Maine people deserve credible analysis

December 19, 2011 by

Two weeks ago MECEP released an analysis estimating the loss of nearly 4,500 jobs if the LePage Administration’s proposed $221 million cuts to the Department of Health and Human Services budget are approved.  Not to be outdone, the Maine Heritage Policy Center (MHPC) released their own report today indicating that raising taxes to cover the first year’s proposed $121 million shortfall would cost 6,463 jobs.

Not all jobs estimates are created equal (or deserve equal status in the eyes of policy makers and the media).  MHPC’s assertion is flawed out of the gate.  It assumes the necessity of new taxes and ignores the fact that rolling back recently enacted tax cuts would go a long way to closing the shortfall with little or no additional economic impact.  Since the tax cuts have yet to take effect, delaying their implementation or eliminating them entirely would simply preserve the status quo.

Even operating on MHPC’s unfounded assumption, how would we credibly evaluate the impacts of a tax increase?

For starters, who will the tax increase affect?  Is it rich people, poor people, or everyone across the income spectrum?  Is it businesses or individuals?  Is it a temporary tax, as was used to cover a budget shortfall during the McKernan Administration, or a permanent tax increase?

The answer to these questions has a significant impact on the outcome of the analysis.  Where taxes are concerned, not all cuts or increases are created equal.

For example, providing tax relief to low- and middle-income households generally does far more to increase economic activity than tax relief for wealthier households. Low-and middle-income households are more likely to spend their tax cuts than wealthier households that tend to put more of their money to savings.  Many nationally recognized economists such as Mark Zandi (former advisor to John McCain) and Douglas Elmendorf, Director of the Congressional Budget Officehave written about these issues and provide informative analysis of a range of policy options in supporting economic recovery and the appropriate methodology for assessing those options.

Since MHPC does not specify the kind of tax increase its analysis addresses, the results are smoke and mirrors, not substance.  A 10% surcharge on households with incomes over $250,000 would have very different economic impacts than a penny increase on the sales tax or a $1 increase in cigarette taxes for example.

CBO Analysis of Job Impacts of Various Federal Policy Proposals

MHPC further undermines the credibility of their analysis by asserting that $121 million in new taxes will actually result in $631 in lost personal income per household over the long-term.  This is quite a leap of faith predicated on a host of assumptions, none of which are made clear.  Presumably MHPC is assuming that the tax increase would be in effect in perpetuity – which likely would not be necessary since the revenue shortfall is due in large measure to a dramatic drop in revenues resulting from the recession and ill-conceived tax cuts yet to take effect that further compromise Maine’s revenue picture.

MECEP takes our commitment to provide credible research and analysis seriously.  In estimating the job losses associated with the proposed DHHS cuts, we erred on the side of caution given the lack of specific information from the Administration.  We also generated figures based on our best understanding at the time of which program areas would be impacted.   We did not make hasty assumptions about other potential job losses associated with the Administration’s proposal such as cost shifting, poorer health outcomes, and lost productivity.

With the health and well-being of tens of thousands Maine children, families, seniors, and disabled individuals at stake, it is critical that policymakers base their decisions on fact not ideology.

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