Category: population growth

You Don’t Count

Leave a comment

April 12, 2020

by Steve Stofka

Wisconsin voters held their state’s primary this past week. At stake was an important state Supreme Court seat. The long lines at the few polling places open in urban areas highlighted the distinction in voting power between urban and rural communities. Voters in urban areas that are largely Democratic must wait for hours to vote while those in rural Republican leaning districts experience short wait times when they vote (NCSL, 2014).

Democratic House Leader Nancy Pelosi advocates a federal law requiring states to have a mail in ballot as an option in federal elections. Republicans from low population states want to protect the enormous power that their rural communities have over those in urban areas. They continue to resist mail in ballots.

The map below from the Census Bureau shows the population density per county (US Census Bureau, 2018). The light green and yellow areas have populations below the U.S. average, which is only 88 people per square mile. Western European countries have an average of 468 people per square mile, more than 5 times the density of the U.S.

I have numbered the 7 states that had not implemented stay at home orders as of April 6th (Silverstein, 2020). Each state is one of 21 states that have less than 1% of the nation’s population (List, 2020).

Twelve of those states have majority rural populations (HAC, 2011).  25 states have only 20% of the country’s population but each state gets two Senators, regardless of population. The Senate does not have proportional representation.  20% of voters control half of the Senate.

This outrageous discrepancy in voting power grew out of – stop reading and guess. Did you guess slavery? That’s right. At this country’s founding, the slave states in the south did not want the more populous states in the north to make slavery illegal in the southern states. In an age when most people grew their own food, the northern states guessed that the population of the southern states would grow more quickly because of the longer growing season. The Senate and the Electoral College were a compromise between slave and free states at the country’s founding.

Many of the plains and Rocky Mountain states have little population but have the same power in the Senate as states with twenty times their population. Why are there so many states with so few people? Stop reading and guess again. Did you guess slavery? Right again. There were 37 states in 1870, five years after the Civil War, but the western territories had already been formed during or just prior to the Civil War. So how did slavery lead to the formation of states?

Let’s look at the example of Colorado. The discovery of gold near Pikes Peak attracted a large influx of people into the region in 1859. In December 1860, a month after Lincoln was elected President, South Carolina seceded from the Union. In February 1861, two months before the formal secession of the other states, an act was introduced into the Congress to make Colorado a territory. Why? To secure mineral rights for the coming war. 15 years later, Colorado finally became a state.

In January 1862, Jefferson Davis, President of the Confederacy, recognized Arizona as a Territory. The population was sympathetic to slavery and Davis hoped to use Arizona as a launching point to capture California and it’s gold. Imagine the Confederate Army camped out on the Colorado River, in present day Lake Havasu, prepared to invade – yes, hundreds of miles of godforsaken desert. This was not a well thought out plan by Mr. Davis.

Tit for tat. A month later, the U.S. Congress, composed of only delegates from Union states, recognized Arizona as a territory along different borders to block the recognition of the Territory under the borders established by the Confederacy.  Because of its low population, the territories of Arizona and neighboring New Mexico did not become states until 1912, when progressives of both parties overcame persistent opposition in the Senate to pass the 17th Amendment (NCC, n.d.). That amendment gave voters in each state the power to elect their state’s two Senators.

 Wyoming used to have more sheep than people (USDA, 2018). People in the state now outnumber sheep almost 2-to-1. It was part of the Nebraska Territory that was created along with the Kansas Territory prior to the Civil War as part of the Kansas-Nebraska act. A month after S. Carolina’s secession in response to Lincoln’s election, Kansas entered the union as a free state in 1861. Both the Union and the Confederacy engaged in a concerted effort to secure territory and its resources in anticipation of war.  Nebraska became a state after the Civil War. The Union states wanted power in the Senate to secure the Civil War Amendments and other legislation passed after the war. Nebraska voters get 20 times more clout in the Senate than voters in New York. Why? Don’t pause. The answer is slavery again.

As part of the effort to secure the Civil War Amendments, Nevada was made a state a month after the 13th Amendment passed out of the Senate on its way to the states in 1864. As it is today, there were few people living in the territory. Congress wanted access to the silver mines in the territory and it mandated that Nevada outlaw slavery as a precondition to statehood.

The territories of Utah and New Mexico were created as part of the Compromise of 1850 to keep a balance between the slave holding states and the free states. Antipathy to Mormons delayed admission of the Utah Territory into the Union until 1896.

Will the Civil War continue to influence our everyday lives? During the Yugoslav Wars in the 1990s we would read about animosities between Albanians and Serbs that dated back to the 14th Century (Geldenhuys, 2014). Shi’a and Sunni Muslims are still killing each other over a controversy about Mohammed’s successor following his death in the 7th century (McLean, n.d.). If America lasts a few more centuries, the Civil War’s legacy of injustice and bitterness will infect our descendants because it is baked into our institutions.

For a hundred years after the Civil War, Democrats fought to limit access to the vote and punished or killed those who fought for the rights of black voters in southern states. For the past fifty years, the baton of injustice has passed to the Republicans who deny people this fundamental right. Voting is a blood sport. Those who want greater access to voting will have to fight for it.

////////////////

Notes:

Photo by Element5 Digital on Unsplash

Geldenhuys, D. (2014). Contested States In World Politics. New York. Palgrave MacMillan. (p. 107-8)

Housing Assistance Council (HAC). (2011, November). Rurality in the United States. [PDF]. Retrieved from http://www.ruralhome.org/storage/research_notes/Rural_Research_Note_Rurality_web.pdf (p.4).

