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ECONOMIC ANALYSIS: Lobbyists lob lots of bad ideas into tax debate

January 21, 2008

I am a huge fan of the Discovery Channel TV show "Dirty Jobs with Mike Rowe." I don't get to watch if often. "SpongeBob SquarePants" dominates the Hicks household. But when I do, I revel in the host's exploits in some of the nastiest jobs imaginable. But I think there's one job I am more afraid of than anything I've seen on his show.

There's no amount of money that could make me a state legislator during a fiscal crisis.

For state legislators (in Indiana and elsewhere), the pay is bad, there are no real perks, and there's little future in politics. In truth, state legislators are more like the football team at a small college. There's no scholarship money, the players have to get up early every day for practice, and no one is going to the NFL.

I think the worst aspect of being a state legislator has to be dealing with "lobbyist math." This phenomenon is most common during significant changes to tax policy.

Examples of lobbyist math I have seen this legislative session have mostly focused on property tax proposals. One lobby group complained that moving about 15 percent of school costs from the property tax base to income and sales taxes would cause school funding to become less stable. It is revenue, not expenditures, that is subject to instability.

Another group tried to make its point using estimates of interest rates calculated down to four decimal points (yes, that is 1/10,000th of a percent), four years from now. That precision is demonstrably silly, but it makes the analysis appear thoughtful and sophisticated.

Another example of lobbyist math is the technique of developing a proposal that leaves one big piece for the Legislature to work out. This year, one lobby group constructed a property-tax-elimination plan with detailed estimates through 2018. At first blush, it sounds like a clever, forwardlooking plan. But sadly, it leaves a mystery tax on business "to be determined by the Legislature." Of course, the only real option is a doubling of the state's corporate tax rate, making it the nation's highest rate.

Pulling against the lobbyist math are sound principles of taxation that have been the mantra of economists and goodgovernance watchdogs for generations. A "broad base" with a low rate is always the best answer to taxes. Any proposal that narrows the tax base (eliminates a tax) inevitably has the stamp of special interests.

Narrowing the tax base is not a conservative or liberal principle. How much we spend, and what we buy with our tax dollars, is fuel for a debate. But whatever amount of tax dollars we collect, it is in our common interest to minimize damage to the economy from the collection of taxes. That is a chief benefit of a broad tax base.

Of course, lobbyist math represents a departure from shared interests. It is the realm of privileged interests. The next few weeks will require lots of thoughtful analysis by Hoosier lawmakers.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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