Letter to the Editor - Texas Journal
Your article of Feb. 10 (State
Alters Analysis of Tax Cuts) reported that our analysis
of proposed research-and-development credit showed that
the credit would have almost no effect on Texas job creation.
On the other hand, Standard & Poors DRI found
that the same tax credit would create 9,450 jobs by the
DRI presumably saw as impressive
a tax cut that would increase jobs by about 0.1% over
the next six years, an increment so small it wouldnt
be recognizable in the monthly job statistics.
DRI said it considered more than
200 variables. We examined the variables (about 60 in
all) needed to determine how the tax credit and other
tax changes would affect the Texas economy. Adding more
variables would have lessened confidence in the results
For people interested in counting
variables, our assumptions and findings are open to public
scrutiny. More important, though, is our track record
in assessing tax policy.
Consider a 1995 DRI study commissioned
by a large Massachusetts defense contractor. DRI predicted
that a proposed state tax break for defense manufacturers
would create thousands of new jobs. We disagreed, saying
that limiting a tax break to this one group of producers
(or even extending it, as the legislature eventually did,
to all state manufacturers) would destroy jobs.
What has happened? Since January
1996, while Massachusetts has outperformed the rest of
the country in overall job creation, it has lagged behind
the U.S. in both manufacturing and defense-manufacturing
job creation. Massachusetts has lost about 2000 jobs in
manufacturing and about 3000 jobs in defense, close to
what we predicted in our analysis.
We understand Gov. Bushs
support for tax credit as a way of increasing state competitiveness.
But, as our analysis shows, Texas can achieve far more
economic expansion through across-the-board reductions
in sales and property taxes than through targeted
tax cuts of this kind.
David G. Tuerck
Beacon Hill Institute