The ruckus over the State Auditor’s fiscal note is amusing to watch. The opponents of tax reform are crying foul that the state auditor rightfully identified their Henny Penny claims of devastation or bankruptcy as bogus. This doesn’t sit well with those opponents as they reject and ignore anything that doesn’t support their position as demonstrated by the fact that Tennesee doesn’t even exist in their minds or analyses! The audacity of the auditor not to agree with their faulty techniques and analyses.
As budget chair, I chaired the fiscal note review committee. In addition, I also chaired the Joint Committee on Legislative Research and Oversight where fiscal note challenges were heard. I can tell you the auditor’s response to the fiscal note inputs from the departments was solidly in keeping with the way fiscal notes are to be done. The process is to consider the inputs, weigh them for biases and accuracy and then use appropriate outcomes. That’s what happened here.
Take, for example, the fiscal note input from the office of Budget and Planning (B&P). I have a lot of experience with B&P estimates from the aforementioned positions and have found that they are often off base. It’s not because they are bad people. Linda Luebbering and her staff are fine folks. The problem is that their estimates are from an inside government approach, more or less designed to defend the status quo.
The fiscal note analysis for the initiative petitions by B&P apply the same approach used when I was budget chair for Consensus Revenue Estimates(CRE). Those are the same ones that resulted in faulty estimates by B&P when I was budget chair causing unnecessary withholdings by the governor and local tax increases being placed on the ballot. I never agreed to one of the CRE’s as budget chair as they could not be depended upon.
The last year I was chairman, I hired an outside economist who did an in-depth analysis of Missouri revenues and we developed a revenue estimate that we used to develop the state budget. B&P and the governor didn’t agree and, in fact, estimated that the revenues would be significantly less. When the dust settled, turns out that our estimate was .02% off and B&P’s was almost 6%.
As I look at the B&P fiscal note analysis, I see many of the same old way of estimating being applied. For example,
- They misinterpret the fact that the initiative petitions eliminate all sales taxes, state and local. They don’t.
- They use revenue sources that they say have to be replaced that don’t. Case in point is the MoDOT sales tax revenues from new car sales. Not only will MoDOT receive the sales tax from new car sales, contrary to B&P and MoDOT’s misinterpretation, but by MoDOT’s own estimate last year they will be collecting more money in 3 years than before this proposed reform.
- They falsely claim the Show-Me Institute says the rate would have to be 10-12%. They didn’t. If B&P had read all the literature regarding the study, they would have found that it was not based on any of the initiatives but rather based on a fictional model economy. It didn’t even use Missouri data.
- They use a questionable data source for their baseline basket of goods resulting in a base that is much too low. The baseline estimate is 20% or more off.
- They include other analyses purported to have been performed on the initiatives, which were not. They did once again prove the old adage, “garbage in garbage out.”
Perhaps the most glaring shortcoming of the B&P analysis is that they totally ignore the real life model that exists in Tennessee. Rather than analyzing the fact that Tennessee has been using the same basic model as proposed in the initiatives, they ignore the best information available to them.
The initiatives do propose a broader base than that taxed in Tennessee. The reality is that we know Tennessee collects over $6.1 billion on a narrower base than that being proposed. This would account for at least 75-80% of the tax collections needed to replace existing revenues.
Services play an important role in the proposed initiatives and are often the target of opponents. I find it interesting that according to the Federation of Tax Administrators website, Tennessee actually taxes more services than Missouri does (84 versus 38). The proposed initiatives build on a proven concept, expanding a solid collection base to finish out the collection of more revenues.
So, when you hear “this has never been tried before anywhere else,” just remember that is a false statement! The baseline has been applied in real life for a long period of time and is proven. Missourians will be better off with the proposed tax reform.