Iowa Fiscal Partnership / Good Jobs First
SHARE:
Policy Points from Iowa Fiscal Partners

Posts tagged Good Jobs First

Beware the “business climateers”

Posted August 18th, 2014 to Blog

Fisher-GradingPlacesIowa’s business lobby appears to be preparing a new assault on the ability of our state to provide public services.

It would be the latest in a long campaign, in which lobbyists target one tax at a time under a general — and inaccurate — message about taxes that we will not repeat here.

Suffice to say, Iowa taxes on business are low already. Many breaks provided to businesses are rarely reviewed in any meaningful way to make sure that taxpayers are getting value for those dollars spent, ostensibly, to encourage economic growth. Rarely can success be demonstrated.

The Iowa Taxpayers Association is holding a “policy summit” this week and promoting a new report by the Tax Foundation to recycle old arguments that are no better now than they have been for the last decade.

Fortunately in Iowa, we know where to turn to understand claims from the Tax Foundation, and that resource is Peter Fisher, our research director at the Iowa Policy Project. Fisher has written two books on the so-called “business climate” rankings by the Tax Foundation and others, and is a widely acknowledged authority on the faults in various measures of supposed “business climates” in the states.

Fisher, in this guest opinion in the Cedar Rapids Gazette, noted weaknesses in the Tax Foundation’s claims, not the least of which is that the anti-tax messages are not supported by the foundation’s own report. Fisher notes this about the Tax Foundation’s “State Business Tax Climate Index”:

It is a mish-mash of 118 tax features … weighted arbitrarily and combined into a single number for the index.

This number has no real meaning. It produces wacky results because it gives great weight to some minor tax features (such as the number of tax brackets) while leaving out completely two things that have a huge impact on corporate income taxes in Iowa: single sales factor, and federal deductibility.

This past spring, this Iowa Fiscal Partnership two-pager noted:

A variety of factors influence the decisions businesses make about whether they want to locate or expand within a given state. These factors include available infrastructure, the proximity to materials and customers, the skill of its workforce, and whether the state has good schools, roads, hospitals, and public safety. As we have shown elsewhere, state taxes play at best a minor role.

In Iowa, we constantly hear the same old argument … used to enact large tax cuts for commercial and industrial property this past year and continues to be an excuse used to justify giving away large tax credits to businesses throughout the state.

But this argument just isn’t true…

Whether we are looking at the entire range of taxes that fall on businesses or just the corporate income tax, the fact is that business taxes in Iowa are low.

Only if Iowa policy makers and the public ignore the reality on Iowa business taxes will these special interests get their way again.

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

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

 


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.