Editorial 8/24/03 from The Birmingham News
by David G. Tuerck
from the University of Alabama and some editorialists have
challenged findings by the Beacon Hill Institute that a proposed
billion-dollar tax hike would inflict substantial harm on
the state economy. We would like to explain why our critics
are wrong and why our warnings cannot be ignored.
Alabama Policy Institute contacted us in June 2001 regarding
the construction of a State Tax Analysis Modeling Program
for Alabama. API was working on various ideas for tax reform
and wanted a state-of-the-art computer methodology that would
permit it to evaluate the economic impact of various tax reform
ideas. STAMP provides that methodology.
STAMP is similar to models we have built for some 25 states
and cities, including Mobile, where it proved useful to officials
in forging municipal tax policy. Just before 9/11, Mayor Rudy
Giuliani cited results from our New York City STAMP as proof
of the job-creating effects of his tax policies.
offered use of Alabama STAMP to Campaign for Alabama in December
2002 and again in January 2003. API wanted to help in the
development of a tax reform plan that would make taxes fairer
and raise the revenue needed with the least economic harm.
using the model, Campaign for Alabama could have tested various
ideas to determine the best course to follow. But Campaign
for Alabama officials ignored API's offer. As a result, they
proceeded with the development of a tax increase that, if
approved, would significantly weaken Alabama's economy.
they taken advantage of API's offer, they would have known
that full implementation of their proposal in 2004 would cost
the state about 24,000 jobs, $331 million in business investment
and $2.3 billion in inflation-adjusted disposable income.
Eighty-three percent of Alabama families would lose ground
such high losses? According to our index of competitiveness,
Alabama ranks 43rd among the 50 states, ahead of Mississippi
but behind Georgia and Florida, both of which avoided broad-based
tax hikes this year. A massive tax increase of the kind at
issue here would only worsen Alabama's ability to compete
for workers and business capital.
this logic, the reaction to our study by proponents of the
tax proposal was predictably hostile. Rather than use our
findings to rethink the proposal and fashion a less-harmful
method of solving the budget crisis, proponents circled the
professor from the University of Alabama accused us of making
"erroneous assumptions." Gazing into his crystal
ball, he claimed that we overestimated future job growth and
that we failed to anticipate increased education spending.
Tax-hike proponents gleefully seized upon his criticism as
proof of "flawed data."
they didn't say is that this professor's comments amounted
to nothing more than speculation about future developments
that make little difference to the ultimate effects of the
tax hike. Reducing our projected job growth by one-third reduces
the long-term estimated job loss by only 5 percent. Putting
more of the new money into education makes a correspondingly
bottom line remains the same: This tax increase would have
a substantial negative economic impact. This perspective is
supported not only by our model, but also by the Joint Economic
Committee for the U.S. Congress, which found that every $1
in new taxes costs the economy $1.40.
there is a University of Alabama study claiming that the tax
hike would actually benefit the state economy, creating some
10,000 new jobs. Do you believe this? If you do, then ask
the authors how many new jobs the state could create by doubling
the tax hike. Using their methodology, the answer would be
20,000 new jobs. In other words, the state could tax itself
to prosperity by simply taking every last nickel of personal
income and running it through the state bureaucracy.
authors of this study should - and presumably do - know better.
Government spending is not a free lunch. It diverts resources
from other uses and creates disincentives to work and invest.
criticism hurled at our work has every character of academic
veneer, applied to a poorly conceived proposal in order to
conceal the underlying flaws. The tax increase would reduce
jobs and investment, just as common sense, as well as serious
economic analysis, indicates. No amount of spin, coming as
it does from a tax-dependent state institution, can change
G. Tuerck, PhD, is chairman and professor of Economics at
Suffolk University where he also serves as Executive Director
of the Beacon Hill Institute for Public Policy Research.
article appeared in the August 24, 2003 edition of the Birmingham
Tuesday, January 30, 2007 12:31 PM
revised on May 12, 2005 12:26 PM