"Taxachusetts Minus"

Jon Keller interviews BHI's David Tuerck on taxes in Massachusetts

Major takeaway: "Our competitiveness is a fragile thing."

Google to NE: No Google broadband for you!

Boston won't be getting the Next Big Google Thing, super-fast broadband. Kansas City, Kansas is the search engine giant's pick to deploy the new service. Boston's high-tech savvy wasn't enough apparently.

MASS HIGH TECH:

Bill Oates, the chief information officer for Boston, said last year that Boston would be a strong contender because of the variety of types of use it could offer - from large-scale government housing projects to wealthy townhouses to very tech-savvy businesses. “We think we provide a really good mix for what Google wants,” Oates said at the time.

Google said in its blog that it would be able to begin offering the 1 gigabit-per-second broadband to Kansas City sometime in 2012. By comparison, the average broadband speed in 2009 in United States was 4.8 megabits per second. No details were released on pricing plans or how much of Kansas City would be covered.

That's a big upgrade. Good luck to Kansas City, Kansas. With all that speed they probably won't even see us in the rear view mirror!

Massachusetts 10th in the nation in Tax Freedom Day

Massachusetts ranks tenth in the nation in terms of how long its residents must work to pay off the federal, state and local tax man according to the Tax Foundation. Mass taxpayers toil to raise the taxes to pay all governments through April 14, one day before the official federal income tax filing deadline. (Thanks to the holiday Massachusetts taxpayers have until April 19 to file this year).

Overall, American taxpayers will recognize their freedom on April 12.

High-income Connecticut finished first. Its taxpayers will see the light of day on May 2. Mississippi ranked last with a Tax Freedom Day of March 26.

To learn how Tax Freedom Day is calculated visit the Tax Foundation.

It seemed like a good idea at the time

A stunning conclusion from the Kauffman Foundation by way of Mass High Tech:

The financial industry’s dizzying growth prior to 2008’s credit crisis may have stifled entrepreneurship by stealing talent that otherwise would have gone to innovative new companies.

That’s the conclusion of a new Kauffman Foundation report, which found that the financial industry recruited scientists, mathematicians, and engineers from graduate schools to create new financial instruments, such as the collateralized debt obligations that led to the financial crisis.

"Their talents have made them well-suited to the design of these complex instruments, in return for which they often make starting salaries five times or more what their salaries would have been had they stayed in their own fields and pursued employment with more tangible societal benefits," the study stated.

"Because these new hires are often the very individuals who otherwise would have comprised the most robust pool of prospective founders of high-growth companies, the financial-services industry’s steady rise has had a cannibalizing effect on entrepreneurship in the U.S. economy," said Paul Kedrosky, the study’s co-author and a Kauffman senior fellow.

At MIT, for example, nearly 25 percent of all graduates went to work in the financial sector in 2006, up from 18 percent in 2003.

File under: "Engineers blow things up."

Full report available at the Kauffman Foundation.

Small steps toward progress

Lost the apocalyptic news cycle, a little progress little noticed. "U.S. life expectancy has hit another all-time high, rising to about 78 years and 2 months."

Kotkin: "Why North Dakota Is Booming"

Joel Kotkin on North Dakota:

Oil also is the principal reason North Dakota enjoys arguably the best fiscal situation in all the states. With a severance tax on locally produced oil, there's a growing state surplus. Recent estimates put an extra $1 billion in the state's coffers this year, and that's based on a now-low price of $70 a barrel.

North Dakota, however, is no one-note Prairie sheikdom. The state enjoys prodigious coal supplies and has—yes—even moved heavily into wind-generated electricity, now ranking ninth in the country. Thanks to global demand, North Dakota's crop sales are strong, but they are no longer the dominant economic driver—agriculture employs only 7.2% of the state's work force.

Perhaps more surprising, North Dakota is also attracting high-tech. For years many of the state's talented graduates left home, but that brain drain is beginning to reverse. This has been critical to the success of many companies, such as Great Plains Software, which was founded in the 1980s and sold to Microsoft in 2001 for $1.1 billion. The firm has well over 1,000 employees.

The corridor between Grand Forks and Fargo along the Red River (the border between North Dakota and Minnesota) has grown rapidly in the past decade. It now boasts the headquarters of Microsoft Business Systems and firms such as PacketDigital, which makes microelectronics for portable electronic devices and systems. There are also biotech firms such as Aldevron, which manufactures proteins for biomedical research. Between 2002 and 2009, state employment in science, technology, engineering and math-related professions grew over 30%, according to EMSI, an economic modeling firm. This is five times the national average.

While the overall numbers are still small compared to those of bigger states, North Dakota now outperforms the nation in everything from the percentage of college graduates under the age of 45 to per-capita numbers of engineering and science graduates. Median household income in 2009 was $49,450, up from $42,235 in 2000. That 17% increase over the last decade was three times the rate of Massachusetts and more than 10 times that of California.

