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Economic Freedom Produces Prosperity, Not Government's Taxes

June 17, 2013

In Monday’s Lincoln Journal Star political reporter Don Walton posed a question; how will the cities of Omaha and Lincoln differ under the leadership of mayors with differing governing principles when it comes to taxation?

 

Omaha’s Mayor Stothert has pledged lower taxes and spending cuts, which Walton ponders may lead to less services and long-term stagnation for the city.  While Lincoln’s Mayor Beutler has signaled he wants to increase taxes to fund infrastructure development, which Walton alludes may help jump-start Lincoln’s economic growth.

 

We believe economic growth has more to do with the ability of the private sector to invest and grow jobs in a community than it does government’s willingness to tax-and-spend.

 

The data also supports our contention.

 

There is a correlation between population growth and the tax burden.  States with the lowest tax burden grew their population at a rate of 12.34% while states with a high income tax burden actually lost population.  A high income tax burden has a direct impact on the ability of a community to attract young families and retirees.

 

The impact of a high tax burden has an impact on population migration, which directly impacts the strength of a state’s federal representation.  Consider, since the latest census in 2010 the biggest losers of Congressional reapportionment was the high-tax states of New York, Pennsylvania and Illinois.  While low-tax states saw considerable increases in the Congressional representation.  Low-tax states like Texas, Arizona, Georgia, Florida and Utah all gained considerable federal influence.

 

The principle of economic freedom, with government taxation that is simple, fair and relatively low and competitive and spending which is sustainable and not the dominant economic driver, not only leads to population shift, but it creates economic prosperity.  Thus, it can be inferred that population shifts are a result of peoples leaving less prosperous geographic areas for more prosperous areas.

Consider the chart above; it charts the relative income distribution of nations around the world in relation to the degree of economic freedom enjoyed.  Nations with low taxation, sustainable government spending and low regulatory burdens enjoy greater economic prosperity.  Their people enjoy greater per-capita income.  Private sector growth is creating employment.

 

This is exactly where Omaha and Lincoln both want to be.  Both cities and their leadership want high employment, expanding personal incomes and economic development.  The course, as Don Walton puts it, is whether this prosperity will be government-driven or privately-driven.

 

The facts indicate that government-driven prosperity is a myth.  Public sector investment is important; a community will not prosper without roads, police and fire protection and the administration of justice.  However, government-focused economic growth policies do not work, as proven by the abysmal record of President Obama’s 2009 stimulus.

 

The principle is simple, economic growth cannot be planned by a government.  And growth cannot be dependent on an ever-increasing tax burden.  The purpose of government is to provide basic infrastructure goods and services so that a free people can prosper.

 

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