An Application of the
BHI Tax Analysis Model to the Massachusetts Mutual Fund Industry,
Finance, Insurance, and Real Estate (FIRE) sector accounts for close
to 10% of Massachusetts payroll and 8% of jobs in the state, making
tax-law changes that affect the sector of interest to opinion leaders
and state policy makers. There is longstanding interest in how changes
in the excise tax apportionment formula applicable to this sector
will affect the Massachusetts economy.
Beacon Hill Institute (BHI) has developed an econometric tax model
for Massachusetts. The goal of the project described in this report
was to refine and modify the model for the purpose of analyzing
the economic effects of state tax-law changes on the mutual fund
subsector of FIRE. We sought to provide (1) useful information on
the economic effects of tax-law changes applicable to mutual funds
and (2) a significant step toward the creation of a more comprehensive
model of the role of the mutual fund subsector in the economy.
August 1996, the Massachusetts legislature passed An Act to Promote
Job Growth in the Commonwealth. The bill lowered tax rates on mutual
fund companies by changing both parts of the apportionment formula.
The "Destination Test," effective January 1, 1997, limits
the sales tax on mutual funds to those that originate in Massachusetts.
The "Single Sales Factor" tax, effective July 1, 1997,
limits the income tax to the share of mutual funds sold in Massachusetts.
project involved refining the BHI State Tax Analysis Modeling Program
(STAMP) by updating data and data generation methods, and creating
sector-specific measures of variables where possible. It also included
reestimating the model and simulating the effect on the mutual fund
industry within FIRE of the proposed tax-law change.
is designed to show how changes in state corporate, personal and
payroll tax rates affect wages, capital spending, job creation and
state tax revenues in the overall state economy as well as in its
different sectors. For this project, we refined the BHI model to
examine in detail the effects of tax-law changes on the FIRE sector
and its five subsectors. The report is organized as follows. Section
II provides background on the BHI model. Section III presents the
refinements to the model accomplished under this project. Section
IV gives the results of estimating the model with its refinements
and Section V presents the results of simulating the impact of the
proposed tax-law change on the mutual fund industry. Section VI
gives specific conclusions and Section VII describes future work.
a copy of the report, please call 617-573-8750 or e-mail firstname.lastname@example.org.
06-Feb-2007 10:47 AM