Laffer: States Lead Pro-Growth Rebellion

Arthur B. Laffer

After the 2008 election, Democrats controlled both houses of Congress and, of course, the presidency. They used that victory to push through an agenda as radical as any seen in this country since FDR—unprecedented deficit-financed stimulus spending, more regulations, a new health-care entitlement, etc.

In 2010, the Democrats lost control of the House of Representatives and seven Senate seats in a startling reversal of fortune. But instead of rethinking their agenda, Democrats in Washington have doubled down, marching in lock-step toward ever bigger government.

Well, the states are now starting to change the playing field. The latest shock to the Democratic agenda is Indiana’s adoption of a right-to-work law that bans contracts that require private-sector employees to pay union dues. And there are many more such changes on the state level to follow.

Most high-school civics students would agree that no American worker should either be prohibited from joining a union or required to join one as a condition of employment. And no union member—or anyone else for that matter—should be required to contribute to political causes they oppose. Yet in 27 states, if more than 50% of workers agree to create a union shop, workers are still required to join the union and pay dues even if those dues are used for political causes they disapprove of.

As of Feb. 1, the day Gov. Mitch Daniels signed the right-to-work bill into law, that’s no longer the case in the Hoosier State. That’s progress, and part of a growing trend at the state level. Indiana is now the 23rd state to adopt a right-to-work law. The possibility for states to pass right-to-work laws was created in section 14(b) of the Taft-Hartley Act of 1947, which amended the FDR-era pro-union Wagner Act.

But just because it was the right thing to do, don’t think it was easy for Gov. Daniels to do it. Not only did every Democrat in Indiana’s House and Senate vote against the bill, but five Republicans in the House and nine in the Senate also voted against it, testament to the influence of union power in Washington and state capitals across America.

Passing the right-to-work legislation isn’t Gov. Daniels’s first success in Indiana. On his first day in office in 2005 he removed former Democratic Gov. Evan Bayh’s executive order allowing collective bargaining for state employees. As a result, over the next six years the number of Indiana state employees paying union dues fell to fewer than 1,500 from more than 16,000. He also signed school voucher legislation increasing parents’ choice for their children’s education. And to top it all off, his approval ratings remain high.

The last state to pass right-to-work legislation was Oklahoma a decade ago, where a referendum led to the law’s enactment in 2001. New Hampshire came close to passing a right-to-work law after the House and Senate approved the legislation in 2011, but a veto by Democratic Gov. John Lynch killed it. Although term limits do not exist in New Hampshire, Gov. Lynch will not seek re-election in 2012, making a push for right-to-work legislation once again likely.

The benefits to states having right-to-work legislation are overwhelming. As demonstrated by a number of economists, most notably Ohio State’s Richard Vedder and Harvard’s Robert Barro, the economies in states with right-to-work laws grow significantly faster than those in forced-union states. They also have higher employment growth, attract more residents, and have more rapid growth in state and local tax revenues than forced-union states.

But right-to-work laws are only one example of states taking on the Democratic agenda and public-sector unions. Oklahoma, Kansas and Missouri are all preparing legislation to eliminate their state’s progressive personal income-tax codes. Last year Ohio repealed its state estate tax, and the issues in Wisconsin surrounding Gov. Scott Walker’s battle with state workers over budget constraints and collective bargaining are legend.

Gov. Walker is not alone. Tennessee Gov. Bill Haslam has signed legislation ending public-school teachers’ collective-bargaining rights, and New Jersey Gov. Chris Christie has removed collective-bargaining rights on issues such as state-employee contributions to pension and health-care plans.

Meanwhile, Democrats, for better or worse, have staked their future on tight partnership with the unions. Unfortunately for them, not only is union membership a fraction of what it once was, but half of all union members today are public-sector employees—teachers, nurses, police officers, firemen, prison guards. In 1983, when President Reagan fired the air-traffic controllers for walking out on their jobs, two-thirds of all union members were in the private sector.

Not only is union membership declining, but in some of the most ardent pro-union states, such as California, the unfunded liabilities of public-employee retirement plans are pushing those states toward financial collapse and intolerably high tax rates.

The message from the states—and especially from Indiana—is that allying oneself too closely with unions is a losing strategy. President Obama and his Democratic allies should take note: They’ve hitched their fortunes to a falling star.

Mr. Laffer, chairman of Laffer Associates, is co-author with Stephen Moore of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).


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