Perspective - September 2013 by OCPA

PERSPECTIVE September 2013

OKLAHOMA COUNCIL OF PUBLIC AFFAIRS

In Case You Missed It President George W. Bush’s recent medical procedure demonstrates the threat of Obamacare. eepurl.com/D0Pz1

OCPA’s Dave Bond recently sat down with Travis Brown to discuss “how money walks.” youtu.be/Kl-a-T2F9cs

Though certain big-government lobbying organizations feared the “devastating impact of sequestration,” the Heritage Foundation says sequestration helped force badly needed spending cuts and also boosted private-sector jobs. tinyurl.com/k8upw6f

The Church of England acknowledges that maybe fracking isn’t such a bad idea after all. natl.re/12ax2zk

One Oklahoma journalist posits that policymakers could embrace the Obamacare Medicaid expansion after the candidate filing period ends in April 2014. tinyurl.com/mtbgsvv

Let’s use growth revenue to buy down the Oklahoma income tax with small rate reductions every year. ocpathink.org/articles/2298

As Atlanta tries to move on from its school cheating scandal, we’re still waiting for answers from Tulsa and other Oklahoma districts.

The ABC affiliate in Oklahoma City reports that taxes may keep NBA free agents away from Oklahoma City. tinyurl.com/ku5nw2o

Oklahoma’s state auditor reminds us that Oklahoma state policymakers get huge federal bailouts every year.

ocpathink.org/articles/1756

bit.ly/13pxg6M

PERSPECTIVE OCPA Staff

OCPA Trustees

Brandon Dutcher .................................................. Editor

Blake Arnold • Oklahoma City

Tom H. McCasland III • Duncan

Daryl Woodard • Tulsa

Robert D. Avery • Pawhuska

David McLaughlin • Enid

Daniel J. Zaloudek • Tulsa

Lee J. Baxter • Lawton

Lew Meibergen • Enid

Steve W. Beebe • Duncan

Ronald L. Mercer • Bethany

OCPA Researchers

G.T. Blankenship • Oklahoma City

Lloyd Noble II • Tulsa

Steven J. Anderson, MBA

John A. Brock • Tulsa

Mike O’Neal • Edmond

Clint Colbert .................................................... Office Manager

David R. Brown, M.D. • Oklahoma City

Bill Price • Oklahoma City

Brandon Dutcher ....................... Vice President for Policy

Paul A. Cox • Oklahoma City

Patrick T. Rooney • Oklahoma City

Dacia Harris .............................. Interactive Media Director

William Flanagan • Claremore

Melissa Sandefer • Norman

Rachel Hays .................................... Development Assistant

Josephine Freede • Oklahoma City

Thomas Schroedter • Tulsa

Ann Felton Gilliland • Oklahoma City

Richard L. Sias • Oklahoma City

John T. Hanes • Oklahoma City

Greg Slavonic • Oklahoma City

Dave Bond ......................... Director of External Relations Brian Bush ..................................... Executive Vice President Michael Carnuccio .................................................... President

Cassandra Howard ................................... Executive Liaison Jennie Kleese ............... Development Events Manager

Research Fellow

Tina Dzurisin

Research Associate

Vance Fried, J.D. Research Fellow

Jayson Lusk, Ph.D.

Samuel Roberts Noble Distinguished Fellow

Matt Mayer, J.D. Research Fellow

Ralph Harvey • Oklahoma City

John F. Snodgrass • Ardmore

J. Scott Moody, M.A.

Karma Robinson ...... Vice President for Development

John A. Henry III • Oklahoma City

Charles M. Sublett • Tulsa

Jonathan Small .................................. Fiscal Policy Director

Henry F. Kane • Bartlesville

Robert Sullivan • Tulsa

Andrew C. Spiropoulos, J.D.

Robert Kane • Tulsa

Lew Ward • Enid

Gene Love • Lawton

William E. Warnock, Jr. • Tulsa

Research Fellow

Milton Friedman Distinguished Fellow

Wendy P. Warcholik, Ph.D. Research Fellow

Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc. , an independent public policy organization. OCPA formulates and promotes public policy research and analysis consistent with the principles of free enterprise and limited government. The views expressed in Perspective are those of the author, and should not be construed as representing any official position of OCPA or its trustees, researchers, or employees.

John Bolton

Larry Arnn

SAVE THE DATE

William F. Buckley Jr.

Jeb Bush

Mitch Daniels

Dinesh D’Souza

LIBERTY GALA

Artur Davis

Jim DeMint

President George W. Bush October 17, 2013 • Tulsa • 7 PM

J. Rufus Fears

Steve Forbes

Tommy Franks

John Fund

Newt Gingrich

David Horowitz

Laura Ingraham

Frank Keating

Jeane Kirkpatrick

Art Laffer

Rich Lowry

Ed Meese

Stephen Moore

Peggy Noonan

Marvin Olasky

Bill Owens

Sarah Palin

Star Parker

Michael Reagan

Paul Ryan

Joe Sobran

Thomas Stafford

John Stossel

Cal Thomas

Clarence Thomas

Scott Walker

John Walton

J.C. Watts

Allen West

Walter Williams

Past OCPA speakers are pictured above.