Here's a case of great minds thinking alike: Last year, North Dakota topped the BHI's Annual State Competitiveness Index with its strong showing in our Government and Fiscal Policy, Infrastructure and Environmental Policy measures.

The complete 2010 State Competitiveness Report is available here.

More than a quarter decline in MA construction since 2007

The Boston Business Journal reports:

The Bay State’s construction sector has shed 34,200 jobs on a seasonally adjusted basis since January 2007, with some of the commonwealth’s largest metropolitan areas having lost more than a quarter of their jobs in that span.

Nationally, 317 of the country’s 337 largest metros shed construction jobs since the downturn commenced, with some markets, particularly in the southwestern portion of the country, contracting by as much as 65 percent.

In Massachusetts, construction firms employed 92,500 people on a seasonally adjusted basis at the end of January, off 27 percent from the 126,700 workers in the sector four years earlier, according to The Associated General Contractors of America.

The Boston-Cambridge-Quincy region reported the state’s largest decline in total jobs lost, falling by 15,100 positions during the period studied. That brought the area’s total construction employment to 43,100 jobs at the end of January, off 26 percent over four years.

On a percentage basis, New Bedford and Peabody tied for the state’s largest decline, sliding 30 percent. New Bedford’s drop included 800 jobs, while Peabody’s affected 1,100 positions.

What will it take to get the industry moving again?

The elusive quest for green jobs

Edward L. Glaeser: picks apart the green jobs myth. Key takeaway:

Failed public investments, like the money spent in Devens, reflect the fact that public officials are rarely skilled venture capitalists and that governments pursue many objectives that lead them away from solid investments. It’s easy to see why any governor would be excited about a green-energy manufacturing plant in a less prosperous area of his or her state. But the same forces that made Devens political catnip meant that it was unlikely to be a long-term success.

The BHI record on estimating state tax revenues in Massachusetts

At the December 14 revenue hearing, the Institute was asked by the Joint Ways and Means Committee to provide an accounting of the comparative success of the Beacon Hill Institute (BHI) in predicting tax revenues. This memo is our response to that request.

BHI releases revenue estimates for FY 2011, FY 2012

At a Joint Ways and Means Committee hearing on Tuesday, December 14, the institute presented its annual revenue estimates. BHI estimates that Massachusetts state tax revenues will come in at $20.363 billion for Fiscal Year 2011, a growth of 9.8% over FY 2010. Revenues will be $21.265 billion for FY 2012, 4.4% above 2011.

Read more about Tuesday's revenue hearing here.

Jeff Jacoby offers 4 reasons for a sales tax rollback, one based on BHI's work

JEFF JACOBY:

There is some upside to the passage of Question 3. Consumers will have more dollars to spend in Massachusetts. The money doesn't disappear from the state's economy. It goes somewhere else including making retailers along all of the Massachusetts borders a bit more competitive.

Because a lower tax rate will generate economic growth. An analysis by the Beacon Hill Institute at Suffolk University shows that a sales-tax rollback to 3 percent "would create 27,199 private sector jobs, increase annual investment by $73 million, and raise wages by $1.03 billion." Money not confiscated by the public sector would remain in the far more productive private sector, while a sales-tax reduction would give Massachusetts businesses a competitive advantage. And any government jobs eliminated would be more than offset by the creation of new jobs in the private economy

It's time to broaden the debate beyond the diet of fear the public's been served.

House Speaker Robert A. DeLeo to address BHI's 10th Annual Competitiveness Conference

The Honorable House Speaker Robert A. DeLeo will keynote this year's annual conference announcing the release of the institute's 10th annual report on competitiveness.

Published since 2001, the report features an index that measures the ability of all 50 states to establish policies that sustain long-term economic and personal income growth.

9:30 a.m.
Sargent Hall
First Floor Function Hall, Suffolk University Law School
120 Tremont Street
Boston, MA 02108
RVSP - phone: 617-573-8750;
e-mail: compete@beaconhill.org

Sponsored by:
THE BEACON HILL INSTITUTE & THE DEPARTMENT OF ECONOMICS at SUFFOLK UNIVERSITY

Don't look to Europe for employment policies

from the New York Times blog Economix, Casey Mulligan: Progressives point out that the Western European economy has a lot going for it: a productive work force, new technologies, universal health care and access to education. Perhaps they’re right that getting our government more involved in the economy and smoothing out capitalism’s “rough edges” would give Americans some of those things, too.

Those same progressives tell us that expanding unemployment insurance and other government programs is an easy way to raise employment in the United States. But they seem to have forgotten that European policies have likely caused Europe’s employment to be less than ours, not more.

NBER: Recession ended in June 2009

IT'S OFFICIAL: The Great Recession ended in June 2009 according to the National Bureau of Economic Research in Cambridge.

WASHINGTON (AP) — The longest recession the country has endured since the Great Depression ended in June 2009, a group that dates the beginning and end of recessions declared Monday.

