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Policy Points from Iowa Fiscal Partners

Posts tagged ALEC

Real tax reform: What elements?

Not the same list they’re using at the State Capitol

IFP POLICY BRIEF

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By Peter Fisher

We should all welcome a serious discussion of tax reform in the Iowa Legislature, with one huge caveat: It should focus on real issues, not made-up ones. There are real issues: Business tax credits continue to grow much faster than other state spending, and contribute significantly to the budget shortfalls that have become an annual problem. The effectiveness of many of these credits has been questioned by studies from the Iowa Department of Revenue, by academic research, and by the Iowa Tax Credit Review Panel of 2010.[1]

170411-biz_creditsReining in the credits going to businesses will not be easy. A bill was recently introduced (HSB187) to end the refundability of these credits — provisions that allow companies to receive a check from the state whenever the credit exceeds their total state income tax. The business lobby was out in full force to defend their perks.

These income tax credits total over $285 million this year.[2] More tax credits — $125 million for both this year and next — are part of the massive commercial property tax cuts of 2013. (In various ways, the 2013 cuts now cost the state treasury another $300 million annually.[3]) Just a portion of these breaks would go a long way to solving the state’s perennial budget problem. The graph at right shows existing business income tax credits and new property tax credits together cost the state twice as much as the credits cost in 2013, leaving less to spend on critical public services.

However, there is a real danger that any savings from capping or reducing business tax credits would not be directed at improving education, reducing student debt, cleaning our water, or restoring cuts to public safety and the courts. Instead, some legislators apparently would rather spend it on a made-up problem — that Iowa’s taxes are supposedly driving corporations and individuals out of the state. This is a faulty notion for three reasons.

170325-statetaxesFirst, Iowa taxes are consistently found to be average among the 50 states, or below average. There have been several recent studies of Iowa’s business taxes by accounting firms. One found that Iowa state and local taxes falling on business are about average; three others found Iowa taxes to be below average (depending on the type of business) — including one report that ranked Iowa business taxes the fourth lowest in the country.[4] State and local taxes overall represent about 5.9 percent of personal income in Iowa, just under the U.S. average of 6.0 percent.[5]

Second, taxes have little or nothing to do with people’s decisions to move from one state to another. ALEC (the American Legislative Exchange Council), AFP (the Koch-funded Americans for Prosperity), and other right-wing groups continue to push the notion that taxes drive migration patterns in an effort to validate their tax cutting approach to state economic policy. But this assertion is contradicted by research on the issue.

Over their lifetimes, the majority of Americans do not move far, with most remaining in the state they grew up in or moving to a neighboring state. Those who move farther away do so for many reasons: job availability, climate, marriage, proximity to family, housing costs, the quality of schools, and other factors, according to years of research on this issue. This research consistently finds that taxes have a negligible effect on people’s decisions to move.[6]

170411-box-migration

Finally, decades of research have shown that state and local taxes on business are too small to have a significant effect on business investment and location decisions. All state and local taxes on businesses combined represent only about 1.8 percent of total business costs on average for all states.[7]

Businesses weigh most heavily the basics that comprise the other 98 percent of their cost structure: proximity to markets and to suppliers; transportation infrastructure; supply of labor with appropriate education and skills; wage and salary rates; energy costs; occupancy costs (to buy or lease space); access to supporting business services; the quality of local schools, recreation amenities, climate and other amenities important in attracting and retaining skilled labor; and proximity to university research facilities.

Instead of relying on credible academic research, or the reports by accounting firms that show business taxes are below average in Iowa, proponents of business tax cuts cite Iowa’s supposedly low “business tax climate” ranking by the Tax Foundation.  Yet this ranking has been thoroughly discredited.[8]

The drumbeat from the right has been the same for years — we need to lower Iowa’s taxes because they are making us uncompetitive; tax cuts will drive economic growth and prosperity. It is astounding that this argument is still being made after the fiasco in Kansas. Those same national groups pushing for regressive tax changes in Iowa (ALEC, AFP) convinced the Kansas governor and legislature in 2012 that individual and business tax cuts would act like a shot of adrenaline to the state economy. Instead, tax cuts have left Kansas mired in drastic budget shortfalls, credit downgrades, and school cutbacks.[9] And the predicted economic miracle turned out to be a disaster: the state changed from above average to below average growth after the tax cuts went into effect.[10]

We should hope for real tax reform, the kind that eliminates wasteful spending on tax breaks that provide little or no economic benefit, and that ensures a stable revenue stream to fund education and other public services important to ordinary Iowans. We should resist the use of bogus “research” to justify further tax breaks for those who need it least.