The Importance of Family-Owned Businesses By Wendy P. Warcholik

Two of my boys are in the midst of reading Laura Ingalls Wilder’s Farmer Boy and Little House in the Big Woods. The older boy, who is always trying to minimize work and maximize play, has commented several times that farm kids must sweat a lot since they are engaged in so much physical labor. The younger boy sees the similarities our family shares with Wilder’s families. Since he is homeschooled, he spends all day working with his siblings and parents just like Almanzo in Farmer Boy. We’ve talked a lot in our household about the value of owning your own business. Although we don’t have a brick and mortar business, we try to discuss entrepreneurship on a regular basis with the children. We want them to understand the risks and rewards associated with building your own business. We have them ask questions of local business owners to help them assess what is required to build and maintain a business. Although many businesses fail, we let our boys know that if they succeed they will have built an income stream that can care for their needs into their old age and then be passed on to their children. We also let them know that if they share the risk of building the business with their siblings, they will have lifelong business partners. In full disclosure, there is also a selfish motivation: if we want our children to raise their families near us, we need to provide them with some income opportunities so they don’t have to chase jobs all over the country. In the Sept. 18, 2010 issue of The Economist magazine, Professor Joachim Schwass noted that “beyond the public company, private partnership, and the state-controlled company, the other big survivor is the familyowned business. Often forgotten and underestimated yet big GDP and employment contributors, family compa-

PERSPECTIVE • September 2013

nies are driven by a very different type of reward: handing over a healthy, performing, and sustainable business to the children. The vast majority would not dream of an IPO.” In fact, according to a 2003 study by Astrachan and Shanker, family firms comprise 80 to 90 percent of all business enterprises in North America. In other words, most of the wealth in the U.S. is held in family businesses. The authors find that independent familyowned businesses contribute 64 percent of the GDP or $5,907 billion ($5+ trillion) and employ 62 percent of the U.S. workforce. (Unfortunately, family firm data are very limited; this 2003 study of U.S.-owned family businesses in the Family Business Review was the most current data that could be found.) If you walk back in history 100 years, most people grew up in the family business: the farm. With the family intact and everyone having a valued role in the family’s survival, society and the economy prospered as a result of the farm. Children learned how to provide necessities like food and shelter. They also learned what was most important to society’s advancement: how to take care of their own family instead of looking to someone else to assume their responsibilities. Virginia farmer and self-described libertarian Joel Salatin is one of the most prolific activists in favor of the renaissance of the family farm as part of the solution to reversing America’s social decline. Salatin skillfully addresses how parents can foster passion for the

family business in their children. For example, a 2012 lecture by Salatin at Grinnell College, “Working With Your Kids So They Will Want to Work With You,” is based on the premise that most family farms lose continuity because of the lack of rewarding economic, as well as emotional, relationships between parents and children. With his suggestions about ways to cultivate the persistence and innovation needed to make kids love working with mom and dad as well addressing ways to structure and scale the farm to make room for future generations, he provides much-needed advice, by example, of how to build a sustainable family business. [For those readers who would like to hear from Salatin in person, he will be one of the keynote speakers at the State Policy Network’s annual meeting on September 25th in Oklahoma City. Contact OCPA’s Jennie Kleese at 405602-1667 for more information.] The solution to the rebirth of declining agricultural and mill towns is what initially built these towns: families with strong economic ties to their community. Parents and children need to have a stake in their communities in the short and long run if the community is to be viable. That “stake in the community” is not just a property tax bill which pays for the town school, but perhaps a business that provides for the family’s economic needs as well as provides a valuable service to the community.

OCPA research fellow Wendy P. Warcholik (Ph.D., George Mason University) formerly served as an economist at the U.S. Department of Commerce’s Bureau of Economic Analysis, and was the chief forecasting economist for the Commonwealth of Virginia’s Department of Medical Assistance Services. She is a co-creator (with J. Scott Moody) of the Tax Foundation’s popular “State Business Tax Climate Index.”

Misplaced Wrath By Jayson Lusk

With today’s farm bill hanging in the balance, it is instructive to take a brief look back at our nation’s long and complicated history with farm policy. The Progressive Era, coupled with the Great Depression, enabled the New Deal policies of the 1930s. It was then that Franklin Roosevelt enacted farm price supports and supply controls in an effort to better the lot of farmers. Some of the early efforts led to outright destruction of agricultural commodities at a time when much of the nation was starving. One of the most notable cases was that of Ohio farmer Roscoe Filburn, who was taken on by the U.S. government for growing too much wheat. Even though he planned to use the wheat only on his own farm, the Supreme Court decided his actions violated the Agricultural Adjustment Act of 1938. His sin? By growing more wheat than his allotment, the court claimed that he indirectly pushed the price below the bureaucratically determined minimum. The solution was simple: his wheat had to be destroyed. The insanity wasn’t limited to court cases. The Agricultural Adjustment Act of 1933 paid farmers to destroy hogs, and millions of dollars were paid out for cotton farmers to plow their crop back in the ground! So, despite the lines at the soup kitchens during the Depression, the planners of the era deemed it morally acceptable to destroy food in an attempt to reduce supply and ratchet up farm prices. Curiously, social observers of the time often attributed the crop destruction and resulting hunger to farmers or to greedy corporations rather than naming the true culprit: Roosevelt and the New Deal policies. Case in point is John Steinbeck’s shocking description

of the effects of those farm policies in the The Grapes of Wrath. After describing a scene in which orange growers spray oranges with kerosene to make them inedible, Steinbeck writes: There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificates—died of malnutrition— because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is a

failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage. Curiously, Steinbeck failed to note the true cause of the misery. Today, we know better. Or at least we like to think we do. Looking at some of today’s farm policy proposals, I’m not so sure we’ve learned the right lessons.

