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Stephen Grover Cleveland, 22nd and 24th U.S. President

After no fewer than six attempts, United States president Grover Cleveland has finally been inducted into the New Jersey Hall of Fame. (Yes, there is such a thing, apparently.) It is a long-overdue honor, but it is well deserved. Of course, President Cleveland has to share the honor with co-inductees like Whitney Houston and Joe Piscopo, but one has to take what one can get. 

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New Jersey was just denied its bid for some $400 million from the federal government’s “Race to the Top” initiative. The reason, apparently, is because of a “clerical error” in one paragraph on one page of the 1,000-page application. (Apparently the state was required to provide budget figures for one set of years, and it mistakenly provided figures for a slightly different set of years.)

In a state as far in debt as New Jersey is—its debt is currently estimated to be in excess of $50 billion, approximately 100% of its annual expenditure—the revenue lost because of this clerical error constitutes less than 1% of its debt. But it’s still a lot of money. There is now a lot of finger-pointing going on: The teachers’ union is blaming Governor Christie for his incompetence, Governor Christie is claiming the union signed off on the application too, etc.

Whether the federal government, which itself is in rather shaky financial shape, should be handing out billions of dollars it doesn’t have to states that have spent themselves over their skis is a question of course. But this episode encapsulates brilliantly one of the problems with centralized, that is to say bureaucratic, administration of large-scale enterprises like education.

Because the centralized authorities cannot possess the detailed local knowledge required to make appropriate judgments about the individual cases that fall within their purview, they must instead resort to the expedient of adopting and applying rules to wide swaths of cases. That is, instead of relying on principles, like “reward applicants with the most merit,” they rely instead on rules, like “reject application if box 17(a)(3)(i) on page 1,273 is not fully darkened (an ‘x’ is not acceptable).”* The former requires judgment, which is difficult; the latter requires robots, and is easy.

This explains some of the robotic intransigence for which bureaucrats are infamous. Rules, rules, and more rules, all of which must be followed—even when no one really knows why—and there can be no exceptions made, even when, if we used our independent judgment, everyone on all sides would agree that an exception is warranted. That is why we all still have to take off our shoes at airports, for example.

Of course, the bureaucrats making decisions in the Race to the Top initiative weren’t given enough money to approve every application, so they had to reject some. It’s much easier to reject applications for technical, if pedantic, reasons than to come up with substantive judgments about the relative merits of applications. As someone who has sat on many committees evaluating applicants for jobs and for scholarships, I can attest to the difficulty and time consumption of evaluating each application on its merits. Still, that is what an evaluator should do: resorting to other expedients is, though easier, a breach of the professional responsibility of an evaluator.

That is easy to say. As the number of applicants goes up, however, and as the length of applications increases (New Jersey’s application was allegedly 1,000 pages long), the desire to find expedients and short cuts becomes almost irresistible. Hence expedients are found, and applied—ruthlessly, without judgment.

I don’t think we should have our educational decisions made or funded by centralized authorities; I think that, on balance, the positives of localized control and funding outweigh the negatives, and the negatives associated with centralized control outweigh the positives. But as long as we have the federal government making decisions like this for us, we should not expect anything other than the unthinking application of arbitrary rules that this New Jersey episode has shown.

*I thank economist David Rose for helpful discussion of the distinction between “principles” and “rules.”

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Two recent stories in the WSJ dramatically illustrate once again that people respond to incentives. And taxes are incentives.

The first story suggests that one reason LeBron James might have chosen to go to Miami is to avoid the punitive taxes in the other places he was considering—especially Ohio and New York. The income tax rate in Ohio is just over 7%, and the rate in New York is set to become a whopping 12.85%. Florida’s income tax: zero. For someone about to make approximately $100 million in salary over the next five years, that amounts to a $7 million and a $12.85 million premium just for the privilege of living in Ohio or New York, respectively. I’m sure James’s first concern was basketball, but he’d be a fool not to consider these huge tax differences; and James is no fool.

