Tulsa World: Anti-tax group’s flawed ‘research’
media mentionLYNNE SHAW
Published: 4/11/2012 2:24 AM
Last Modified: 4/11/2012 3:53 AM
What is the difference between serious statistical research and statistical manipulation?
The foundation for all of the Oklahoma personal income tax proposals is one “study” done by the commercial and biased group of Arduin, Laffer and Moore Econometrics (ALME). Its work was published by the Oklahoma Council of Public Affairs (OCPA) and is titled “Eliminating the Income Tax in Oklahoma: An Economic Assessment.” The gist of this report is that if Oklahoma will phase out the personal income tax, the economy will soar.
The nonprofit, nonpartisan Institute on Taxation and Economic Policy concludes, “The flaws in Laffer’s analysis of Oklahoma tax rates and its economy are so fundamental that its findings cannot be taken seriously nor generalized. Lowering or repealing state personal income taxes does not result in economic growth.” The institute analyzed the ALME work with more rigorous data and found that “high” rate income-tax states actually outperformed no-tax states.
How can we tell who is correct? Because of the importance of this issue, many Oklahoma academic economists are stepping forward. Jonathan Willner, professor and chair of the Department of Economics and Finance at Oklahoma City University, writes: “Much of the (OCPA/ALME) work is inconsistent with accepted practice in economics, rendering the entire report valueless.”
He points out errors in inconsistent data collection, omitted variable bias, incorrect variables, not using inflation-adjusted numbers, and forecasting into the future much more than the data warrant. He concludes that the OCPA/ALME study “does not constitute economic analysis in any real sense. As a consequence, its suggestions should be ignored as economics.”
Kent Olson, professor of Economics Emeritus at Oklahoma State University, states that the ALME study was incorrectly designed so that personal income is erroneously guaranteed to increase when personal taxes decline. The equation was manipulated so that it is impossible to come out any other way.
Olson further states that this error must have been done knowingly because the same error was made five years ago in Florida and was pointed out at that time in the literature. Also, the annual impacts are “improperly added, resulting in impacts that are both inconsistent with the equation and greatly exaggerated … The OCPA/ALME research provides no valid basis for radical changes in state personal income taxes.”
Cynthia Rogers of the University of Oklahoma Department of Economics also points out the use of incorrect variables and other problems that cause the ALME analysis to “not meet professional standards for economic studies of this sort … There is no credible evidence that eliminating the personal income tax and reducing state spending would be good for Oklahoma (or any other state).”
The ALME group chose three flawed variables for its study. Dan Rickman, Regents professor of economics in the Spears School of Business at OSU, along with others from Pennsylvania State University and Ohio State University, looked at 34 standard economic variables. Their conclusion is: “We find that lower taxes are statistically insignificant in explaining state economic performance, and that targeted tax incentives and financial assistance – as currently practiced – are more likely to harm growth and income inequality. Some support exists for state and local governments to encourage entrepreneurship and to enhance Internet connectivity.”
Ignoring the serious doubts and warnings expressed by so many economists and faculty in the state is irresponsible and unacceptable.