2010-PFw5464Peter Fisher is Research Director for the Iowa Policy Project. He holds a Ph.D. in economics from the University of Wisconsin-Madison and is professor emeritus of Urban and Regional Planning at the University of Iowa. A national expert on public finance, Fisher is frequently quoted in the Iowa and national media on issues involving tax policy and economic development strategies. Following publication of two published critiques of various state business climate rankings, Fisher has produced a website to track issues with such rankings and better perspective on state policies to promote growth, Grading the States, at www.gradingstates.org.


[1] The Department of Revenue’s evaluation studies can be found here. Reviews of academic research include those by this author on his website Grading the States, and by Wiliam Gale, Aaron Krupkin, and Kim Rueben. “The Relationship between Taxes and Growth at the State Level: New Evidence.” National Tax Journal, vol. 68, no. 4, December 2015, pp. 919-941. The Iowa Tax Credit Review Panel report can be found here.

[3] This includes $152 million estimated for FY 2017 for the Commercial and Industrial Property Tax Replacement; $125 million for the Business Property Tax Credit; and an additional $25 million in state School Foundation Aid necessitated by the reduced assessment of commercial and industrial property. See Summary of FY 2018 and FY2019 Budget and Governor’s Recommendations, LSA – Fiscal Services, January 12, 2017, p. 218; Summary of FY 2017 Budget and Governor’s Recommendations, LSA – Fiscal Services, January 14, 2016, p. 63.

[4] Ernst and Young, LLP and the Council on State Taxation, Total State and Local Business Taxes: State-By-State Estimates for Fiscal Year 2015, December 2016 . Anderson Economic Group, 2016 State Business Tax Burden Rankings, 7th Edition, May 2016. KPMG and the Tax Foundation, Location Matters: The State Tax Costs of Doing Business, 2015. Ernst and Young, LLP and the Council on State Taxation, Competitiveness of State and Local Business Taxes on New Investment, April 2011.

[6] See Taxes Have Little to do with People’s Decisions to Move to or From a State. On this author’s website, Grading the States.

[7] See State and Local Business Taxes are Not Significant Determinants of Growth. On this author’s website, Grading the States.

[8] See The Tax Foundation’s State Business Tax Climate Index. On this author’s website, Grading the States.

[9] See numerous blog posts from the Kansas Center for Economic Growth.

[10] See The Lessons of Kansas. On this author’s website, Grading the States.

Spin and ideology are no substitute for good policy

Posted December 15th, 2016 to Blog

Basic RGBBrace yourselves for public policy backed by nothing but spin and ideology in Iowa. A good example: tax policy.

Senator Bill Dix, who will be the new majority leader in the Iowa Senate with a comfortable nine or potentially 10-vote edge, offers a strident approach for the coming legislative session in this story by veteran Statehouse reporter Rod Boshart:

“The states that are growing the fastest today are the ones that have recognized that economic policy and tax policy makes a big difference,” he said. “High income tax punishes people who want to work, save and make investments in our state. We need to recognize that. States that have grown the fastest the last couple of decades across our country today are the ones that have either lowered their rates, broadened their base and kept things simple or moved to no income tax at all.”

The tax cutters have a big microphone now but amplified volume does not substitute for good content. Research is clear. So are the facts, and Senator Dix is missing them.

On IPP’s GradingStates.org website, Peter Fisher sorts out the fact from fiction with so-called “business climate” rankings that are certifiably unreliable. But they get a lot of attention from legislators who want something to back their ideological approach to policy.

Senator Dix is one of three Iowa state chairs for the American Legislative Exchange Council, or ALEC, which peddles much of the nonsense about tax cuts promoting economic growth.

Notes Fisher about the ALEC analysis, “when we can compare states ranked the best by ALEC with states ranked the worst, it turns out that ALEC’s 20 ‘best’ states have lower per capita income, lower median family income, and a lower median annual wage than the 20 ‘worst’ states. ALEC’s ‘best’ states also have higher poverty rates: 15.4 percent on average from 2007 through 2014, vs. 13.8 percent in the ‘worst’ states. The states favored by ALEC include the likes of Utah, North Dakota, and North Carolina, whereas ALEC’s ‘worst’ states include New York, California, and Vermont.”

