Freedom in Kentucky

I had an opportunity to speak with the authors of the new Mercatus Center report, "Freedom in the 50 States." Here's the audio:

Jason Sorens


William Ruger

As you're probably aware, Kentucky landed in the bottom half of the rankings among the states. The advice the authors gave to Kentucky policymakers was fairly simple:

• Tighten the rules for municipal-bond issuance and cut spending, particularly on grants to local school districts and employee compensation (repeal the prevailing-wage law), in order to retire debt.
• Reduce homeschool recordkeeping requirements to a simple record of attendance, like Indiana and Tennessee require.
• Dramatically raise contribution limits for grassroots PACs and individuals.

Interestingly, what brought Kentucky down was its score in economic freedom, where the state ranked 34th overall. The authors noted that Kentucky's fiscal structure means a large share of tax revenues go through Frankfort rather than through local governments.

There is no immediately compelling reason why Frankfort should be charged with collecting and spending such a large share of the commonwealth's total government revenues. It serves to prevent local government innovation in the delivery of services since Frankfort plays a greater role in funding and therefore controlling the direction of local projects. It also means that localities receive muted incentives to compete for a greater share of area populations through varying tax rates, service provision and local amenities.

Just what is prevailing wage?

I wrote yesterday about how researchers at the Mercatus Center suggested that Kentucky repeal prevailing wage laws. The term prevailing wage is probably confusing to those unfamiliar with labor and wage law.

Here is a great resource for understanding just what prevailing wage is and how it applies in Kentucky.

Freedom in the 50 States

Researchers say Kentucky needs to repeal prevailing wage laws

We posted yesterday that the Mercatus Center has released its annual freedom index of the states.

Among their recommendations for Kentucky: repeal prevailing-wage laws and cut spending...

Tighten the rules for municipal-bond issuance and cut spending, particularly on grants to local school districts and employee compensation (repeal the prevailing-wage law), in order to retire debt.

The Bluegrass Institute has long been an advocate of repealing prevailing wage laws.

Eliminate Tax Breaks on Government Debt?

If you own your home, you receive an incentive to go deeper into debt than you otherwise would if you take advantage of the mortgage interest deduction. Some people act on that incentive by buying more house. Some people extend the terms of their mortgages.

So what happens when we give a tax break to those who earn interest income on debts issued by governments? It means more people offering to buy the debt than normal which means lower interest rates than normal. Lower interest rates for borrowers usually means more borrowing.

The question is this: Why subsidize government borrowing through the tax code? After all, it's always taxpayers who are liable for bad borrowing decisions by government.

The idea of eliminating tax breaks for municipal bonds is again under consideration in Congress. It has merit.

Here's why. When the financial crisis struck, it decimated the private bond industry. Tax revenues, meanwhile, declined. Investors, seeking cover, put more money into tax-free bonds. That move into tax-free bonds effectively lowered the price of borrowing for local governments who were also strapped for cash. And in a down economy, making borrowing easier than cutting spending has obvious ramifications for your future tax bills and waste in government.

The idea is worth considering. What's more, eliminating that tax break can serve two partisan desires. It's the elimination of a tax break for big investors, something Democrats often like. It also has the benefit of compelling local governments to live within their means even in the short run, an idea attractive to fiscal conservatives.