Do Benefiting From a Lower Cost of Living and Having More Kids Make You a ‘Free Rider’?
Last year, according to data reported in June by the U.S. Census Bureau, there were 4.62 children aged 17 and under for every 10 adults aged 25-64 living in the 24 states with Right to Work laws prohibiting forced union dues and fees on the books. Â Meanwhile, there were just 4.27 children for every 10 25-64-year-olds living in the 26 states that lacked such laws. In short, there were 8.2% more minors per working-age adult in Right to Works state than in forced-unionism states.
Since every additional child who is still a minor entitles a typical federal income taxpayer to an extra tax deduction as well as a $1000 credit, it follows that, other things being equal, taxpayers in Right to Work states will on average have lower tax burdens and receive greater tax credits than residents of forced-unionism states.
In addition to having significantly more minor children on average than their counterparts in forced-unionism states, employees in Right to Work states benefit from a lower cost of living. Â In 2013, according to annual state-by-state cost-of-living indices calculated and published by the nonpartisan Missouri Economic Research and Information Center (MERIC), forced-unionism states were on average 21% more costly to live in than Right to Work states.
When interstate differences in cost of living are factored in, compensation (including cash pay and the cash value of health insurance, retirement and other benefits) per private-sector employee in Right to Work states in 2012 was $42,777, slightly higher than the $42,611 average for forced-unionism states.
Nevertheless, because progressive federal income tax rates are levied on nominal income, rather than real, spendable income, and because means-tested federal benefits are doled out based on a household’s nominal income, rather than its real, spendable income, residents of Right to Work states pay less in taxes and have access to more federal benefits than their counterparts with similar living standards in forced-unionism states.
Another significant difference between Right to Work and forced-unionism states is that a significantly smaller share of all income in the former group is taken in by those with the very highest income. Â Data published early this year in a study (“The Increasingly Unequal States of America”) by the Economic Analysis and Research Network show that, in 2011, the 1% of federal tax filers with the highest adjusted gross income in forced-unionism states (excluding Michigan and Indiana, which have since adopted Right to Work laws), took in 20.1% of all income in those states, whereas the 1% of tax filers in Right to Work states with the highest adjusted gross income took in just 18.6% of all income in those states. Â In short, as of 2011, the share of all adjusted gross income taken in by the “1%” in forced-unionism states was 8.1% higher than the share of all adjusted gross income taken in by the “1%” in Right to Work states.
Since the highest income people on average fork over a substantially higher share of their income in federal taxes than do the rest of us, one implication of the income-distribution difference between Right to Work and forced-unionism states is that, on average, residents of forced-unionism states will bear a heavier federal tax burden than residents of Right to Work states, even though the average compensation for private-sector employees is roughly the same in forced-unionism and Right to Work states, once regional differences in the cost of living are taken into account.
The three factors analyzed above may well suffice entirely to explain a fact, vociferously complained about by Big Labor academics Frank Manzo and Robert Bruno in a recent study, linked below. Â It greatly irritates Manzo and Bruno that residents of Right to Work states have, on average, a somewhat lower federal tax burden and access (of which they may or may not take advantage) to more means-adjusted federal benefits than their counterparts in forced-unionism states.
But in their study Manzo and Bruno say nothing whatsoever about the fact that working-age residents of Right to Work states have on average more children and benefit from a lower cost of living than their counterparts in forced-unionism states. Â Nor do they say anything about the fact that the income distribution in Right to Work states is somewhat less favorable to the highest income people than in forced-unionism states.
If Manzo and Bruno do not think tax deductions and credits for dependent children should be allowed under the federal tax code, they should say so. Â If they think progressive taxes should be levied on income, adjusted for regional differences in cost of living, rather than nominal income, they should say so. Â If they object to the progressive income tax system that results in the highest earners forking over a higher share of their income, they should say so.
But nothing in their study (which includes many erroneous and misleading statements that I pass over in silence here) furnishes any sound evidential basis for their claim that Right to Work laws are “unfair.”  To investigate impartially the phenomena they discuss, they would have to consider disparities in fertility, cost of living, and income distribution between Right to Work and forced-unionism states.  Because their study does not take into account any of these disparities, it  is, practically speaking, worthless.
On average, there are 8.2% more children aged 17 and under per working-age adult (25 to 64) in Right to Work states than in forced-unionism states. Largely as a consequence of this fact, employees in Right to Work states have lower federal tax burdens than employees in forced-unionism states. Image: Shutterstock