The National Bureau of Economic Research, a panel of academic economists based in Cambridge, Mass., said the recession lasted 18 months. It started in December 2007 and ended in June 2009. Previously the longest post World War II downturns were those in 1973-1975 and in 1981-1982. Both of those lasted 16 months.

Mankiw's brilliance

Greg Mankiw nails it

To Obama-administration economists, as well as to many others, the recession that followed the financial crisis of 2008 seemed like a classic case of decline in aggregate demand. Because of the credit crisis, people were not able to obtain loans — for homes, cars, business equipment, or any of the countless other transactions that rely on credit in today's economy. And because people were unable to obtain loans, these sales and purchases couldn't take place, resulting in a significant drop in demand across the economy.

So, inspired by the view that fiscal policy can prop up aggregate demand, Obama's advisors (and their congressional allies) began to design a stimulus plan heavy on direct government spending. A few days before President Obama's inauguration, his economic advisors released a document titled "The Job Impact of the American Recovery and Reinvestment Plan," in which they detailed some of their economic assumptions. They determined that the "government-purchases multiplier" — that is, the multiplier for direct spending — would be 1.57, while the tax-cut multiplier would be 0.99. In other words, every dollar spent by the government would yield $1.57 in aggregate demand, while every dollar in reduced taxes would yield only 99 cents in increased demand. And because 1.57 is larger than 0.99, the Obama team concluded it was better to increase spending than to cut taxes.

Obama and his advisors arrived at these numbers through a standard macroeconometric model of the sort economists have been using for years. Such models take various past relationships among economic variables (inflation and unemployment, for instance) and extrapolate them into the future. In essence, the economy is modeled as a system of equations, each describing how one variable responds to many others. University of Chicago economist (and Nobel laureate) Robert Lucas famously criticized these models for lacking an appreciation of people's changing expectations; many economists, however, still find such models valuable, and have continued to employ them for forecasting and policy analysis.

The question for economists now is whether the administration's assumptions, and the model based on them, were correct. After all, if we could be sure their model was right, we would know what to conclude when their stimulus plan was followed by 10% unemployment: The patient was sicker than they thought, and unemployment would surely have been higher still if not for the stimulus. (Indeed, since Obama's advisors do believe their model was right, this is the conclusion they have reached.)

The trouble is, we have no way of knowing for sure if the model was in fact correct.

Corporate executive schools Krugman

Warren Meyer:

Here is my first law of economic growth: When we encourage more investment, and ensure this investment is being channeled to the most productive uses, growth will follow.

For all the talk about fiscal stimulus and jobs creation at the federal and state level, almost no one in government is doing anything about reducing the roadblocks to investment. For example, millions of people are newly unemployed, and in past recessions a large number of these folks have eschewed looking for a new corporate job and have started businesses of their own. Unfortunately, such prospective entrepreneurs will face a tangle of registration, regulatory and licensing hurdles, many of which have been backed by established businesses that want to avoid just this kind of new competition. Even steps like the extension of unemployment benefits tend to discourage such entrepreneurship by increasing the opportunity cost of working for oneself.

Some people never learn.

State taxes do not matter?

Richard W. Rahn at the Cato Institute:

Why is it that some of the states with the biggest fiscal problems have the highest individual state income tax rates, such as New York and California, while some of the states with the least fiscal problems have no state income tax at all?

High-tax advocates will argue that the high-tax states provide much more and better state services, but the empirical evidence does not support the assertion. On average, schools, health and safety, roads, etc. are no better in states with income taxes than those without income taxes.

More importantly, the evidence is very strong that people are moving from high-tax states to lower-tax-rate states — the migration from California to Texas and from New York to Florida being prime examples. (Next year, the combined federal, state and local income tax rate for a citizen of New York City will be well over 50 percent, as contrasted with approximately 38 percent for citizens of Texas and Florida.)

If the citizens of California and New York really thought they were getting their money's worth for all of the extra state taxation, they would not be moving to low-tax states.

The obvious question then is: Where is all the extra money from these state income taxes going? It is going primarily to service debt, and to pay for inflated salaries and employee benefits. It is interesting that the high-tax-rate states also, on average, have much higher per capita debt levels than states without income taxes. (Alaska is an outlier because it has its oil reserve to borrow against and actually gives its citizens a "dividend" each year.)

How business leaders view tax credits

The best take-away is from Todd Dagres, General Partner, Spark Capital:

“I am not a big fan of tax incentives because they are a Band-Aid for an unfavorable tax environment.”

Introducing the Rahn Curve

Dan Mitchell thinks the size of the U.S. government is too large.

The economics of the World Cup

It's big money, really big but host countries aren't the biggest winners when it comes to direct benefits.

"The only direct funding a host country receives from the proceeds of the World Cup are the ticket sales and the predetermined amount promised by FIFA for hosting. In the past host countries have banked on tourism to compensate for the costs of infrastructure and new stadiums."