Junk Economics: New Report Spotlights Numerous Problems with Anti-Tax Economic Model

When anti-tax groups working in the states need a data point to help them argue in favor of their newest tax cutting idea, they often look to the Beacon Hill Institute (BHI).  BHI is housed in the economics department at Suffolk University, but its mission is more ideological than academic: providing research to voters and policymakers that promotes a “limited government” and “free market” perspective.  The cornerstone of BHI’s research is a computerized economic model it calls the State Tax Analysis Modeling Program (STAMP).

To a casual observer, STAMP may appear to be a rigorous model worthy of consideration.  But new research from the Institute on Taxation and Economic Policy (ITEP) explains in great detail the myriad ways in which STAMP is rigged to portray tax cuts as hugely beneficial to state economies, and tax increases as an inefficient drag on economic growth.

The broad ways in which STAMP fails to accurately gauge the impact of taxes on state economies include:

• STAMP underestimates the economic importance of public services such as education and infrastructure to both the short- and long-term health of state economies.
• STAMP assumes that workers, consumers, and businesses are hypersensitive to tax changes, causing private sector economic activity to boom (or bust) as a result of modest changes in after-tax incomes and prices.
• STAMP depicts tax changes as having an instantaneous impact on the economy, even when that impact involves long-run issues such as migration, property value changes, and business formation.
• STAMP assumes a simplistic, perfectly efficient marketplace where everybody who wants a job already has one.  This assumption simplifies the math behind the model, but is a poor reflection of the economy that actually exists today.

ITEP’s report also describes a number of instances where STAMP’s findings have been contradicted by academic researchers and state revenue officials.  In one particularly implausible analysis, for example, STAMP actually found that cutting Rhode Island’s sales tax rate by more than half would not only benefit the state’s economy—it would actually raise $61 million in tax revenue.

In another analysis, STAMP predicated that roughly 40,000 jobs would be created by a tax cut enacted in Kansas.  Since that analysis was released, Kansas’ economy has underperformed and the state actually saw its credit rating downgraded because of slow economic growth and lagging tax revenues.

As ITEP’s report explains: “STAMP’s flimsy foundation, biased assumptions, and highly questionable results are ample reason to avoid using it as a tool for understanding how changes to a state’s tax system will affect its economy.”

Read the report:

STAMP is an Unsound Tool for Gauging the Economic Impact of Taxes