Ohio experts on Alaska finances never analyzed potential impact of budget cuts

The experts on Alaska economics from Ohio say “we want to assure Alaskans about the reliability of our analysis as well as the conclusions we draw.”

And they warn that “ignoring lessons from respected scholars is not a responsible approach to policymaking.”

Thank you Buckeye Institute. I have no intention of ignoring lessons from respected scholars.

For some reason, the Buckeyes didn’t care for a column in which I said that their conclusion that Alaska needed no taxes to solve its fiscal problem was something that Carnac the Magnificent could have divined in advance.

As part of the Koch Network, the Buckeye Institute exists to argue against taxes and government spending. Its report on the virtues of not having taxes was as predictable as the timing of the sunrise.

“Our analysis offers a pro-growth solution: cutting inefficient spending first to achieve fiscal stability for the state and avoiding taxes when possible,” Buckeye economist Andrew Kidd says in a letter to the Daily News-Miner.

No kidding. The Buckeye Institute reached its no-tax conclusion without looking at the impact of Gov. Mike Dunleavy’s proposed budget cuts on the Alaska economy or on life in Alaska. It didn’t look at what would happen to schools or that local governments would face major tax increases under the Dunleavy plan.

And the Buckeye study failed to give real attention to the important work of the University of Alaska Anchorage Institute of Social and Economic Research, including the vital report, Short-Run Economic Impacts of Alaska Fiscal Options from 2016.

Kidd did mention ISER in his letter, but he misrepresented its research by stating, “the fact that we both find harmful impacts of taxation should be a signal that new taxes are not the best answer to solving Alaska’s current problems.”

Had the Buckeyes bothered to do more digging, they would have seen that the respected scholars at ISER concluded that the short-run economic impacts of spending cuts and dividend cuts are more harmful than taxes.

One of those scholars, Mouhcine Guettabi, said that that best academic summary about the state of research on taxation and economic growth is a 2018 study by economists Dan Rickman and Hongbo Wang of Oklahoma State University.

“We can conclude that state and local tax fiscal policy is not predictably a major driver of economic growth in the U.S., particularly in more recent decades,” Rickman and Wang said. “There does not appear to be any economic benefit from deviating greatly from other states in the structure of state and local fiscal policy.”

Their study contradicts the Buckeye generalization that whenever governments face financial troubles, “the best course is to cut spending and avoid new taxes.”

In looking at the results from tax changes in six states in recent years, Rickman and Wang said, “States recently reducing their personal income taxes more likely harmed economic growth and states increasing their personal income taxes more likely spurred their economic growth.”

One of the main findings by Rickman and Wang is that economists should not go into a research effort with minds made up in advance.

“Economists may be most useful in helping policy makers avoid pursuing potentially harmful actions by getting them to proceed cautiously with minds wide open to all possible consequences when considering possible fiscal policy actions. Unfortunately, the lack of consensus in the economics profession on state and local fiscal policy often leaves policy makers willing to base decisions on ideology, or on non-academic analyses that make little or no attempt at identification and reflect nothing more than spurious correlations. If the goal is to enhance economic activity, the complexity of the issue revealed in this review suggests that policy makers should eschew ideology and non-academic analyses,” they said.

Regarding non-academic work, Rickman and Wang mention that “simple economic growth comparisons used in non-academic studies of state and local taxes and spending can be especially misleading and should not be used for policy making.”

In this category, one of the studies they cite as a problem is a 2011 report by Donna Arduin’s consulting firm, “Eliminating the State Income Tax in Oklahoma: An Economic Assessment.”

“Without a personal income tax, Oklahoma would join that elite group of economic performers that do not have a personal income tax—a group to which Texas currently belongs,” Arduin’s firm said.

“A phaseout of Oklahoma’s personal income tax would result in Oklahoma having the lowest tax burden of any state except Alaska.”

Rickman and Wang said that not only should non-academic studies be avoided, but “no single study should be the basis of policy. Circumstances vary too widely both across geography and time.”

Dermot Cole7 Comments