ALEC’s Fiscal Policies Get a Failing Grade in Major Analysis

Five years ago — at the height of the disastrous Bush-era fiscal policy of spend-and-spend on war-after-war, as our nation teetered on the event horizon of the housing bubble black hole, when the media was distracted with the business of scaring people shitless about dying a hideous lonely death from the bird flu — along came Arthur Laffer and ALEC with theirRich States, Poor States  index…

Step right up folks, get a load of fiscal bullshit that will destroy your state economies right here!

…Or as Good Jobs First and The Iowa Policy Project prefer to call it: Selling Snake Oil to the States: The American Legislative Exchange Council’s Flawed Prescriptions for Prosperity“. (Nov. 2012)

Bad Medicine, indeed.

Mr. Laffer and ALEC, the legislative tee-shirt cannon of MacGuffin bills for conservative lawmakers, apparently fared rather poorly under the microscope of honest scholarly research as to the fallout of their right-wing public policies wherever tragically put in practice. Not surprising, given the Tea Party tippage of so many state legislatures and their laissez faire attitude towards gaining any useful knowledge on the subject of public sector fiscal policy– of any kind. By way of example in Michigan, representatives are limited to three 2-year terms, and if re-elected, that means terming-out after a mere six years. So, even if they possessed the will, and at least a dolphin-brained capacity to learn, which they generally don’t either, none would even find the time between campaigns — being too busy frantically whoring -up to their corporate friends with benefits.

The Selling Snake Oil to the States Report simply eviscerates the magically-conjured ALEC index point by point. They found the “research” behind the ALEC/Laffer index to be of shockingly shoddy workmanship. Ignoring the vast body of research available, ALEC instead resorted to citing anecdotes and making ridiculously broad and unsubstantiated claims with a systematic failure to control for the most obvious relevant factors…the [ALEC] report repeatedly engages in methodologically primitive analysis that any college student taking Statistics 101 would be taught to avoid.

Let’s touch on the most notable flaws found in the ALEC index, (although admittedly, it appears western mathematical principles may not accommodate such a daunting task, let’s just give it the old college try…and I promise to work on some simple flash cards for our Tea Party friends later…).

The ALEC/Laffer index, devised in 2007, was designed to forecast how well a state’s economy would fare over time based on a set of 15 factors, which predictably include low and regressive taxation, limited government, “right to work” laws, no minimum wage, and low employee compensation.

The Good Jobs First/Iowa Policy Project analysis of the effectiveness of the ALEC/Laffer index found they following:

The claim that income growth would occur in states ranked the highest by ALEC turned out to be the exact opposite of what occurred. The more state’s policies mirrored the ALEC low tax/regressive taxation/limited government agenda, the lower the median family income.” This was also reflected in higher poverty rates in highly ranked ALEC states.

ALEC was dead wrong in the assertion that lowering state and local taxes produces greater job growth. “In actuality, such taxes are such a tiny cost factor for businesses, and come with higher taxes on others or lower quality public services, that [the] strategy fails.”

Their claim of a correlation between low top personal income tax rates and the prosperity of small business was similarly a bunch of hogwash. In fact they missed the mark entirely: “Property and sales taxes — ignored by ALEC – Laffer — are far more important issues.”

ALEC wrongly insisted that high taxes on “job creators”, including estate and inheritance taxes, were driving businesses out of the state. “…in reality, migration has little to do with taxes, and there is no plausible case for state estate taxes affecting job-creating investment.”

Their laughable concept called the “Laffer Curve” falsely postulates that tax cuts magically uncork bubbling new revenue sources — boy was that a dry well. “…tax cuts reduce revenue and result in the defunding of  public goods such as education and infrastructure, which really do matter for economic development.” (editor’s note:  I challenge anyone to give me the equation that supports Laffer’s “curve”.  Without such, it cannot exist in a three dimensional world.)

ALEC’s index assumed that policies designed to keep wages low, including low or no minimum wage and “right to work” laws, would create jobs — again, they failed to pull that rabbit out of the hat. The analysis found that such laws only serve to reduce wages and benefits but have little of no effect on job growth.”

The ALEC index actually turned-out to be a “decent predictor of how state per capita income will change — but in the opposite direction from what the report claims.” Ouch!

The rightfully scathing analysis concluded that the Rich States, Poor States flight of fiscal fancy was a “recipe for economic inequality, wage suppression, and stagnant income, and for depriving state and local governments the revenue needed to maintain the public infrastructure and education systems that are the true foundations of long term economic growth and shared prosperity.”

Why are we not surprised?

Amy Kerr Hardin from Democracy Tree