List of U.S. states by population (List). (2020, April 2). Retrieved from https://simple.wikipedia.org/wiki/List_of_U.S._states_by_population

McLean, J. (n.d.). World Civilization. Retrieved from https://courses.lumenlearning.com/suny-hccc-worldcivilization/chapter/muhammads-successors/

National Constitution Center (NCC). (n.d.). The Seventeenth Amendment. Retrieved from https://constitutioncenter.org/interactive-constitution/interpretation/amendment-xvii/interps/147

NCSL. (2014, October). States and Election Reform. The Canvass (Issue 52). [PDF]. Retrieved from https://www.ncsl.org/Documents/legismgt/elect/Canvass_Oct_2014_No_52.pdf

Silverstein, J. (2020, April 6). 43 states now have stay-at-home orders for coronavirus. These are the 7 that don’t. [Web page]. Retrieved from https://www.cbsnews.com/news/stay-at-home-orders-states/

US Census Bureau. (2018, May 7). Population Density by County: 2010. Retrieved from https://www.census.gov/library/visualizations/2010/geo/population-density-county-2010.html

Sales Tax Collections

2 Comments

January 8, 2017

The New Year begins, the 9th year of this blog that began during the financial crisis.  For two decades I had studied financial markets but the financial crisis surprised most people.  This was my attempt to organize and share my thoughts.

Sales Tax Collections

Let’s look at a data point that has been a consistent indicator of economic health – sales tax collections. This is not survey data or economic estimates but actual tax collections based on consumer purchases. For the first 3 quarters of 2016, sales tax collections are up 1.6% above the same period in 2015. (Census Bureau)    As we will see, this tepid growth rate does not compare well with the historical data of the past 25 years.  Below is a quarterly graph of sales tax collected in the 50 states.

As we can see in the graph above, the 2nd quarter (orange bar) is the highest each year, and is a good indicator of consumer activity and confidence. Since population growth is about 1%, the annual growth of sales tax collected should be above that mark to be effectively positive.

In the graph below, we can see negligible or negative growth in 2001, 2008 and 2016. In 2001 and 2008, we were already in recession, although it took the recession marking committee at the NBER almost a year to declare the beginning of those recessions.  By selecting the 2nd quarter growth rate in the historical data, we can more easily see the weakness at the start of an economic downturn.

In retrospect, 25 years of data is rather sparse.  We can only hope that this year’s lack of sales tax growth may turn out to be a warning sign only, a fluke.  Third quarter tax collections were effectively positive, but only 2% growth, and that annual growth has consistently declined in the past three years in a pattern exactly like the weakening of 2006 – 2008.

Of particular note in the graph above is the steep 10% drop in sales tax collections in the second quarter of 2009. Fom a vantage point eight years in the future, we may have forgotten the degree of fear during the winter of 2008-2009.  The American people were holding onto their money.  State budgets were crippled by the lack of sales tax collections, an important and ongoing source of revenue for state and local governments.

See end for a side note.

////////////////////////

Population Growth

Business Insider published a chart of 2015-2016 population data from the Census Bureau.  We can see a clear shift from the northern states to the mountain and southern states.  Retiring boomers, who want to maximize their fixed incomes, will shift from states with high state income and property taxes like New Jersey and New York, and move to states with lower taxes.

///////////////////////

Tax Reform

In a few weeks Republicans will control the legislative machinery, and have promised  tax reform that, after thirty years, is overdue.  One of the proposals on the bargaining table is the end of the home interest deduction, which prompted this blog post at Slate.  The author contends that the elimination of this deduction will hurt middle class homeowners, who will see the value of their homes decline by 7%.

I’ll add in some contextual data from the IRS.  In 2011, 22% of the 145 million (M) returns claimed mortgage interest totalling $321 billion. ( IRS tax stats Table 3) People making a middle class income of less than $100K claimed half of that interest – 14% of all returns.  The average interest deduction for these middle class households was $8100.

Two million returns with incomes of $500K and above claimed $46B in mortgage interest, about 15% of the total interest claimed.  For these high earners, the average deduction was $20,000.

The tax reform of 1986 eliminated the interest deduction on credit cards and cars, but lawmakers could not go the final distance and squelch the home mortgage interest deduction.  At the time, auto dealerships complained that, without the interest deduction on new car loans, their business would suffer.  Tax subsidies affect both consumers and the businesses who are indirect recipients of the subsidy. Should 78% of taxpayers subsidize the housing costs for 22% of taxpayers?   Certainly, the 22% appreciate the subsidy! The real estate industry continues to resist any tax changes that might have a negative impact on their business.  Each industry deserves a subsidy of some kind because that industry is important to the overall economy – or so the argument goes.

///////////////////////

The End of Capitalism – Almost

Let’s get in the wayback machine and dial in 1997.  The dot-com boom is not yet a bubble but is growing.  Cell phones are growing in acceptance but the majority of people do not have one.  A one year CD is paying more than 5%.  The unemployment rate is about the same level as today (2016).  What is very different between then and now is the number of publicly traded companies.  In 1997, there were over 9000 listed companies.  Today, there are about 6000 companies.  The 2002 Sarbanes-Oxley (SB) law has such stringent and plentiful financial reporting regulations that many companies decide not to go public, or to sell themselves to a larger company that already has the internal infrastructure in place to comply with SB regulations.  Both parties want to repeal or amend the law but cannot agree on the details.  Readers can click for more info.

//////////////////////////

Next week I will compare the 10 year performance and risks of various portfolios.  There are some surprises there.

//////////////////////////

Side note on Sales Tax.  The Federal Reserve charts retail sales but these are based on data samples and will not be as accurate as the actual tax collected.  When retail sales are adjusted for inflation, the year over year growth can give a number of false positives.  In the graph below, I have marked up periods that went negative without the economy going into recession.  I think that the actual tax collected may be a much more accurate predictor of economic weakness.