Jayson Lusk (Ph.D., Kansas State University) is the Samuel Roberts Noble Distinguished Fellow at OCPA and Regents Professor and Willard Sparks Endowed Chair at Oklahoma State University. His new book is The Food Police: A Well-Fed Manifesto about the Politics of Your Plate (Crown Forum, 2013).

www.ocpathink.org

The Good News Is That the Bad News about Kansas Was Wrong By Patrick B. McGuigan

Once more, with feeling: Some good words about Kansas Gov. Sam Brownback, the historic income tax cut he shepherded to passage, and the performance of our northern neighbors since. But first, a few words about Oklahoma’s Republican legislative majority, and Gov. Mary Fallin, over the last three years. Over the last three years, Oklahoma state-government spending of certified revenue and other revenue has increased more than $800 million. Barring a change of the chief executive’s heart, that trend seems likely to continue. The governor’s varied health-related proposals will grow government. The “America Works” agenda she is pursuing as chair of the National Governors Association is warmed-over School to Work—not all bad, necessarily, but not a formula for reducing government expenditures.

The only pro-active tax reduction of the Fallin era (as opposed to allowing previously enacted income tax cuts to go into effect—which would have required supermajorities to undo) passed this year, but it will not take effect until January 2015. Mary Fallin will be a few days into her second term as governor before the first tax-reduction legislation she has signed takes effect. To say this is a disappointment is an understatement. In the course of the 2012 legislative session, Fallin and legislative allies went from advocating a gradual phaseout of the income tax to supporting a measure, in the last week of session, that actually would have increased income taxes on many Oklahomans. Even though Fallin has not cut taxes on her watch, the state economy is doing extremely well, with one of the lowest unemployment rates in the nation and record-shattering state tax receipts flowing from levies on Okla-

Some Oklahomans Said the Sky Was falling. They Were Wrong. 6

PERSPECTIVE • September 2013

homa’s workers and job-creators. Analysts in Oklahoma attribute this growth to a number of factors, including progrowth policies such as Right to Work, personal income tax cuts, and elimination of the death tax. Also credited for such growth has been the increase in oil and gas exploration (which, ironically, is now being targeted for tax increases). Kansas, meanwhile, on January 1, 2013, put into effect the largest personal income tax cut in state history. The measure was enacted in the spring of 2012. That’s not all. Kansas eliminated the income tax on small-business income. Taken as a whole, the Kansas plan triggers slow-motion controls on government spending. The glide path to zero income tax that Fallin championed once upon a time is a given in the Kansas approach, happening now but accelerating after July 2018, so long as tax revenue continues its upward trend. To be clear, there were some tradeoffs in the sales tax levy. (Sales taxes were reduced, just not as much as had been previously scheduled.) Brownback’s priority was to take the Kansas income tax levy—now slightly below Oklahoma’s—to 3.5 percent soon, and then lower (if the economy cooperates) during his second term. Despite last year’s historic income tax cut, Kansas general fund receipts increased around $29.9 million in fiscal year (FY) 2013, and total tax revenue grew about $72.2 million. Personal income last year increased 2.9 percent over the 2011 level—slight-

ly better years are expected in both 2013 (3.1 percent) and 2014 (4 percent). Unemployment in the Sunflower State is slightly above Oklahoma’s, with both much lower than the national average. Kansas officials are hopeful. Part of the reason for their optimism might be the comparative discipline officials have exercised on the spending side of government. Any reader absorbing these words can have his or her personal preference: steady spending growth with no new tax cuts (Oklahoma) or tightened spending and major tax cuts (Kansas). Sure, there are some who want to increase taxes significantly, and boost government spending more rapidly than Fallin has. To each his own. But make no mistake: Kansas’ combination of policies has not provoked Armageddon. To the contrary, Kansas government is growing more slowly than Oklahoma’s, and their economy is growing. Sam Brownback is proving that platforms both he and Fallin ran on in 2010 can be successfully implemented. I have talked with OCPA research fellow Steve Anderson, formerly a budget analyst in the Oklahoma Office of State Finance, about his recent experiences as Gov. Brownback’s budget director. Anderson recently summarized for the Kansas City Star, along lines I heard from him in a June interview, the situation state government faced when the Brownback administration began: • Cash balance for FY-2010: $876.05 • FY-2011 projected deficit: $500,000,000 • Unemployment rate: 6.9% • Tax burden: 2nd highest in the region • Population loss: 10% decrease in half the counties As of early August 2013, here is how the fiscal picture for Kansas government had changed in two and a half years: • Cash balance for FY-2013: $587,800,000 • FY-2014 projected surplus: $509,700,000 • Unemployment rate: 5.8%

• Tax burden: 2nd lowest in the region and going lower • Job growth: 45,300 • Population growth: 27,068 Beyond the historic income tax cut, Brownback’s intention—which proved successful—was, as Anderson says, to unleash “the power of our small businesses, the heart and soul of our economy, by eliminating their income taxes to encourage and support business expansion and hiring. “We have balanced the state budget, while increasing the state’s investment on K-12 education by more than $239 million from FY-2010 to FY-2014. We have continued to build and maintain the highways of our great state. We are building a state-of-the-art crime lab for the Kansas Bureau of Investigation to support law enforcement efforts across the state.” These things have been accomplished even as the Brownback agenda, to lower taxes and nip and tuck at government, took effect. Anderson looks back on his three years serving in Kansas with satisfaction, and that’s understandable: “We have set the stage for the citizens of Kansas to compete in a global economy. Our primary competitors, surrounding states, have taken notice. And they should. “The Kansas portion of the Kansas City Metro area gained 9,500 jobs from May 2012 to May 2013 while the Missouri side registered no change in total nonfarm employment over the year. Employment on the Kansas side of the metro area reached 454,800 and surpassed the all-time high of 452,800 recorded in June 2008. Those are real jobs for real Kansans, supporting real families.” When Kansas cut its taxes, Oklahoma’s tax consumers predicted fiscal

