Politics and economics are interconnected. We saw that in the State of the Union speech the other night where the president hung his second term political fortunes on helping the middle class. He offered a set of ideas surely opposed by the GOP but potentially popular with the voters, hoping that the Republicans will vote them down or not vote on them, lending political fodder and ammunition to the Democrats in 2014.
But Obama’s speech is also a great occasion to discuss some economic issues, seeking to separate fact from fiction.
The Economic Case for Gay Marriage
Legalizing gay marriage in Minnesota and across the country is ethically correct thing to do. Whatever religious reasons those opposed to same-sex marriage have, their preferences should not preempt or be binding upon those who wish to marry. The case for gay marriage is not different than the case for mixed-race marriages 50 years ago. Back then religion often reinforced racism (“God did not intend Blacks and whites to marry.”) The same is true today.
But there is also an economic argument supporting gay marriage in Minnesota. Were Minnesota to legalize gay marriage the economy would benefit both in direct and indirect ways.
Directly, several studies have demonstrated that legalizing gay marriage reaps immediate economic benefits to a community. Studies regarding legalization of gay marriage in Massachusetts by the Williams Institute, New York by CNN, and Tasmania, Australia point to the economic benefits of legalizing same-sex marriage. Such legalization leads to more tourism by same-sex couples and couples spending money on weddings. According to the UCLA Williams Institute in a study looking at the economic benefits of legalizing same-sex marriage in Maine, Washington, and Maryland may generate more than $166 million over the next three years.
But indirectly, legalizing same-sex marriage will also benefit communities. Richard Florida’s highly influential The Rise of the Creative Class documents the importance and relationship between cultural amenities and support for gay-friendly policies and economic development in a community. Support for gay-friendly policies highly correlates with the most economically successful communities across the United States. Additionally, as many business leaders know (as evidenced by the CEO of General Mills speaking out against the Marriage Amendment in Minnesota last year), a new generation of employees exists that look to support for gay rights as an important factor in considering where to live and work. The majority of these individuals are highly educated and skilled. Supporting gay rights and marriage is an important key to attracting this new generation of workers and with that, employers who wish to locate to take advantage of these skilled workers. Thus, supporting gay marriage is a smart jobs and economic development initiative that Minnesota should consider.
Why is making the economic case for gay-marriage important? First, it might move some Republicans and Democrats to support it if they can use as a cover that it is good for the economy. Second, if one can document the economic consequences of discriminating against GLBT then that gives Congress the ability under the Commerce class to take action. Ordinarily the issue of marriage is a state issue and a matter beyond the authority of Congress to address. However, demonstrate how GLBT discrimination affects interstate commerce then Congress can act. In 1964 the Civil rights Act was justified and upheld as a valid at of Congress based on finding of fact demonstrating that racism impeded and affected interstate commerce. Bottom line-think about gay marriage as a bottom line issue.
Tax-Dodging Millionaires: The New Welfare Queen
Remember the welfare queen of the Reagan era? In a 1976 speech Ronald Reagan referred to a woman in Chicago on public assistance: “She has eighty names, thirty addresses, twelve Social Security cards and is collecting veteran's benefits on four non-existing deceased husbands. And she is collecting Social Security on her cards. She's got Medicaid getting food stamps, and she is collecting welfare under each of her names. Her tax-free cash income is over $150,000” This welfare queen was a glaring indictment of all that was wrong with government and of those lazy individuals—mostly women—who were simply squeezing out more and more children in an effort to avoid work and stay on government assistance. She was also the impetus of major policy reform to lower benefits and kick needy people off of public assistance. However, she did not exist.
Largely the welfare queen was a myth as I point out in my new book. But myths die hard. The newest myth is the tax-dodging millionaire. He is the rich guy who migrates from one state or country to another in search of a lower tax rate. He is the bogeyman trotted out by opponents of higher taxes–individual or corporate–and used to argue that if taxes are increased rich people will leave and head elsewhere to a low tax area. Gerard Depardieu in France and Phil Michelson in California are trotted out to prove this point.
Yet while a few individuals may migrate if taxes are increased, the tax-feeling millionaire is largely a myth. James Stewart’s most recent column in the New York Times reviews several studies demolishing this myth. This should be no surprise. We already know that taxes are a relatively minor factor affecting business location and investment decisions (again see my American Politics in the Age of Ignorance). Additionally, many years ago in two articles of mine examining tax commuters I found little evidence that tax rates across states affect employment migration patterns ( See: “State Taxation of Interstate Commuters: Constitutional Doctrine in Search of Empirical Analysis,”16 Touro Law Review, 435 (2000) ; “State Tax Commuters: Classifications and Estimates,” 15 State Tax Notes, 355 (1998)). Many factors, and not simply tax rates, affect where the affluent live. Factors such as health care, cultural amenities, weather, friends, and family all dictate residential choices. Taxes are only one part of the mix in making decisions about where to live.
Minor changes in tax rates are not going to produce any mass exodus from a state. Conversely, simply lowering taxes is not going to result in much immigration either.
Sequestration and the Economy
Europe is sinking back into a recession and the go global economy is weak. One cause of that weakness has been a wrong-headed economic policy favoring austerity over economic growth. Great Britain and other economies have prematurely cut government spending, with the result being a serious damage to economic demand for goods and services. Austerity has not produced prosperity.
It would be nice if the United States learned this lesson. Yet it appears the Congress is ready to allow for sequestration to occur. The stupid budget deal of 2011 that was supposed to scare Congress and the president to reach a new deal included a call for government spending cuts so awful is about to occur. The cuts will be nearly a trillion dollars, triggering according to many estimates, the loss of hundreds of thousands of jobs across the United States. The American economy is barely growing, sequestration may well throw the US into another recession.
But even if sequestration is avoided, Obama has effectively endorsed a Herbert Hooverism austerity program. He wants to cut government spending as a way to deal with the deficit. Deficits do matter but the primary goals still should be to reduce unemployment and grow the economy. Those twin objectives will generate additional tax revenues to help reduce the deficit. Spending cuts simply create a downward spiral of economic decline and will fail to revitalize the economy.