Tax Foundation mischaracterizes Policy Matters Ohio work

- September 19, 2013
   

Recent testimony that Policy Matters Ohio delivered before the House Tax Reform Legislative Study Committee in Bowling Green drew an attack from the Tax Foundation (see blog item, http://taxfoundation.org/blog/policy-matters-ohio-misses-mark-tax-reform) that we are pleased to rebut.

The Tax Foundation, a Washington DC-based organization, can be counted on to oppose just about any increase in taxes, any time, any place. In a blog post, the Tax Foundation’s Lyman Stone attacked our September 3 testimony and our research.

It’s impossible to address all the inaccuracies in the Tax Foundation’s criticism, but some of the most problematic points were:

  • It twisted the conclusions of a national study to support its own, when the study actually found those conclusions to be off-base;
  • It claimed that tax levels have a major impact on state economic growth when substantial literature finds that they do not;
  • It claimed that our findings covered only anecdotal “unique” evidence when in fact our findings are consistent across time;
  • It falsely portrayed us as encouraging people to leave Ohio when we’ve done nothing of the sort; and
  • It feigned confusion about our sales tax recommendations.

In its criticism, the Tax Foundation took issue with the well-documented reality that state tax rates don’t have much of an impact on state economic growth. The attack quoted a study of the Center on Budget and Policy Priorities in an attempt to claim that taxes have a significant effect on state economic growth. It was an odd place to go, since the CBPP study was itself a refutation of a Tax Foundation study. CBPP found that the Tax Foundation had mischaracterized or exaggerated the findings of three of the seven studies it cited, and omitted the results of many others, to reach that false conclusion. “The Tax Foundation’s statement that “empirical economic literature speak[s] … strongly in unison” on this topic is simply false,” said the CBPP study. “To the contrary, there is no clear research evidence that lower taxes help state economies grow.” (see www.cbpp.org/cms/index.cfm?fa=view&id=3975)  

Citing CBPP’s conclusion in another paper that “the preponderance of the peer-reviewed academic studies indicate that state and local personal income tax levels do not affect economic performance,” Policy Matters noted that Ohio’s experience bears this out. Job growth was strong in the 1990s after an increase in the top rate of the state income tax and weak after 2005, when rates were cut across the board. But the Tax Foundation chose to interpret this as, “Policy Matters Ohio goes even further to suggest that higher taxes may actually help economic growth, leaning on spurious anecdotal evidence from periods with unique economic conditions.” Really? These “periods with unique economic conditions” happen to cover more than half of the past 20 years. But the point, as we said earlier, is that tax changes – either increases or decreases – are not the motor for economic development. 

Mr. Stone also writes “…it is interesting that Policy Matters Ohio suggests that Ohioans that don’t like local income taxes should leave.” This is in response to our testimony noting that Ohioans who prefer to live in a school district without an income tax can live in one of the more than 400 districts that lack one. We noted, too, that some Ohio’s richest communities have municipal income taxes, and said: “It seems that many affluent Ohioans want the public services such taxes support, and are willing to pay to support them.” Somehow, Mr. Stone interprets these comments to falsely say that we are encouraging Ohioans to depart the state.

The Tax Foundation also appears not to understand Policy Matters Ohio’s position on expanding the types of purchases that are covered by Ohio’s state sales tax, which it called “inconsistent and unclear.”

To repeat what we’ve made clear: The sales tax needs to cover additional services, matching the growth of services in the economy (see our testimony before a House Ways & Means subcommittee in March, available at www.policymattersohio.org/sales-tax-testimony-mar2013). Policy Matters has supported such a step for years; see for instance, www.policymattersohio.org/wp-content/uploads/2011/10/BPMC2010.pdf, p. 12-13. At the same time, it is well-known that sales taxes take a higher percentage of a low-income or middle-class household income than that of the wealthiest.  The Kasich administration proposal to broaden the sales tax indeed would have exacerbated that situation (see http://www.policymattersohio.org/tax-policy-feb201).  So we proposed at the time that expanding the sales tax should be accompanied by measures to reduce this impact. While we support the concept of expanding the sales tax, it was part of a larger tax package that would shift taxes to lower- and middle-income Ohioans while siphoning off billions of dollars in tax cuts that are needed for public services. That would not help Ohio.

Ohio relies on local revenues to a greater degree than most states because it relies on local service delivery; at the same time, its state taxes are lower than the national average. Taking state and local taxes together, Ohio’s taxes are about average. But whatever the level of taxation, as the Center on Budget and Policy Priorities and others have demonstrated, it is not true that the level of taxes has much impact on state economic growth.

Our position is clear, based on evidence, and does not resort to misrepresenting what our critics say. Adequate revenue, raised from those most able to pay, is the best way to have a strong public sector, which is vital for a strong Ohio and a good quality of life.    

 (For Policy Matters Ohio’s September 3 testimony, see www.policymattersohio.org/tax-testimony-sep2013)

 

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