collapse or stress for our neighbors. Various Republican policymakers joined the chorus. But often, he or she who dares, wins. Kansas and Oklahoma have taken different courses. In the former, liberty is incrementally advancing. In the latter, government is incrementally advancing. It is not hateful or mean-spirited to say this: These are factual statements. As OCPA’s fiscal policy director Jonathan Small told me: “Fundamentally, Governor Brownback and many lawmakers in Kansas have determined they truly believe that more dollars left with their citizens is better than any government spending they may choose. “So in Kansas, cutting taxes and minimizing the growth in state government spending is their number-one priority. In Oklahoma, as demonstrated by the last three legislative sessions, lawmakers’ and the governor’s actions show they would rather spend all of the growth revenue, and that they believe they are better at employing the fruits of their citizens’ labor than the very citizens who generated all the growth in the first place. Oklahoma lawmakers are prioritizing spending increases first, shunning limits on spending and revenue growth to let hardworking citizens escape the current penalty on the price of work, and putting off meager tax relief until the distant future.” Fallin and the Oklahoma Republicans need to decide what they are for. If the agenda is to manage the growth of government in an Eisenhower approach to governance, then by all means act and speak accordingly. On the other hand, if the agenda is to, over time, make government smaller and reduce the portion of income taken from individuals by taxation— look north.

Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of Capitol-BeatOK.com. He is the editor of seven books on legal policy, and the author or co-author of three books, including Ninth Justice: The Fight for Bork. This year the Washington Post political blog, “The Fix,” designated McGuigan one of the three best political reporters in Oklahoma.

www.ocpathink.org

Voting with Their Feet By J. Scott Moody and Wendy P. Warcholik

Economists have long studied migration between the states because migration is the ultimate expression of “voting with your feet.” In other words, more people moving into a state is a good sign of social and economic progress, whereas more people leaving a state is not a good sign. Therefore, a thorough understanding of Oklahoma’s migration patterns is essential to understanding progress on much larger public policy issues. This month and next month in these pages we will explore Oklahoma’s migration patterns. The most comprehensive data available on domestic migration come from the U.S. Department of Commerce’s Census Bureau (census. gov/popest/data/datasets.html). Chart 1 shows that between 1991 and 2012 109,215 more people were moving to Oklahoma than leaving. Oklahoma

migration has gone through three distinct episodes during this time span. 1. The first episode was between 1991 and 1999 when Oklahoma had net in-migration in every year, gaining a total of 45,881 residents from other states—an average of 5,098 people per year. 2. The second episode was between 2000 and 2004 when Oklahoma’s in-migration suddenly reversed to out-migration, with the sole exception of 2002. Oklahoma lost 16,628 residents—an average of 3,326 people per year. 3. The third episode began in 2005 and continues to 2012 (the latest data available) when Oklahoma’s out-migration suddenly switched again to in-migration. However, unlike the first episode, the level of in-migration has been much higher.

In eight years 79,961 more people moved into Oklahoma than moved out—an average of 9,995 people per year. This episode is especially intriguing since it occurred after the enactment of Right to Work in 2001 and a series of substantial income tax cuts from 2004 to 2009. However, while the Census Bureau data are comprehensive, they are also very shallow. Fortunately, the Internal Revenue Service (IRS) provides an annual snapshot of taxpayer migration via tax returns, which provides for a much richer picture of migrants—although the data are not as recent (irs. gov/uac/SOI-Tax-Stats-Migration-Data). Of course the IRS has actual tax returns (a good proxy for the number of households), so it knows the number of exemptions (a good proxy for the number of people in the household),

Table 1 Oklahoma's Net Taxpayer Migration Tax Years 1995 to 2009 In-‐Migrants Taxpayers Exemptions AGI (1,000s) Taxpayers (Households) (People) (Income) (Households) 1995 39,139 86,238 1,074,501 37,851 1996 40,117 87,378 1,142,334 39,560 1997 39,485 85,352 1,175,355 39,139 1998 38,024 82,103 1,237,890 40,581 1999 37,140 79,239 1,260,341 41,647 2000 37,170 78,789 1,301,218 41,803 2001 38,638 80,722 1,301,742 38,745 2002 36,359 76,175 1,199,296 37,427 2003 34,780 73,041 1,179,321 36,791 2004 36,344 77,028 1,278,837 36,562 2005 39,150 84,274 1,472,246 36,000 2006 39,944 84,974 1,640,277 36,079 2007 40,377 83,828 1,635,503 38,364 2008 42,083 88,055 1,633,543 35,667 2009 39,457 82,495 1,452,010 33,850 Total 578,207 1,229,691 19,984,414 570,066 Sources: Internal Revenue Service; Oklahoma Council of Public Affairs

Calendar Year

PERSPECTIVE • September 2013

Out-‐Migrants Exemptions (People) 80,441 83,783 82,480 84,601 86,243 85,983 79,367 76,559 76,282 75,635 74,256 74,342 78,083 71,909 69,412 1,179,376

