Guest Blog (Steve Ellis): Income tax opponents offer nothing new in the Wall Street Journal

Stephen Ellis, Ph.D., is Associate Professor in the Department of Philosophy at the University of Oklahoma. His research areas include philosophy of economics, decision theory, philosophy of mind and ethics.

The Oklahoma income tax ‘wars’ have gone national!  The latest salvo was fired last week by the Wall Street Journal in an editorial urging Oklahoma to enact major income tax cuts.  While the editorial offers nothing new (except for a high level of snark), it is worth noticing because it reveals the intellectual bankruptcy of the tax-cut case.

In my earlier post on this issue I outlined the trajectory of the debate:

1. Tax cutters think slashing rates would bring prosperity.  They appeal to a theoretical claim (cutting taxes increases incentives) and set of cases (states without income taxes ).  The theoretical claim is likely true, other things equal, so the cases merit looking into.  The Oklahoma Council on Public Affairs (OCPA) sponsored a study by Arduin, Laffer, and Moore Econometrics (ALME) to assess the evidence and it supported tax cuts (ALME’s Stephen Moore  just happens to writes editorials for the Wall Street Journal).
2.  A set of Oklahoma economists looked into the OCPA/ALME analysis and found it seriously flawed.  The particulars of the criticisms are telling.  Kent Olson, Jonathan Wilner, and Cynthia Rogers (disclosure – Prof. Rogers is my wife) all agree that the OCPA/ALME study:

(a) (mis)specifes regression variables in a way that biases results;

(b) uses data in a flawed way;

(c) reports results in a misleading way.

The upshot is that “[n]either the OCPA report nor existing academic research supports the claim that eliminating Oklahoma’s income tax will lead to enhanced growth” (Rogers).

Rogers’ appeal to the broader economic literature is important because the research shows both that the OCPA/ALME report is an outlier and that the observed disconnect between tax rates and performance isn’t a mystery.  As she notes:

“Tax cuts financed by reduced spending on public services … have been linked with negative growth consequences.”  Government expenditures matter – other things equal, poorer public services hurt economic performance.

3. Tax cut advocates have ceded the economic debate.  Instead of addressing arguments, they have spun the discussion as a ‘culture war’ issue or a matter of ‘commonsense’.  The Wall Street Journal tries to do both:

Cynthia Rogers of OU said that the evidence on whether income-tax cuts help the economy is “inconclusive.”  Maybe in the faculty lounge.  But Okahomans can see the jobs bonanza across the border in Texas, which pays its bills with a sales tax.

Populist, anti-intellectual posturing?  Check.  Appeal to ‘good sense’?  Check.  Failure to engage with the substance of the assessment?  Check.

The Wall-Street-Journal approach is seriously harmful.  Intuition and casual observation are good starting points for economic analysis, but they are merely that – places to begin.  To rest satisfied with such weak support when further quality evidence is already available would be deeply irresponsible. State economies are complex systems.  To suppose you can diagnose one with an ‘eyeball test’ is hubris.

On the issues the ‘eyeball test’ fares poorly.  Initially, it contains a false presupposition: Oklahoma is actually doing well, at least as well as Texas.  Even if Texas were doing better, it wouldn’t follow that we should emulate them.  The criticisms of the OCPA/ALME report establish that economic success in no/low income tax states cannot be attributed to tax policy.  Further, even if Texas were aided by its lack of income tax, it wouldn’t follow that Oklahoma would be similarly aided – the criticisms show that complementary attributes/policies are crucial.  (e.g., Alaska has no income tax, but also a combination of small population and large revenues.)

Oklahoma has its own mix of attributes.  To establish another state as a role model, an advocate must demonstrate that it is relevantly similar.  According to the Wall Street Journal, however, Oklahoma policy makers should look at Texas and think they have no income tax and seem to be doing well, so we should immediately follow suit.  That would be like me thinking Kevin Durant makes millions playing basketball, therefore, I should enter the NBA draft and I could make millions, too.  This actually under-rates the danger – my entering the draft would harm few.  A better analogy would be an inventor thinking that Boeing makes good jets, therefore I should build an airliner that looks like a Boeing.  No need to check the engineering because I’m using a successful model.  No one in her right mind would board such a craft, but Oklahoma is on the verge of buying a ticket!

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