Some Cleveland fans are pretty upset with James’s decision, pointing out that they were offering him $4 million per year more than what Miami offered. But even with that extra money, James would still end up about $1 million per year in the hole if he stayed in Ohio—solely because of the taxes. Some people in New York are suggesting that disappointed fans might direct some of their ire toward Albany, which has engineered the tremendous penalty for living in the state of New York.

The second story relates that with the federal estate tax set to resume at much higher rates as of January 1, 2011, people who are wealthy face the perverse and agonizing incentive of contemplating whether to commit suicide before the end of the year so that their heirs do not face a tax bill that could come to millions of dollars. As one 81-year-old Iowa businessman puts it: “You don’t know whether to commit suicide or just go on living and working.”

The tax disappeared in 2010, creating an incentive to live, but its return in 2011 is creating, as actual people in affected situations are putting it, a “death incentive.”

It is not exactly news that people respond to incentives, or that the tax structure creates a system of incentives in response to which people will alter their behavior. Just because a new tax being proposed does not affect you does not mean it affects no one. As William Graham Sumner argued, every dollar that the government raises through taxation is a dollar taken from someone, somewhere. You may not know the person from whom it is taken, and you may not care about him; he is effectively a “forgotten man.” But he labors under the burdens we place on him.

I suspect that some base motives are involved in our desire to tax the rich. When listening to people argue for such taxes, one often detects a faint whiff of—what is it? Is it envy and jealousy? Is it selfishness? Greed? These are not motives to be proud of. But let us not try to convince people to stop feeling these base instincts. Instead, let us remind ourselves that successful people make our lives much better. The spillover effects of successful people’s achievements come not from skimming ever larger portions of it and putting it in others’ pockets, but instead from the goods, services, and wealth they produce that we all, in turn, can enjoy.

People will always respond to incentives, so it is pointless to assume—as politicians and many in the public seem to do—that people’s behavior will not change no matter what the tax structure is. If you raise taxes on millionaires, they will go elsewhere; this has been proven over and over again.

These considerations lead me to suggest a different tack. Let’s put the fact that people respond to incentives to work for us, instead of working against it. If your state is struggling with its finances, consider, instead of raising taxes, lowering them the more people make. Perhaps institute a maximum threshold: once your income reaches a certain level, no taxes at all. If New Jersey, for example, did something like that, potentially thousands of disaffected wealthy people would flock there from the surrounding states, which would have all sorts of beneficial consequences. It might reverse New Jersey’s currently bleak demographic trends, and, given Laffer-esque effects of lower taxes, it might actually help it address its more-than-bleak fiscal situation.

That might also encourage us not to deepen social division by resenting those wealthier than we are, but rather to appreciate what they do for us and thus increase social cohesion and a sense of community. We might thus all be better off.

And—who knows?—we might even get a good basketball team.

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New Jersey Governor Chris Christie is proposing a state constitutional amendment that would cap annual property tax increases at 2.5%. In another contender for Today’s Dumbest Comment, Barbara Keshishan, the president of the New Jersey Education Association, described this proposal as “an official attack on the very future of public education.”

Would that it were so. The people running the New Jersey public schooling system are really beyond belief. Their haughty “let them eat cake” attitude about the struggles of New Jersey citizens who are among the highest taxed in the country, their shockingly high salaries and obscene benefits packages, their shameless manipulation of students to serve their own crassly selfish ends, their demonizing of anyone who dares disagree with them, and now their transparently self-serving claim that if they don’t get more than an annual 2.5% raise it will mean the end of public education.

New Jersey teachers have seen their pay and benefits skyrocket over the last ten years, and to pay for it taxes have risen apace. According to the Record, state property taxes have increased from an average of $4,429 in 2000 to $7,281 in 2009, while the state population and the number of students has remained relatively flat.

At my local school district’s Board of Education meeting last night, we were subject to two and a half hours of self-congratulation on how wonderful they are doing, along with repeated rantings about how evil Governor Christie is. To add insult to injury, there were not-so-veiled ominous threats about how if they don’t get more money, who knows exactly how our kids will have to be made to suffer. Pay anything toward their own benefits? Of course not, you silly, silly peasant. No, we’ll cut your music teacher and kindergarten. Wouldn’t want that, now would you . . . ?