AGI (1,000s) (Income) 1,059,649 1,185,234 1,268,139 1,450,920 1,466,911 1,589,790 1,397,375 1,350,399 1,330,923 1,363,902 1,400,283 1,548,710 1,618,053 1,478,667 1,307,012 20,815,967

Taxpayers (Households) 1,288 557 346 (2,557) (4,507) (4,633) (107) (1,068) (2,011) (218) 3,150 3,865 2,013 6,416 5,607 8,141

Net Exemptions (People) 5,797 3,595 2,872 (2,498) (7,004) (7,194) 1,355 (384) (3,241) 1,393 10,018 10,632 5,745 16,146 13,083 50,315

AGI (1,000s) (Income) 14,852 (42,900) (92,784) (213,030) (206,570) (288,572) (95,633) (151,103) (151,602) (85,065) 71,963 91,567 17,450 154,876 144,998 (831,553)

Oklahoma-Bound Medical Tourists Are Voting with Their Feet By Brandon Dutcher

In a recent hearing of the U.S. House Committee on Oversight and Government Reform, Congressman James Lankford (R-Okla.) lauded the Surgery Center of Oklahoma, a multispecialty facility in Oklahoma City which posts its prices online, as a place where “competition has driven up quality and driven down price.” The Surgery Center is not alone. As Ali Meyer recently reported on KFORTV, the NBC affiliate in Oklahoma City, several other medical facilities in Oklahoma City have embraced price transparency. Among them: McBride Orthopedic Hospital, Oklahoma Heart Hospital, Digestive Disease Center, Cancer Specialists of Oklahoma, Breast Imaging of Oklahoma, and Comprehensive Diagnostic Imaging. Several facilities are posting their prices on the website of The Kempton Group, a thirdparty administrator of self-funded employee-benefit plans. As a result, Oklahoma City is becoming somewhat of a medical tourist destination, with patients coming from as far away as Canada and California. It’s encouraging to see Oklahoma become a leader in healthcare honesty and filers’ reported Adjusted Gross Income (AGI, a good proxy of household income). Table 1 shows migration data from the IRS for Oklahoma between 1995 and 2009 and reveals a more complex picture. The IRS data generally show the same in-migration pattern as the Census Bureau data, with a net 50,315 people moving into Oklahoma over this time period. Interestingly, the recent surge in net migration was mostly fueled by a higher number of in-migrants, jumping from 77,028 in 2004 to 84,274 in 2005. Oklahoma seems to have become more attractive to outof-state people. However, despite the influx of people, income has been flowing out of Oklahoma—including during a few years when more people moved in than moved out—suggesting that out-

and transparency, and to receive widespread recognition. As Tina Rosenberg wrote in a recent New York Times commentary: What makes [the Surgery Center] different from every other such facility in America is this: If you need an anterior cruciate ligament reconstruction, you will know beforehand—because it’s on their Web site—that it costs $6,990 if you selfpay in advance. If you need a tonsillectomy, that’s $3,600. Repair of a simple closed nasal fracture: $1,900. These prices are all-inclusive. Keith Smith, the co-founder of the center, said that it had been posting prices for the last four of its 16 years. He knew something was happening, he said, when people started coming from Canada. “They could pay $3,740 for arthroscopic surgery of the knee and not have to wait for three years,” he said. Then he began getting patients from elsewhere in the United States and began to find out— “I get 8 or 10 e-mails a week”—that he was having an effect on prices far away. “Patients are holding plane tickets to Oklahoma City and printing out our

prices, and leveraging better deals in their local markets.” The Surgery Center of Oklahoma is probably just the beginning. “You’re looking at one example of something that’s going to become really, really important,” said John C. Goodman, a highly influential conservative health policy analyst. “Once one hospital in a city starts doing it, everyone has to do it.” At a time when President Obama has hired hospital lobbyist Chris Jennings as a “health policy coordinator and strategist” in an attempt to save Obamacare—and while hospital lobbyists in Oklahoma are trying furiously to save Obamacare’s Medicaid expansion— a countervailing force is picking up steam: freedom. And as the Canadians who come to Oklahoma City for medical care can tell you, freedom works. Oklahoma policymakers and chambers of commerce should take every opportunity to encourage out-of-state patients, as well as out-of-state businesses that want affordable health care for their employees, to vote with their feet.

Table 2 Estimated State and Local Taxes Tax Years 1995 to 2009 Calendar Year

Net AGI ($1,000s)

State and Local Tax Burden (as a % of AGI)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

14,852 42,900 92,784 213,030 206,570 288,572 95,633 151,103 151,602 85,065 71,963 91,567 17,450 154,876 144,998

18.84% 18.21% 18.56% 18.34% 17.78% 17.82% 19.08% 19.05% 18.62% 18.90% 18.91% 19.34% 18.78 18.80% 20.12%

2,799 7,813 17,219 39,065 36,735 51,418 18,246 28,790 28,224 16,080 13,610 17,712 3,277 29,114 29,176

Total

(831,553)

(147,903)

Estimated Annual Tax Loss ($1,000s)

Sources: Internal Revenue Service; U.S. Department of Commerce; Bureau of Economic Analysis and Census Bureau; Oklahoma Council of Public Affairs

www.ocpathink.org

110,000 90,000

Chart 1 Oklahoma's Net PopulaBon Gain from/Loss to Other States July 1, 1991 to July 1, 2012

People

70,000 50,000 30,000 10,000 -‐10,000

1991

1994

Sources: U.S. Department of Commerce: Census Bureau; Oklahoma Council of Public Aﬀairs