Even if the prescriptions for lower taxes, etc. were right, they would not apply in Iowa. Our state has repeatedly been shown to be average or below average by any measure on taxes paid. In fact, few states can get below Iowa on corporate taxes, something the business lobby will not admit. So we start the legislative session with competitiveness not an issue for Iowa except in the minds of well-placed lobbyists and certain legislators.

And another angle not on their agenda: accountability on the large number of tax breaks already in Iowa law — something the Cedar Rapids Gazette noted today in an excellent editorial:

Over the years, lawmakers from both parties have given away tax exemptions, deductions and credits to an array of special interests lobbying for a break. Individually, the cuts look small. Added together, they have a significant budgetary impact.

They’re sold as an economic boost, but there’s rarely any follow up to find out if the tax cuts actually delivered on those promises.

And the real path to growth — the path lined with investments in human capital and public infrastructure? We’ll see how many of those demonstrated, positive approaches to prosperity even get a hearing in 2017.

owen-2013-57Posted by Mike Owen, Executive Director, Iowa Policy Project

Contact: mikeowen@iowapolicyproject.org


Wrong again: ALEC can’t pick its own ‘winners’ among states

Posted April 12th, 2016 to Blog

ALEC — the American Legislative Exchange Council — persists in peddling “research” that knocks down its own policy ideas.

In its latest edition of Rich States, Poor States, just released, ALEC’s Economic Outlook Ranking scores states on 15 measures reflecting ALEC’s preferred policies towards business. Our Grading the States analysis has exposed the flawed methodology of ALEC’s report, but the authors have not changed it for the 9th edition.

ALEC’s dilemma: The index purports to predict which state economies will perform the best, but in fact there is no relation between a state’s score and how well the economy grows subsequently.

Since the first edition in 2007, it remains the case that ALEC’s “best” states — the ones with the highest rankings — are actually poorer on several measures than the supposedly “worst” states. The graph below has been updated to reflect the 9th edition rankings and the latest income data.

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The 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).

In its fervent anti-government bias, the report offers a package of policies — for fiscal austerity, suppressing wages and imposing proportionately higher taxes on low-income people — with a promise of economic growth, when it really is a recipe for economic inequality, declining incomes for most citizens, and starving public infrastructure and education systems of needed revenue.

2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and developer of IPP’s Grading the States website, GradingStates.org.

 

 


Wrong again: ALEC can’t pick its own ‘winners’ among states

Posted April 12th, 2016 to Blog

ALEC — the American Legislative Exchange Council — persists in peddling “research” that knocks down its own policy ideas.

In its latest edition of Rich States, Poor States, just released, ALEC’s Economic Outlook Ranking scores states on 15 measures reflecting ALEC’s preferred policies towards business. Our Grading the States analysis has exposed the flawed methodology of ALEC’s report, but the authors have not changed it for the 9th edition.

ALEC’s dilemma: The index purports to predict which state economies will perform the best, but in fact there is no relation between a state’s score and how well the economy grows subsequently.

Since the first edition in 2007, it remains the case that ALEC’s “best” states — the ones with the highest rankings — are actually poorer on several measures than the supposedly “worst” states. The graph below has been updated to reflect the 9th edition rankings and the latest income data.

Basic RGB

The 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).

In its fervent anti-government bias, the report offers a package of policies — for fiscal austerity, suppressing wages and imposing proportionately higher taxes on low-income people — with a promise of economic growth, when it really is a recipe for economic inequality, declining incomes for most citizens, and starving public infrastructure and education systems of needed revenue.

2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and developer of IPP’s Grading the States website, GradingStates.org.

 

 


ALEC Gets it Backwards in Rich States, Poor States

Posted November 30th, 2015 to Blog

We hear a lot about business climates from people who are looking for ways to cut taxes. But they usually get it wrong. One example is the Rich States, Poor States analysis produced by the American Legislative Exchange Council, or ALEC, an organization frequently considered a “bill mill” for corporate-friendly legislation.

The centerpiece of Rich States, Poor States is the “Economic Outlook Ranking,” which ranks states on their conformance to ALEC’s preferred policies, with the best state ranked number one. But when we can compare states ranked the best by ALEC with states ranked the worst, it turns out that ALEC’s 20 “best” states have lower per capita income, lower median family income, and a lower median annual wage than the 20 “worst” states. ALEC’s “best” states also have higher poverty rates: 15.3 percent on average from 2007 through 2013, versus 13.7 percent in the “worst” states. The states favored by ALEC include the likes of Utah, South Dakota, and Idaho, whereas ALEC’s “worst” states include New York, California, and Vermont.

