Throwback Thursday: unrealistic assumptions for economic impact analyses
This week, the Department of Commerce released its cost-benefit analysis of the proposed taxpayer-funded incentives for the Carolina Panthers. The analysis is all of two pages and contains very little truly helpful information – for instance, only four assumptions are listed: the number of jobs, the payroll amount, the direct investment amount, and the percentage of payroll taxable in South Carolina.
A lot of their assumptions aren’t listed, such as how they arrived at the total direct and indirect payroll benefit to the state of $3.6 billion over the next fifteen years. And for the assumptions they do list (such as 80% of the Panthers’ payroll being taxable in the state), there’s no background or explanation – so it’s impossible to know how they arrived even at the assumptions the economic projection is based on.
What taxpayers should be aware of is that state government officials have a history of using unrealistic assumptions in order to create an economic case that supports their policies. Below is one such example – where former Governor Nikki Haley attempted to sell a gas tax hike based in part on a wildly unrealistic income growth percentage rate.
THE GOVERNOR’S PLAN IS A SHELL GAME THAT WOULD DO LITTLE TO IMPROVE S.C.’S ROADS
Gov. Nikki Haley’s plan to fix South Carolina’s decrepit roads and bridges and lower income taxes will ultimately do neither. The governor proposes to raise the gas tax 10 cents over three years, cut the income tax by 2 percent over ten years, and restructure the Department of Transportation in some unspecified way. In addition, Haley’s executive budget proposed decreasing the overall funds available for road maintenance and repair, and instead direct more than twice the amount to new construction and expansion projects.
The plan is based on contrived assumptions, impossible predictions, and misleading promises.
The governor proposes increasing the state gas tax by 10 cents over three years in exchange for a 2 percent decrease in income tax for all tax brackets. If it were implemented in one year, it would represent a 30 percent income tax cut. In reality, the cut would be phased over 10 years – that’s 2/10ths of a percent each year. In short, the gas tax increase will take effect in three years, but even if the tax cut implemented – and that’s up to the General Assembly each year, not the governor – the full effect wouldn’t be realized until the year 2025.
The result? Low income families will be pinched at the pump – particularly when gas prices go back up – with little relief at home. The reduction in income tax, by contrast, would be phased in over 10 years, and lawmakers would have to agree not to eliminate it each year for a decade.