1997

2000

2003

Year, as of July 1

migrants had higher-than-average incomes than in-migrants. Between 1995 and 2009, at least $831,553,000 (not adjusted for inflation) left the state. This out-flow has mitigated somewhat since 2005, with $480,854,000 more income coming into the state, which also coincides with the overall surge of inmigrants. Had this income stayed in Oklahoma, state and local governments would have collected an estimated $147,903,000 (not adjusted for inflation) in higher taxes between 1995 and 2009. This not only includes higher income taxes, but also higher sales taxes

2006

2009

2012

Annual Change CumulaBve Change

and property taxes. However, since 2005, the in-flow of income into the state has added $92,889,000 to state and local government coffers. How can policymakers influence migration? Next month we’ll explore why people are coming to Oklahoma and from where they are coming. Was Oklahoma’s recent surge in net in-migration influenced by key policy changes such as Right to Work and income tax cuts? Keeping this net in-flow of people (and income) will add another positive and dynamic element to Oklahoma’s economy.

OCPA research fellow J. Scott Moody (M.A., George Mason University) has worked as a public policy economist for more than 13 years. Formerly a senior economist at the Tax Foundation and a senior economist at the Heritage Foundation, he has twice testified before the Ways and Means Committee of the U.S. House of Representatives. His work has appeared in Forbes, CNN Money, State Tax Notes, The Oklahoman, and several other publications.

10 PERSPECTIVE • September 2013

Giving School Choice the Milton Friedman Test By Andrew J. Coulson

July 31 marked the 101st anniversary of Milton Friedman’s birth. The date was celebrated across the nation, particularly—and rightly—by schoolchoice advocates [see page 15]. Although Friedman launched the modern school-choice movement and lived to see it rise to national prominence, there is still more that those of us who support educational freedom can learn from his example. Friedman was famous for his advocacy of individual liberty and limited government, particularly in education, but often said that this was an avocation, not his vocation. Professionally, he studied the role of government spending and the money supply on consumers and unemployment. His work in this field was so compelling that it caused many economists to abandon their erstwhile Keynesian views, and it earned him the 1976 Nobel Prize in economics. What distinguished that work was its rigorous empiricism and focus on long-term outcomes. For example, a reigning belief among mid-20th century economists was that if government handed out money during hard times, people would spend it, stimulating economic growth. Friedman theorized that this was wrong and proposed that consumers mostly base their spending decisions on their “permanent,” longterm income prospects—so they tend to save rather than spend temporary additional income. Then he put both theories to the test. “The ultimate test of the validity of a theory,” Friedman wrote, is “the ability to deduce facts that have not yet been observed, that are capable of being contradicted by observation, and that subsequent observation does not contradict.” He collected data that could potentially demolish either Keynesian stimulus spending or his own “permanent income” theory—or both. When the numbers had been crunched, only Friedman’s theory was still standing.

To this day, Friedman’s conclusion remains the accepted view among economists. If education reformers wish posterity to be kind to their labors, we would do well to emulate Friedman’s rigorous empirical methods. That means testing our policy recommendations against reality and not allowing short-term benefits to cloud our assessment of long-term outcomes. At present, there is little research comparing alternative school-choice policies such as vouchers, education tax credits, and charter schools. Separately, each has been compared with the conventional public school system, but their relative merits have hardly been explored. As a result, decisions as to which of these policies should be advocated seldom have an empirical basis. Yet, what little evidence is available suggests that there may be real differences among them. For instance, with regard to choice itself: parental choice is only meaningful when there is a diversity of options from which to choose. Schools must have the autonomy to specialize—selecting their own methods, curriculums, testing, staff, and delivery systems. A light regulatory touch is thus essential. But when I compared the level of regulation imposed by U.S. school-choice programs for the Journal of School Choice, I found a systematic difference: vouchers—but not tax credits—impose a large and statistically significant extra burden of regulation on private schools. However, isn’t any school-choice program a step in the right direction— even if it unduly constrains parents’ choices and educators’ freedom? The answer may depend on whether we follow Friedman’s example and consider the long term. In the short run, most school-choice programs are apt to improve options and outcomes relative to the status quo monopoly. What if today’s autonomous private schools are forced to ac-

cept government funding and regulation in order to remain viable? It’s hard to compete with a “free” provider when your own customers must pay tuition. What if the burden of regulation imposed on voucher schools ultimately squelches their diversity? We could be left with less choice, diversity, and competition than when we began. Far from being a hypothetical, this is roughly the course of 20th-century events in the Netherlands. That nation’s universal voucher program squeezed its autonomous, unsubsidized private schools out of existence. Today, its state-funded “private” schools have been homogenized with respect to hiring practices, salaries, curriculum, and testing. For-profit operation is prohibited, and barriers to entry have risen so high that few new schools are created. It is not, in any meaningful sense, a free educational marketplace. Perhaps, if a body of new contrary evidence emerges, the limited, existing evidence of vouchers’ regulatory impact will be subject to reinterpretation or even rejection. Alternatively, perhaps the existing evidence will be bolstered by future research. Either way, it would be preferable to find out while U.S. school-choice programs are still small and their design not yet entrenched. “One of the great mistakes,” Friedman said, “is to judge policies and programs by their intentions rather than their results.” The only way for education reformers to avoid that mistake is to follow Friedman’s methodological example: carefully comparing the policy alternatives and keeping our eyes on the long term.

