Don't Confuse Estimates With Data

Reporter Tim Skubick in a recent blog post asks Gov. Rick Snyder to show some data on how many jobs will be created by the state’s new tax deal, which eliminates the Michigan Business Tax and replaces it with a 6 percent corporate income tax. He highlights the Mackinac Center’s estimate eliminating the MBT will create up to 120,900 jobs over time.

It seems Skubick has a knack for instigating conflict where there is none. This time it’s because of his confusion of data with estimates. The Mackinac Center estimate is a projection based on a “computable generation equilibrium” model about a wholesale elimination. It’s a best-guess at the future economic impacts of a single policy move based on applying interpretations to historical data and projecting into the future.

Our model would not estimate other economic events that also can have large fiscal impacts: the falling dollar being a boon to state manufacturing, health care costs increasing more than 10 percent, or even whether a summer drought impedes on Michigan crop production — all of which can have substantial economic impacts.

These estimates are difficult to verify after the fact. The actual jobs data released will confirm or deny it, but it will take another economic analysis to determine the cause of the job growth.

Skubick cites two pieces of evidence that might say differently about the magnitude of the tax reform. First, Skubick writes, “Former state treasurer Bob Kleine who worked for Governors Granholm and Engler does not sight (sic) any data but concludes, ‘No one knows for certain but the evidence says it will not’ create jobs.” That’s a lot like saying, “I don’t have the evidence, but it says I’m right.” Kleine’s first part is correct that no one knows for certain — the future is tough to predict and the state’s economic performance will not be exclusively determined by public policy.

Next, Skubick tacitly references, but does not detail, a Detroit Free Press article where economist Tim Bartik references a 1994 paper by economists Robert Carroll and Michael Wasylenko. This paper found that a 10 percent increase in state corporate income taxes would reduce manufacturing employment by 2 percent over the period studied. Of course, a 2006 update of their findings showed that their results were not consistent, though taxation was found to have consistently negative consequences, if applied to a different time period. Given the academic conflict over that paper, our estimate of 120,900 jobs over time is consistent.

The comments on uncertainty reiterate that the results from the model are not economic facts, but a best-guess opinion on the magnitude of economic impacts. As we wrote when we released our estimate, “We recognize that models are simplifications of reality and that the farther out you try to predict the more difficult it is to achieve an accurate accounting.” Given the uncertainty over economic matters Skubick highlights, there is still a commonly accepted relationship between job growth and taxes, and our estimates well reflect both pieces of evidence to the contrary.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.