Capping annual increases at 2.5% is obviously not a “cut,” and obviously not “a jackhammer, destroying the delivery of essential services.” People making claims like that have no credibility, and are demonstrating only their disconnection from reality in a desperate attempt to keep their gravy train going. One can only wish that these people were not in charge of educating our children. If Governor Christie’s proposals can weaken their stranglehold on the state and its taxpayers even a little, all the better.

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More from the “You wish he were your governor, don’t you?” file: Chris Christie gives a local anti-Christie reporter a taste of his own medicine. Be sure to watch the entertaining video.

UPDATE: Here is the response from the reporter in question.

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The budgetary “catastrophe” was narrowly avoided for many, though not all, school districts in New Jersey yesterday. If the budgets hadn’t been passed, the consequences would have been, we were warned, “disastrous,” and “the children” would have suffered unspecified but very scary things. After all, what was proposed by Governor Chris Christie, whom New Jersey Education Association members compared to the genocidal dictator Pol Pot and openly prayed would die, was no raise for teachers this year. Some districts were also contemplating asking teachers and administrators—who currently receive full health and retirement benefits at no cost to themselves—to contribute some small amount toward their own benefits.

This bears repeating. What school districts were asked to do was agree to a one-year freeze of wages, and some of them were also asked to contribute something more than zero to their own comprehensive benefits. This was the outrage? This is what justified the profanity-laden missives, the protests, the shout-downs, the haranguing of the students in their charge to bully and beg their parents, the frightening of students about what would happen to their teachers if the budgets didn’t pass or if the governor got his way? 

I suppose the rest of us should be thankful that, despite the recent severe economic downturn, we all got raises last year and none of us had to pay for our benefits. 

But, of course, that’s not true, is it? I, for one, got no raise from my employer last year. And I also pay for my own benefits. In fact, I pay quite a lot: I pay $317 per month for my health benefits alone, and that is for the lowest-level, least-expensive option my employer offers. By contrast, if I were to opt for a plan similar to the “Cadillac” plan all employees (full- and part-time) of my local NJ school district get, it would cost me $827 per month! I wish I could afford that, but, alas, I can’t—in part because my local property taxes are so high so that I can pay my “fair share” of the Cadillac plan the school district employees enjoy. 

One reason NJEA representatives give for their stubborn refusal to compromise is that teachers have been “historically underpaid.” Perhaps historically, but not now. A quick, back-of-the-envelope calculation. Average teacher salary in the Pascack Valley, NJ school district where I live: $80,111. Not exactly poverty level—but even it doesn’t tell the whole story. Teachers are required by NJ state law to work 180 days per year; allowing for weekends and a reasonable yet generous three weeks of paid vacation, that means they work approximately 77% of the year. Thus converting their salary to a full twelve-month equivalent, it becomes $104,040 per year. If we add to that the not atypical cost my employer charges me for a health care plan similar to theirs, $9,912 per year, it brings their total average annual compensation to an equivalent of $113,952!

That puts their average in the 85th percentile of all household incomes in America, and in the 93rd percentile of all individual incomes in America. Is that supposed to be “underpaid”?

On top of their dubious economic argument, however, there is a seedier aspect to this issue. Many children in public schools around New Jersey were subject to repeated pleading, cajoling, and browbeating by their teachers and their administrators. Many local districts required students to attend all-school assemblies where superintendants warned them of dire consequences if the new, bigger budgets did not pass. Would kindergarten have to be cut? Would art? Would athletic programs? Who really knew what the schools would “have to do” if they didn’t get their raises?

Governor Christie accused the NJEA of “using students like drug mules.” He had a point.

I believe these behaviors on the part of NJEA members constitute a breach of professionalism and of fiduciary responsibilities toward both the students in their charge and the parents and taxpayers who pay their wages and expenses. How dare they abuse their positions of authority over children in the service of such narrow and patently self-serving political ends?

I think this also means that the NJEA and its members have lost credibility and authority to speak on behalf of their students. Their behavior—which has included threats, distortions, and manipulation of children—has exposed their true motives. They may have real concerns about their students, but it is clear that politics and their own pocketbooks trump them.

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