Andrew J. Coulson directs the Cato Institute’s Center for Educational Freedom and is author of Market Education: The Unknown History (Transaction Publishers, 1999).

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Right to Work Laws Improve Economic Well-Being By Michael D. LaFaive and Michael J. Hicks

Michigan’s Right to Work (RTW) law—which took effect earlier this year—may prove to be an economic boon for the state, particularly over time. The cumulative effect of Right to Work appears to have dramatically boosted the standard of living in the states which have adopted it. Our new study, released last month, assumes that growth rates in such things as personal income, population, and employment are proxies for a state’s overall well-being. We measured changes in each over time, including a 64-year sweep from 1947 through 2011 and three other distinct and smaller time periods. According to our model, states with Right to Work laws enjoyed an annual average increase in real personal income of 0.8 percentage points and average annual population growth of 0.5 percentage points compared to what they would have experienced without such laws. From 1970 through 2011, these laws also boosted average annual employment growth by 0.8 percentage points. Data in this last category are not available back to 1947. Because national and state economic performances can change over time, we divided our analysis into three smaller segments: 1947 through 1970; 1971 through 1990; and 1991 through 2011. During the first period of study our research indicates that Right to Work laws had little meaningful impact on either average growth of personal income or in average growth of population. The middle period (1971 through 1990) showed significantly different performance characteristics from Right to Work states in all three categories. Our model reports average annual growth rates for employment, personal income, and population were 0.90,

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0.93, and 1.30 percentage points higher, respectively. The final period (19912011) shows more modest gains, but ones that are still statistically and economically significant in each category. Our empirical findings seem to align with more descriptive, blunt looks at the trends between RTW and non-RTW states, which are frequently mentioned by politicians and other analysts. The Mackinac Center has published two papers in the past detailing such key performance differences. James Hohman updated several Right to Work and non-Right to Work statistics recently for the study. This language appears verbatim in our study: • “According to the Bureau of Economic Analysis, Right to Work states showed a 42.6 percent gain in total employment from 1990 to 2011, while non-Right to Work states showed gains of only 18.8 percent.” • “According to the U.S. Census Bureau, population increased in Right to Work states by 39.8 percent and only 16.7 percent in non-Right to Work states from 1990 to 2011.” • “According to the U.S. Census Bureau, 4.9 million people moved from nonRight to Work states to Right to Work states from 2000 to 2009.”

• “According to the Bureau of Economic Analysis, nominal personal income grew by 209.3 percent in Right to Work states and by 148.5 percent in non-Right to Work states from 1990 to 2011.” These statistics suggest that Right to Work states outperform non-Right to Work states in the key areas of employment, population, and personal income growth. Our modeling work provides empirical evidence to support such observations. Other scholarly studies—but not all—have also found positive economic results from state adoption of Right to Work statutes. By building a statistical model to measure the possible impact of Right to Work laws, we can better isolate the economic impact of other variables that may affect the growth metrics we are researching while correcting for potential problems that have bedeviled other Right to Work studies. Michigan’s Right to Work law started raucous debates in Lansing and elsewhere over whether or not such policies were beneficial. We believe the evidence reports to positive—sometimes very positive—economic consequences of adopting Right to Work laws.

Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy, a free-market think tank. LaFaive is perhaps best known for his cutting-edge, scholarly work examining state “economic development” programs, which was likely influential in the decision to kill the Michigan Economic Growth Authority, the state’s high-profile corporate welfare program. LaFaive has undergraduate and graduate degrees in economics from Central Michigan University.

Michael Hicks, Ph.D., is director of the Center for Business and Economic Research and professor of economics at Ball State University. He is also an adjunct scholar with the Mackinac Center for Public Policy. He holds degrees in economics from Virginia Military Institute and the University of Tennessee. With research focusing on regional economics and public finance, he is author of three books, more than 40 academic papers, and more than a hundred technical reports. He also writes a weekly syndicated business column.

Gov. Frank Keating and the Right to Work By Brandon Dutcher

When Oklahomans (and Americans) think of former Gov. Frank Keating, they doubtless remember his grace and dignity in the aftermath of the Oklahoma City bombing. But as someone who works at a public policy think tank in Oklahoma City— and who interacted with Gov. Keating during his two terms in office—it’s his leadership on matters of state policy that I remember most. In an article published in 2000 in Investor’s Business Daily, I pointed out that Gov. Keating—despite opposition from the good ol’ boys who then controlled the state legislature—had been able to promote, and in many cases push through, important reforms such as tax cuts, privatization, and real education reform. What I didn’t know at the time was that the best was yet to come. Gov. Keating understood “the importance of freedom in the labor market,” Congressman Jim Bridenstine told the students at Oklahoma Wesleyan University earlier this year. “Throughout his two terms he fought to make Oklahoma a Right to Work state. He knew that college graduates, like many of you soon will be, along with others in our state searching for employment, should not be forced to join a labor union against their will.” In September 2001 Oklahomans went to the polls and approved State Question 695, popularly known as “Right to Work” (RTW), a constitutional amendment which indeed gives every Oklahoma employee the choice of paying—or not paying—a labor union as a condition of employment. Victory has a thousand fathers, of course, but Frank Keating (along with newspaper publisher Edward L. Gaylord and RTW campaign maestro Marc Nuttle) is at the top of that paternity

