Cronyism

“Grading Places” Fails to Pass as Credible Research

Professor Peter Fisher of the left-wing advocacy group, “Good Jobs First” (GJF), republished his critique on state business climate indices titled Grading Places. Due to major errors and inaccuracies, Fisher and GJF were forced to pull down the publication, revise it, and republish it along with a formal apology. Among Fisher’s targets is the American Legislative Exchange Council’s annual ranking of state economic growth prospectsRich States, Poor States (RSPS), in addition to the Tax Foundation, Beacon Hill Institute, Small Business and Entrepreneurship Council, and the Council on State Taxation.

Most of the paper’s assertions have already been discredited in blog posts by the Exchange Council, the Tax Foundation, the Small Business and Entrepreneurship Council, a Beacon Hill Institute press release, and our recent publication, Tax Myths Debunked, but it’s worth briefly rehashing these responses and pointing out some of the study’s major failings.  First and foremost, it’s worth noting the conclusions of Chapter 7 of Tax Myths Debunked, summarized in the chart below. Counter to Fisher’s analysis, the economic outlook rankings in Rich States, Poor States are strongly correlated with economic growth:

Comparing RSPS Outlook Index to State Performance

 

Fishers’ own analysis of RSPS, originally published in near identical form as a stand-alone study with the title Selling Snake Oil to the States, is full of methodological errors that are documented extensively in Tax Myths Debunked and the Exchange Council’s aforementioned blog post. The bottom-line conclusions of these separate critiques of Fisher: Any potential value of his study is rendered null by its overwhelming errors. Fisher’s brief attempt in Grading Places to excuse and explain away these errors demonstrates that he either does not fully comprehend his own study’s faults and the damage they cause his larger argument or he has chosen not to publish the conclusions of a more rigorous study given his ideological bias.

More broadly, Fisher criticizes RSPS and the other business climate indices for not having identical rankings of the states, for supporting free-market competition to determine wages and compensation, for encouraging responsible government regulation of business and for promoting fiscal responsibility to lower taxes.

Let’s discuss these flawed criticisms one at a time. Fisher is right that the various indices don’t have conforming rankings of the states, but as the Tax Foundation pointed out in their blog response to Grading Places, the indices don’t necessarily set out measure the same criteria, hence a diversity of rank orders.

Moreover, Fisher uses tired class warfare arguments to accuse the Exchange Council of favoring wealthy business interests. However, Rich States, Poor States highlights the group of policies with the greatest proven track record of advancing economic growth and opportunity for Americans of all income levels. All Americans should be afforded an opportunity to secure a job, advance up the earnings ladder, and if they desire, a chance to open their own business, all of which put themselves in the driver’s seat of their own economic destiny. A job and pathway to financial advancement is the real anti-poverty program citizens of every state so dearly need.

Most problematically, the paper asserts that there is no evidence to support the conclusion that economic freedom broadly, or in component parts, advances economic growth. Those who have studied economic development broadly and the relevant economic policy topics will find this claim laughable. Not only are Fisher’s flawed findings at odds with the economic research on both the international level and state level, but  they defy simple common sense. To the extent a governmental jurisdiction creates higher costs for business; those businesses will struggle more, particularly small business. Tax Myths Debunked and a recent survey of the research on taxes and growth by Tax Foundation Chief Economist Dr. Will McBride both establish the connection between taxes and growth extensively.

In conclusion, we commend Fisher and GJF for revising their report to correct a few errors, but there remain significant errors and inaccuracies that lead to an imprudent conclusion. Moreover, instead of offering insight and refinement of the state business tax climate rankings, Fisher and GJF have decided to instead incorrectly assert the true source of growth and prosperity is increased government spending rather than a competitive business climate. Regardless of their poor research, the results from the state laboratories of democracy cannot be ignored: Those states that embrace a sound business climate in their state see more economic growth.


In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure …

+ Cronyism In Depth