STAMP is based on textbook economics. States compete with
each other for workers and business investment. So, if a state
raises taxes, it diminishes its ability to create jobs and
new investment. And this, in turn, diminishes the amount of
new tax revenue that the state will be able to collect. STAMP
incorporates and measures these effects.
David G. Tuerck
March 8, 2004
Virginians face a raft of claims and counterclaims about the
need to raise state taxes. The General Assembly will probably
adopt one of three tax proposals (or some version of these)
now under consideration. But which one? Proposals run from
a modest increase aimed at preserving core services and the
state's bond rating, to a much bigger one aimed at major upgrades
in education and transportation.
The danger is that voters will get a pig in a poke, a hefty
tax hike that offers the certainty of economic losses and
only vague promises about economic gains. Or a tax hike that
is more the result of get-even politics than of principled
How to avoid such an outcome? The answer is to do what anyone
would do before making a major purchase: Get objective, independent
advice. No one would buy a used car solely on the promises
of the salesman. Nor should the voters buy into a tax increase
without understanding what that increase entails.
That's what the Thomas Jefferson Institute for Public Policy
had in mind when it commissioned Boston's Beacon Hill Institute
to build an economic model to assess the various tax proposals
before the General Assembly. This model, called STAMP (for
State Tax Analysis Modeling Program), has been applied to
20 other states.
is based on textbook economics. States compete with each other
for workers and business investment. So, if a state raises
taxes, it diminishes its ability to create jobs and new investment.
And this, in turn, diminishes the amount of new tax revenue
that the state will be able to collect. STAMP incorporates
and measures these effects.
STAMP takes into account the benefits of new government spending
in those instances- but only those instances- in which economics
has shown such benefits to exist. On this basis, STAMP treats
government spending on roads and bridges as a benefit to the
economy. On the other hand, there is little basis for claims
that new government spending on education or other such programs
yields tangible benefits to the economy. Such claims therefore
find no place in STAMP.
you look under the hood of some other economic models, you
will find an assumption that government is inherently better
than the private sector at creating jobs. STAMP makes no such
assumption. STAMP also avoids the notion that the state can
raise taxes on "businesses" without raising taxes
on individuals. In STAMP there are no business taxes- just
taxes that businesses pass on to their shareholders, workers,
and customers, with identifiable, harmful consequences.
used STAMP to scrutinize tax proposals sponsored by Governor
Mark Warner, by the State Senate, and by the House of Delegates.
The Governor and the Senate raise income taxes on high-income
earners, the sales tax on nonfood items, and the cigarette
tax. The Senate imposes a bigger tax hike on high-income earners
and on cigarettes and increases transportation user taxes
and fees. The House eliminates certain business "exemptions"
under the sales tax and "offsets" under the personal
income tax. The principal effects of each proposal, as identified
by STAMP, appear in the table nearby.
SOME STANDARDS, the economic losses entailed by these
proposals are small. The private-sector job losses associated
with the Senate proposal, which is the most damaging of the
three, amount to only one-half of 1 percent of the number
of jobs that would otherwise exist. All three proposals create
governmental jobs in 2005 that equal about half the private-sector
jobs they destroy.
job loss is not, however, just an economic abstraction when
Virginia loses a skilled worker to a state with lower taxes.
Or when Virginia businesses, singled out as lucrative and
politically safe targets of higher taxes, shift their operations
to other states.
be sure, the question whether the economic losses associated
with a tax hike represent tolerable collateral damage is,
in the end, a political, not an economic one. And, thanks
to the Thomas Jefferson Institute and modern technology, it
is possible to identify the economic losses and gains. When
you're looking for a used car, you can check its history on
the Internet. And now you can do the same thing before buying
someone's tax proposal (www.thomasjeffersoninst.org). Go to
the Internet and see for yourself!
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 March 8, 2004 edition of the Richmond