of spending on poverty reduction. It is worth noting that New Mexico was one of the top ten states in spending per capita, yet it ranks just behind Louisiana and Mississippi with one of the highest poverty levels nationwide.

During the 1990s, overall poverty rates declined by a robust 8.42 percent in the lowest spending states while the big-spenders not only failed to reduce poverty rates, but they actually suffered an increase in poverty rates of 7.6 percent.

Notably, Colorado led the nation in reducing childhood poverty during the 1990s and had the fourth best record of reducing overall poverty during the decade, as well. With Colorado’s Taxpayers’ Bill of Rights having been enacted in 1992 and implemented in 1993, there can be no doubt that the law’s tax and spending reductions had a salutary impact on poverty.

New Mexico Gov. Bill Richardson has proposed an 11 percent budget increase for the next year alone. Not coincidentally, Republicans in the Legislature have proposed a constitutional amendment similar in many ways to that of Colorado.

As the data make clear, limiting spending and taxation are more effective means of reducing poverty than is bigger government.

For too long, New Mexico has relied on government spending – whether that meant federal largesse or state and local governments – but with poor results. It is time for New Mexico’s political leaders to limit government and stop tolerating high levels of poverty.

Gessing is the president of the Rio Grande Foundation, a nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility. Ladner is vice president for research at the Goldwater Institute, based in Arizona.

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Local Government Notable News

New Mexico’s Legislative Session: Busy But Undistinguished

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Many bills were passed during what was by all accounts a busy 60-day session, but the important question is whether we will be better or worse off than we were before. It is impossible to discuss everything that happened, but here are a few important points:

First and foremost, credit must be given to the governor, the governor’s task force, and those in the Legislature who worked so hard to protect taxpayers from the abuse of eminent domain. Assuming Gov. Bill Richardson signs the bill, which is based on a concept he has supported, property owners will be able to rest a bit easier knowing that local governments cannot take their land whenever they feel like generating more tax revenue.

Another good bit of news is that no tax hikes occurred this year. While the idea of raising taxes in a time of record-setting revenues may seem absurd, several tax hikes ­ including a 60 cent-per-pack increase on cigarettes ­ were considered and defeated this session. Raising taxes in times of budgetary crisis is a bad idea, but hiking them when revenue is overflowing from state coffers is inexcusable and sends a message that government is insatiable.

The absence of tax hikes was good and some taxes were even cut, but the small ($94 million) package of tax cuts passed this year was too small to have an impact on New Mexico’s economy. Worse, the cuts that were actually made ­ including a gross receipts tax deduction for disabled street vendors ­ were targeted in ways that will not improve New Mexico’s economy.

Despite its recent success which has coincided with a strong national economy, New Mexico remains one of the poorest states in the country. Our political leaders should be working day and night to improve that dismal statistic by reducing our heavy tax and regulatory burden. Small, narrowly-targeted tax breaks are not the answer.

Unfortunately, several actions taken during this session will have a negative impact on New Mexicans for years to come starting with the 10 percent increase in the general fund. That rate of spending growth is much more than double the rate needed to keep pace with inflation and population growth (about 4 percent).

With government growing so quickly, once oil and gas revenue suffer even the slightest setbacks, New Mexico’s budget could be in serious trouble. Worse, this rapid growth in spending took place while legislation that would have limited future spending growth that was introduced in both Houses ­ the Taxpayer Protection Act ­ was not seriously considered.

So, where will all of this new money go? A large portion has been allocated to increasing teacher salaries and expanding the state’s Pre K program. Although higher teacher salaries and expanded Pre K have been touted by many self-interested advocates among the education establishment, studies have shown that the benefits of Pre K evaporate by fifth grade. Worse, universally increasing the salaries of all teachers at once will do nothing to attract and retain the best teachers. Basing pay on teacher quality would be a far more effective way to increase teacher quality.

While more money was thrown at the teaching establishment this year, legislation that would allow taxpayers to take a tax credit for donating money to provide scholarships for needy children was killed once again. This effort which the teacher unions mislabeled “vouchers” would have given poor children and their parents the same ability as wealthy parents have to choose the school that is best for them whether that is a public or private school.

The last major legislative faux-pas of the session was increasing the minimum wage to $7.50 an hour. Fortunately, McDonald’s and most other employers of low-wage workers are already paying at similar wage rates and the wage will not automatically increase with inflation, thus somewhat mitigating the law’s negative impact. But New Mexico is a poor state with relatively low salaries; this wage increase will particularly harm border cities because none of our neighbors mandate wages as high as $7.50.

It was an action-packed session and some good was done. Unfortunately, massive spending without any economically-significant tax cuts will and a higher minimum wage will make it more, not less difficult for New Mexico to catch up with the rest of the country.

Paul Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.