Basic RGB*Best and worst states according to the average Economic Outlook Ranking in Rich States, Poor States, 2007-2015. Income measures are an average over the period 2007 to 2014 (2013 for Median Income).

Looking at it another way, the 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).

151130-ALEC-poor-rich

*Average ALEC ranking of the 20 states that performed best on four measures of income — per capita income, median family income, median annual wage, and poverty rate — vs. average ALEC ranking of the 20 poorest states. An ALEC ranking of 1 is best. ALEC ranking is the average of the state’s rank in the first through eighth editions of the Economic Outlook Ranking; rich and poor states are defined on the basis of their average ranking on the four income variables from 2007 through 2013 or 2014.

While Rich States, Poor States purports to provide a recipe for economic growth and “policies that lead to prosperity,” it actually advocates measures to lower wages and reduce opportunity for most Americans. To attain the highest EOR would require a state to have no individual or corporate income tax, no estate or inheritance tax, no state minimum wage, severe tax and expenditure limits, limited public services, and weak labor unions. The evidence and arguments cited to support these policies range from deeply flawed to nonexistent.

We conclude that the actual purpose of Rich States, Poor States is to sell the ALEC-Laffer package of policies — fiscal austerity, taxing lower income people more than the wealthy and wage suppression — in the sheep’s clothing of economic growth. In actuality, the book provides a recipe for economic inequality and declining incomes for most citizens and for depriving state and local governments of the revenue needed to maintain public infrastructure and education systems that are the underpinnings of long- term economic growth.

2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project

Bad research never gets good

Posted May 13th, 2014 to Blog

It might be a stretch to say that good research never gets old — at some point you might need an update — but one thing is certain: Bad research never gets good.

Fisher-GradingPlacesIPP’s Peter Fisher is one of the nation’s experts on rankings of state business climates. In two reports published in the last two years by our colleagues at Good Jobs First, Fisher lays out irretrievable problems with the Rich States, Poor States analysis periodically offered by the American Legislative Exchange Council, or ALEC.

Fisher tested ALEC’s claims against the actual economic performance of states, finding that states following ALEC-favored policy did more poorly than other states.* He also found serious flaws of methodology, including comparisons of arbitrary states instead of all 50.

As Good Jobs First’s executive director, Greg LeRoy, wrote in the preface to the 2013 Grading Places report:

Indeed, the underlying frame of these studies — that there is such a thing as a state “business climate” that can be measured and rated — is nonsensical. The needs of different businesses and facilities vary far too widely. … Given these realities, “business climate” studies must be viewed for what they are: attempts by corporate sponsors to justify their demands for lower taxes and to gain public-sector help suppressing wages. …

To borrow Oscar Wilde’s witticism about cynics, these “business climate” studies know the cost of everything and the value of nothing.

In the case of ALEC, others are noticing. Michael Hiltzik of the Los Angeles Times has written twice in recent days about the ALEC problem, citing the work of both Fisher and Professor Menzie Chinn of the University of Wisconsin.

See these pieces by Hiltzik:

In the latter, Hiltzik notes a recent “response to the critics” by ALEC:

It’s a curious document that ends up proving the critics’ point. Take the point made by Chinn and by Peter S. Fisher of the Iowa Policy Project that the correlation between ALEC’s policies and economic growth is largely negative.

When the ALEC “analysis” is dissected, it becomes clear that its conclusions are faulty, and its policy prescriptions are no more valid. And it is good for Iowa to have Peter Fisher on the case.

Owen-2013-57  Posted by Mike Owen, IPP Executive Director

 

 

*View Peter Fisher’s reports for Good Jobs First on business climate rankings including the ALEC claims:


With ALEC, it’s not just ‘Who?’ but ‘What?’ and ‘Why?’

Posted January 10th, 2014 to Blog

Some Iowa legislative leaders are taking issue with claims that all Iowa legislators are members of the American Legislative Exchange Council (ALEC).

See these links:

All of this calls to mind the words of the great comedian Groucho Marx, who is widely quoted:

“I don’t want to belong to any club that will accept people like me as a member.”

