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Economic Skepticism and Appeals to Authority

[ Patrick Tuohey ]

I am a skeptic.  I am especially skeptical of economists because I have learned that one can find an economist to say anything.  This is a shame, because well-meaning people have one less tool to help them make sound decisions.

This is the case in Missouri as the legislature accepts testimony on eliminating the state's income tax.  On Friday, February 5, Missouri Budget Project director Amy Blouin, an opponent of the effort, wrote a column for the St Louis Beacon in which she asserted:

A recent analysis by the Institute on Taxation and Economic Policy [ITEP] found that the sales tax would need to be increased to at least 11 percent to be able to make up for the costs of the bill. Further, the change would result in a significant tax increase for 95 percent of Missourians, but the increase would not result in any new investments in state services or infrastructure because the plan is revenue neutral. Only the top 5 percent of income earners in the state would see a decline in taxes.

David Stokes of the Show-Me Institute responded to Blouin's piece in his blog, accusing her of relying on data that she knew was flawed::

As Show-Me Institute executive vice president and University of Missouri–Columbia economics professor Joseph Haslag demonstrated in a recent case study that he wrote with Show-Me Institute intern Abhi Sivasailam, that revenue-neutral rate would be about 5.8 percent.

If you want to argue against Fair Tax legislation, that is fine with me. And, yes, it is likely that different people will come up with somewhat different estimates for how high the revenue-neutral replacement level of the sales tax would need to be. But if your estimate differs so dramatically from everybody else who has studied the issue that it appears to be just plain wrong, you should cease using it once that has been brought to your attention — or attempt to demonstrate where your opponents’ reasoning is faulty, in a detailed, systematic way. And if you don’t, people should stop taking you seriously.

In my brief telephone conversation with Stokes, I asked how he concluded that the Budget Project's study was flawed.  Stokes pointed me toward a brief analysis which claims:

The MBP estimates that the yearly cost of the rebate program would be between $3.14 billion and $7.49 billion. These high-cost figures are rooted in two grave errors.

First, to calculate the total cost of the rebate program, the MBP reports numbers computed by the Office of Administration’s Division of Budget and Planning. The MBP’s calculation is the result of multiplying the amount of each rebate by the entire population of Missouri, rather than only by the number of families in Missouri who qualify, as stipulated in the resolution...

Second, even if the MBP is correct in assuming that rebates are given to all state residents and not just state families, there is still no basis for the $7.49 billion upper range of the organization’s rebate cost estimate. The MBP computes its range by multiplying its estimated number of rebate filers by the lowest and highest possible rebate amount. Given that the highest rebate amount is given to families of seven, MBP’s upper range assumes that every individual citizen of Missouri would receive the rebate check corresponding to a family of seven — something the bill clearly did not favor.

Blouin's piece did not address either of these concerns.  If, as Stokes claims, she was aware of criticism but did nothing to correct or dispute them, she should not be taken seriously.  Missouri voters deserve better. 

If Blouin and others can answer these criticisms of methodology and still make an argument against the legislation under consideration, I am sure Missouri voters and legislators would be eager to hear them.

2/5/2010 3:56:13 PM

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