list. Year after year Gov. Keating called for Right to Work in his State of the State address, and year after year he was booed and jeered by disrespectful souls in the gallery. But he persevered, and his leadership—both from the bully pulpit and behind the scenes—was key to bringing labor-market freedom to Oklahomans. As a serious and learned Catholic, Gov. Keating is doubtless aware that “Catholic social teaching has unequivocally endorsed some form of trade unionism,” as Charles W. Baird has written (Liberating Labor: A Christian Economist’s Case for Voluntary Unionism). However, Baird adds, Too often, Catholics, lay and ordained, have simply assumed that Catholic social teaching supports all trade unions set up under the auspices of democratic governments. … In my judgment, Catholic social teaching supports voluntary, and condemns compulsory, unionism. In the United States, the statute that defines the rules of unionism is the National Labor Relations Act (NLRA), which was originally enacted in 1935 and was amended in 1947 and again in 1959. My hypothesis is that NLRAstyle unionism is inconsistent with Catholic social teaching. It’s also inconsistent with economic growth, as Gov. Keating never tired of repeating and as economist Richard Vedder later confirmed. Writing in The Cato Journal (“Right-to-Work Laws: Liberty, Prosperity, and Quality of Life”),

Vedder found there is “a very strong and highly statistically significant (at the 1 percent level) positive relationship between Right-to-Work laws and economic growth. ... This is a powerful finding: a seemingly modest change in the legal environment in which labor markets operate has a significant impact on the rate of economic growth.” Right to Work increases jobs and choices, adds Heritage Foundation policy analyst James Sherk. Indeed, since 2009, Right to Work states have created four times as many jobs as forced union states and—put this one in the “unintended consequences” file—may have contributed to President Obama’s re-election. Speaking of unintended consequences, journalist Tom Gantert recently pointed out that Right to Work states are actually gaining union members while non-Right to Work states are losing hundreds of thousands of union members. “Oklahoma, for example, passed Right to Work in 2001. In 2000, it had 96,000 union members. Slowly the number of union members in Oklahoma has grown to 115,000 in 2012.” But in the end, the economic arguments are not paramount. In an article entitled “The Ethical Case for Right to Work,” free-market economist Cecil Bohanon, an Okie from Muskogee, said he would support Right to Work even if its economic impact is minimal. “It is a simple matter of justice,” he says. No doubt Gov. Keating agrees.

Brandon Dutcher (M.A. in public policy, M.A. in journalism, Regent University) is vice president for policy at OCPA. He’s the editor of the book Oklahoma Policy Blueprint, which was praised by Nobel Prize-winning economist Milton Friedman as “thorough, well-informed, and highly sophisticated.” His articles have appeared in Investor’s Business Daily, WORLD magazine, the Tulsa World, The Oklahoman, and more than 190 newspapers throughout Oklahoma and the U.S.

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@OCPAThink 1. OCPA’s Jonathan Small and his daughters (pictured at right) are shown here at the Friedman Legacy Day ice-cream social. 2. State Sen. Cliff Aldridge, OCPA’s Brian Bush, and state Rep. Gary Banz are pictured at the American Legislative Exchange Council (ALEC) annual meeting in Chicago. Sen. Aldridge and Rep. Banz were among those lawmakers from around the country recognized as ALEC Legislators of the Year.

3. Former Oklahoma Gov. Brad Henry, state Rep. Jason Nelson, and OCPA trustee Bill Price are shown here at a July 31 ice-cream social honoring the Lindsey Nicole Henry Scholarship recipients. Rep. Nelson authored, and Gov. Henry signed into law, the bill giving private-school choice to Oklahoma’s specialneeds students. 4.. Lindsey Nicole Henry Scholarship recipient Chloe Hood and her father are pictured here at the ice-cream social on July 31, which would have been economist and school-choice champion Milton Friedman’s 101st birthday. OCPA celebrated Freidman Legacy Day with the think-tank policy analysts who promoted the idea of special-needs scholarships, the legislators who got the legislation passed, the governor who signed it, the lawyers who defended it in court, and the families and children whose lives are being changed by it. State Policy Network (SPN) is made up of free-market think tanks—at least one in every state—fighting to limit government and advance market-friendly policies at the state and local levels. OCPA will host this year’s annual meeting and celebrate “Oklahoma Night” on Wednesday, September 25. SPN For more information or to be involved in Oklahoma Night, please contact Karma Robinson at (405) 6021667.

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QUOTE UNQUOTE “Aid is just a stopgap. Commerce [and] entrepreneurial capitalism take more people out of poverty than aid.”

Bono, the lead singer of the group U2, who is also famous for his humanitarian work

“In many states there are ‘lemon laws’ that protect consumers who have purchased products that repeatedly fail to meet basic expectations. … In a similar fashion, bachelor-degreegranting institutions have an obligation to address the employment concerns of new degree-holders.”

Dr. Bill R. Path, president of the Oklahoma State University Institute of Technology

“A wise and frugal Government shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.” Thomas Jefferson

“Once one hospital in a city starts doing it, everyone has to do it.”

Influential health policy analyst John C. Goodman, quoted in a recent New York Times commentary about the Surgery Center of Oklahoma, which posts its prices online. “You’re looking at one example of something that’s going to become really, really important,” Goodman says.

“Praying for the family of Chris Lane. This senseless violence is frowned upon and the justice system must prevail.” Rev. Jesse Jackson, courageously declaring that the murder of an innocent person is “frowned upon”

“I was a high school math teacher in public schools, and I was seeing these older students struggling with the fundamentals and the basics of math and was never able to reach that higher level of knowledge with them. I didn’t want that for my three kids.” Marcie Robbins of Bartlesville, explaining to the Miami News-Record why she decided to homeschool her own children