Groucho presumably was never a member of ALEC — like many Iowa lawmakers now protesting claims of their inclusion. But regardless of who belongs to ALEC, the bigger issue is whether ALEC belongs at the public policy table.

Iowa Policy Project analysis has refuted the value of legislative initiatives promoted by ALEC, which is essentially a bill mill backed by corporate interests. IPP’s Peter Fisher and the national group Good Jobs First, in their 2012 report “Selling Snake Oil to the States,” showed that states following ALEC proposals were likely to show worse economic results than other states.

As Fisher noted at the time:

“We tested ALEC’s claims against actual economic results. We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.”

This recalls another quotation:

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

No, that is not the ALEC mission statement. Again, they are words widely attributed to Groucho Marx.

But if the shoe fits ….

Mike OwenPosted by Mike Owen, Executive Director


ALEC’s ‘Tax Myths Debunked’ Misses the Mark

Posted February 11th, 2013 to Budget, Corporate Taxes, Taxes

3-page PDF of this report

By Peter Fisher

The American Legislative Exchange Council has for several years attempted to provide factual underpinnings for its right-wing policy agenda through an annual publication called Rich States, Poor States. This report and similar ALEC documents have come under increasing attack in recent years for their shoddy research methods and misleading conclusions. ALEC has now struck back at its critics in a report by Eric Fruits and Randall Pozdena called Tax Myths Debunked.[i] A portion of that document is devoted to research released last November by Good Jobs First and the Iowa Policy Project in the report Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity.[ii] Some of the key findings in that report were released in the summer of 2012 in a short piece called The Doctor is Out to Lunch.[iii] It is the latter piece that is referenced in Tax Myths Debunked rather than the full research report; we refer herein, however, to the full document and use its shorthand title, Selling Snake Oil. The full report was known to ALEC well before Tax Myths was released.[iv]

The first criticism leveled in Tax Myths is directed at an analysis in Selling Snake Oil of the factors leading to economic growth and rising incomes among the states between 2007 and 2012. In that analysis we argued that state economic structure — the composition of a state’s economy — is likely to play an important role in the short run in determining how well the economy fares; states more heavily invested in 2007 in sectors poised to grow in the succeeding five years would be expected to do better than states with a concentration of jobs in sectors that would be hit hard by the recession. Thus it was important to control for economic structure in a statistical analysis that attempts to identify whether the policy prescriptions of ALEC performed as advertised, leading to growth and prosperity. ALEC, in Tax Myths, appears to have completely misunderstood what was done in our analysis; their criticism seems to be based on the assumption that our model was predicting changes in the share of employment by sector. Instead we were simply using 2007 economic structure — measured by employment shares — to predict rates of growth in overall state GDP, employment, and personal income. Their criticisms make no sense and are completely off base; 2012 state GDP cannot be a cause of 2007 economic structure, which is the circularity they argue undermines our analysis.

Second, they argue that economists have found a strong relationship between tax policy and economic health, and cite two pieces of research in support. In Selling Snake Oil, we devote several paragraphs to a discussion of the many reviews of dozens of research articles over the past 30 years that have led to the conclusion that business taxes have, at best, a small effect on business location decisions. In our piece, we looked at the consensus among a large number of economists who have examined this question; in Tax Myths, they found two that supported their position and ignored the rest.

The third criticism is directed at several scatter plots and associated correlations that were presented in Selling Snake Oil.  In those charts we were illustrating how states that were ranked high or low by ALEC in the first edition of Rich States, Poor States in 2007 actually performed in the time since then. Did the states that ALEC ranked high on their Economic Outlook Ranking (EOR) actually perform better than others? Since all ALEC provided was the state rankings (not an index number showing their relative strength or weakness), we correlated those rankings with the measures of performance that ALEC emphasizes: growth in GDP, employment, and income. ALEC argues a technical point here: The formula used to calculate the correlation between two continuous variables (the Pearson coefficient) is different from the formula used to calculate the correlation between two rankings (the Spearman coefficient). We had one ranked variable (the EOR), and one continuous variable, and used the Pearson coefficient.

