Radio Iowa runs with this headline ”$8.7 million from “Development Fund” creates 600+ jobs.” This headline arises out a “study” paid for by the economic development bureaucracy (meaning: taxpayers) to demonstrate the tremendous job-creating skills of people who give your money to other people. How did this study demonstrate this job creation?
By assuming it.
From the “study”:
A survey of past recipients of Demonstration Fund investments was conducted by the Iowa Innovation Corporation to determine, among other things, how large these companies are now as compared to their pre-investment levels. This growth in size – in annual revenues and in head count – can be attributed in part to the involvement of and investment by the Demonstration Fund.
Furthermore, the resulting economic impact is greater than the direct increase in expenditures and head count, since those increases lead to a series of spillover effects, whereby the impact of new company spending and employee earnings ripples through local economies and supports additional economic activity and job creation. Job impact estimates are determined by using standard input-output methodologies and multipliers, as provided by the US Department of Commerce.
In other words, they assumed:
- that multipliers work – a shaky assumption.
- that the businesses and jobs wouldn’t happen without the wonderful effects of your money being directed by politicians to those businesses.
- that the money wouldn’t have also generated jobs if it had been spent elsewhere.
That’s the same kind of thinking behind the 2009 stimulus spending spree. The results were less than assumed. The dark line is what government projected that spending would do to unemployment, using “standard multipliers.” The lighter blue line was the grim fate awaiting us absent a government binge. The red dots are the actual post-binge unemployment rates.
The study does not have the two words that could have given it credibility: “opportunity cost.” They assume that the money left in the hands of taxpayers would have done nothing. But it would have been spent elsewhere, undirected by politicians; it would have bought things, creating profits and jobs. But as they would have gone unclaimed by economic development officials, no press conference could have been called, so they don’t count.
Jeremy Scott, What Should Be in the Obama Budget (Tax.com):
Obama consistently ignores the statutory timeline for releasing his budget, and this year is the latest he has ever put forward a fiscal proposal. On all things administrative, the president is frequently dilatory. But those waiting with bated breath for Obama’s proposals will be disappointed — the budget will be more of the same and has little chance of actually being passed or even taken up by Congress.
Does President Obama Want To Tax Your Retirement? His budget proposes a cap on the size of retirement accounts, but see the item above.
TaxProf, WSJ: Taxing Lunch at Google and Facebook?. Will the IRS start putting free meals for techies on their W-2s? Just don’t tax my busy season office donuts.
Nostalgia. Today in History: Income Tax Ruled Unconstitutional in Pollock v. Farmers Loan Trust Co. (Joseph Henchman, Tax Policy Blog)
William Gale, Tax Policy Should Consider New Business, Not Small Business (TaxVox)
Martin Sullivan, How Should the U.S. Stop Profit Shifting? (Tax.com)
Trish McIntire, One Week Warning
William Perez, What to Do if You Owe Taxes for 2012
Russ Fox, Bozo Tax Tip #4: Procrastinate!
Jim Maule, How Not to Litigate a Tax Case
Peter Reilly, Wesley Snipes Raises Creationist Hopes For Kent Hovind
Definitely not a problem for me this year: Bragging About Winning Your NCAA Pool On Facebook May Cost You Come Tax Time (Tony Nitti)
News you can use: The Definitive ‘I’m Quitting Public Accounting’ Checklist (Going Concern)