130211-table1To respond to this criticism, we converted all of the performance variables to ranks first, and then calculated the Spearman coefficient. The conclusions were the same (Table 1). Where there was no statistically significant relation using the Pearson formula (as was the case when we looked at the EOR as a predictor of growth in GDP or jobs), there was also no significant relation using the Spearman. Where there was a statistically significant and negative relation (high ranked states have lower per capita and median family incomes) using the Pearson measure, the same result occurred with the Spearman. In only one instance did results change: Our original analysis showed a negative but not statistically significant relation between EOR and the growth in state revenues. The analysis substituting the state rank in revenue growth and using the Spearman coefficient found a negative effect as well, but this time the effect was stronger and statistically significant.

Finally, Tax Myths presents an alternative to the analyses in Selling Snake Oil, correlating the state EOR each year with the June value of the “state coincident indices” published monthly by the Federal Reserve Bank of Philadelphia for each state. The coincident indices are based on four measures of the health of the state economy: non-farm employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements. ALEC found a strong correlation between a state’s EOR and the value of the coincident index.

The state coincident indices are designed for tracking the course of a state’s economy over time — whether it is sliding into recession or on a path to recovery — and are pegged to a value of 100 for every state as of 1992. They are used to compare states, but only in terms of the changes in the index over time. So the value of the index as of 2008 is a measure of that state’s growth rate from 1992 to 2008, since every state started at 100. However, a high value for state X in 2008 does not mean that state X has a healthier economy in some sense than state Y with a lower value in 2008, because state Y could have started out with a much higher level of prosperity in 1992 and still have higher incomes and wages than state X in 2008, despite growing more slowly. Furthermore, the correlations performed by Fruits and Pozdena are taken as evidence that ALEC policies, as represented by EOR, cause economic health, but they have done it backwards, in effect trying to demonstrate that conformance to ALEC policies in 2008 caused states to grow more rapidly from 1992 to 2008! So why didn’t they look at the policies in place as of 2008 and see if they predicted economic growth from 2008 to 2012? The answer is, because the correlations between the EOR in 2008 and changes in the state coincident index subsequent to that are near zero. This is not the result they were looking for.

In Selling Snake Oil, we argued that a more sophisticated approach to identifying the effects of a state’s EOR would entail a statistical analysis that controlled for economic structure, as described earlier.  In fact, a Philadelphia Federal Reserve Bank economist in an article about the state coincident index explains how state economic structure is an important determinant of the path of the state economy, as measured by changes in that index over time.[v] We decided to see how the coincident index measure of economic performance fared in our regression model. So we used our 2007 economic structure variables, along with either the EOR or several key measures that are components of the EOR, to predict the rate of improvement in a state’s coincident index from 2007 to 2012. The results were much the same as our previous analysis, using growth in GDP, employment, or income as the performance measures. In other words, when state economic structure is controlled for, none of the ALEC policy variables, including the EOR, had a statistically significant effect on the rate of improvement in the state’s economy over this period.

In sum, nothing in Tax Myths actually undercuts any of the analyses or conclusions in Selling Snake Oil. In fact the authors’ misinterpretation of our use of economic structure variables and misuse of the state coincident indices serves only to further confirm the shoddiness of the research sponsored by ALEC.




[i] Eric Fruits and Randall J. Pozdena, “Tax Myths Debunked.” American Legislative Exchange Council, 2013. http://www.alec.org/publications/tax-myths-debunked/

[ii] Peter Fisher with Greg LeRoy and Philip Mattera, “Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity.” Good Jobs First and the Iowa Policy Project, November 2012. http://www.iowapolicyproject.org/2012docs/121128-snakeoiltothestates.pdf

[iii] Peter Fisher, “The Doctor is Out to Lunch: ALEC’s Recommendations Wrong Prescription for State Prosperity.” Iowa Policy Project, July 24, 2012. http://www.iowapolicyproject.org/2012Research/120724-rsps.html

[iv] The author of the ALEC report evaluated by the “Selling Snake Oil” report was quoted in a news story the day of its release, November 28, 2012, by Mike Wiser of the Quad-City Times, Davenport, Iowa. http://qctimes.com/news/local/report-iowa-tax-policy-might-hurt-state-economy/article_6f578494-39d5-11e2-9519-0019bb2963f4.html

[v] Theodore Crone, “What a New Set of Indexes Tells Us About State and National Business Cycles.” Federal Reserve Bank of Philadelphia, Business Review Q1 2006. http://www.philadelphiafed.org/research-and-data/publications/business-review/2006/q1/Q1_06_NewIndexes.pdf

 

Peter Fisher is Research Director of the Iowa Policy Project (IPP), a nonpartisan, nonprofit organization that engages the public in an informed discussion of policy alternatives by providing fact-based analysis of public policy issues.

Fisher holds a Ph.D. in economics from the University of Wisconsin-Madison and is professor emeritus of Urban and Regional Planning at the University of Iowa in Iowa City. He is a national expert on public finance and has served as a consultant to the Iowa Department of Economic Development, the State of Ohio, and the Iowa Business Council. His reports are regularly published in State Tax Notes and refereed journals. His book Grading Places: What Do the Business Climate Rankings Really Tell Us? was published by the Economic Policy Institute in 2005.

 

States should beware ALEC-brand snake oil

Posted November 29th, 2012 to Blog

Peter Fisher

Legislative sessions will be starting across the country after the first of the year, and with them, some very bad ideas for public policy.

The purveyor of many poor prescriptions is a very influential right-wing organization, the American Legislative Exchange Council, known as ALEC. The organization promotes policies to cut taxes and regulations in the disguise of promoting economic growth, but what they really do is reduce services, opportunity and accountability.

In short, the ALEC medicine show is a prescription for poor results, and states should beware.

Our new report, “Selling Snake Oil to the States,” examines ALEC’s proposals and the misinformed, primitive methodology behind the study that supports them. The new report, a joint project of the Iowa Policy Project in Iowa City and Good Jobs First in Washington, D.C., illustrates how ALEC’s prescriptions really offer stagnation and wage suppression.

In fact, we find that since ALEC first published its annual “Rich States, Poor States” study with its Economic Outlook Ranking in 2007, states that were rated better have actually done worse economically.

Find “Selling Snake Oil to the States” at http://www.goodjobsfirst.org/snakeoiltothestates.

We tested ALEC’s claims against actual economic results. We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.

ALEC’s rankings are based on arguments and evidence that range from deeply flawed to nonexistent, consistently ignoring decades of peer-reviewed academic research.

What we know from research is that the composition of a state’s economy — whether it has disproportionate shares of high-growth or low-growth industries — is a far better predictor of a state’s relative success over the past five years. Public policy makers need to stick to the basics and recognize that public services that benefit all employers.

Posted by Peter Fisher, Research Director


IFP News: Selling Snake Oil to the States

IPP-Good Jobs First Study:

ALEC’s Advice to States on Jobs Is Actually a Recipe for Stagnation and Wage Suppression

View report (PDF) from Iowa Policy Project/Iowa Fiscal Partnership and Good Jobs First
Download this news release (2-page PDF)

snakeoiltothestates-3inWashington, D.C. (Nov. 28, 2012) — A new study finds that state tax and regulatory policies recommended by the American Legislative Exchange Council (ALEC) fail to promote stronger job creation or income growth, and actually predict a worse performance.

Since ALEC first published its annual Rich States, Poor States study with its Economic Outlook Ranking in 2007, states that were rated better have actually done worse economically.

Those are the key findings of “Selling Snake Oil to the States,” a study published today by Good Jobs First and the Iowa Policy Project and freely available online at http://www.goodjobsfirst.org/snakeoiltothestates. It was released at a press conference the same week ALEC holds its annual fall meeting in Washington, D.C.

“We tested ALEC’s claims against actual economic results,” said Dr. Peter Fisher, research director of the Iowa Policy Project and primary author of the study. “We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.”

The study dissects the methodology used by ALEC’s lead author Arthur Laffer and his co-authors. It finds that their arguments and evidence range from deeply flawed to nonexistent, consistently ignoring decades of peer-reviewed academic research. Instead, Laffer et al repeatedly engage in methodologically primitive approaches such as two-factor correlations and comparing arbitrary small numbers of states instead of all 50.

The study finds that the composition of a state’s economy — whether it has disproportionate shares of high-growth or low-growth industries — was a far better predictor of a state’s relative success over the past five years.

“State corporate income taxes average less than one-fifth of 1 percent of the average company’s costs,” said Fisher. “The ALEC/Laffer studies would have state leaders ignore site-location basics and disinvest public goods that benefit all employers.”

Good Jobs First is a nonprofit, nonpartisan resource promoting accountability in economic development and smart growth for working families. It was founded in 1998 and is based in Washington, D.C.

The Iowa Policy Project is a nonpartisan, nonprofit organization promoting public policy that fosters economic opportunity while safeguarding the health and well-being of Iowa’s people and environment. It was formed in 2001 and is based in Iowa City.