Re: Hands off my beer

The Alcohol and Beverage Control Commission (ABCC) has reconsidered its requirement that local brewers use locally-grown ingredients. While this is a welcomed step, the episode raises an interesting (read: disappointing) question about how policy is made in Commonwealth.

The ABCC stated that it:

endeavors to support and enhance the agricultural community, ensure the long-term viability of agriculture, and support farms that protect the common good in many ways including maintaining open spaces in communities.

These are honorable goals; supporting a local industry is always nice, and who would not like more open space? But at what cost? This issue is not presented, or so it seems, even considered.

-How much forest land will have to be converted to farm land to grow all these ingredients?
-Is this the most efficient use of this land?
-Would participating in trade with other states allow state farmers to produce a more valuable crop?
-What are the costs to other industries? ie forestry, craft brewing or other types of farmers.
-What is the revenue effect?

There is not an indication that any of these costs were considered. When only the benefits are considered, and touted, incomplete, and often incorrect, policies are proposed.

We encourage that any policy proposal have a thorough and complete Cost Benefit Analysis preformed. I find it troubling that red tape of this sort is implemented without considering the costs.

Hands off my beer

As a home brewing enthusiast (currently drinking an O.E. clone, Oktoberfest in the bottle, and plans for a double brew of a Black and a Tan in the next few weeks) and craft beer drinker, the recent news about licensing changes has confused and concerned me. The Alcoholic Beverages Control Commission plans to make it difficult for craft brewers, unless 50 percent of their grains and hops are grown in state.

While I'm sure there was deep thought, and a detailed Cost Benefit Analysis of the new proposal, I'm unable to find it.

Increasing costs, and implementing barriers to entry, on an emerging industry, which provides the best regional beers in the US (in my expert opinion) in addition to many local jobs is no way to encourage job growth.

Promoting rent seeking in the agriculture industry, does little to encourage axillary industry boosts, such as tourism.

I think of my daily afternoon lesson on my walk home, presented by the Duckboat Captains the local version of oral history on wheels, 'the Beantown Pub is the only Pub in the world where you can drink a Sam Adams while looking at his grave.'

Helping the local hops industry, in favor of the local craft brewing industry is down right ridiculous. I have seen many policy proposals that use bad logic and reasoning to justify them, but this policy lacks even that low bar (pun intended). It is on par with the Candlemaker's Petition for trade protections from an unfair foreign power, The Sun.

Spending cuts? Not quite.

Baseline:
We could expect to receive $39.084 trillion in revenue between 2012 and 2021.
We could expect to spend $46.055 trillion in outlays in the same period, for $6.971 trillion in expanded deficit. Per the CBO

Change:
The bill signed yesterday "calls for up to $2.4 trillion in savings over the next decade."

I'm honestly not sure what will happen to revenue projections for the next ten year. Being a two handed economist, on one hand, lower government spending should leave opportunities for a more efficient private sector to step in. On the other hand, given the uncertainty of the of the federal gov't to pay its bills, markets have frowned. (The S&P 500 is down 1.58% in the last five days).

We can expect spending to decease to $43.655 trillion over the next ten years, and assuming that revenue stays constant, an increased deficit of $4.571.

Is an average annual spending of $4.366 trillion really a huge spending cut, as many popular media sources state? As a comparison, in FY2010 the US spent $3.456 trillion, and the ten years leading up to that year averaged $2.614 trillion. Assuming compounded annual inflation of 3 percent, the average is $2.945 trillion.

Not really the killer spending cuts that you've read about? I suppose when the original spending bar is set so far out of the U.S.'s ability to pay, even large cuts don't bring it back in line.

(HT to: Cafe Hayek for many of the sources.)

Where is my money going?

Even for a numbers geek, such as myself, U.S. spending is a hard thing to wrap my head around. Realizing I indebted myself hundreds of thousands of dollars to buy a house was hard enough.

Reviewing state budgets that throw the word 'billion' around is hard to envision, but possible. ie The state spent more then 5,831 of my houses on Debt Service in 2010. (This is harder to envision when the state does not label, or mislabels data. $1,948 billion, really?)

That is why I love what alot of people are doing with graphical representation of information

http://www.wheredidmytaxdollarsgo.com/

Does just that, allowing me to see, on average, where my federal tax dollars are going.

A state level one could be very interesting...

A 25% Massachusetts gas tax hike would mean loss of 1,000 private sector jobs

With gas prices falling in Massachusetts, state leaders are thinking about increasing the gas tax. Just how much the Governor and legislature are willing to raise the tax is unclear.

But assume that the legislature approves a new 29 cents per gallon tax (up from 23.5 cents) representing a 25 percent increase (not unlike the last hike to the state sales tax). What would that mean for the state's economy?

Using its State Tax Analysis Modeling Program, the Beacon Hill Institute estimated that a 25 percent increase would not help the Commonwealth's economy as it tries to add jobs.

Compared to a baseline of no gas tax increase, the state would have 1,170 less private sector jobs, while adding 600 public jobs in the first year. Riding the brakes would have consequences. At the margin, less employment means consumers will have less money to spend, so while gas tax revenues increase by $152 million, the state would collect $5 million less in sales tax, not to mention that companies will be selling less. Similarly, with 570 total less full time equivalent jobs, state personal income tax collections would decrease by $8 million.

In total , instead of collecting $152 million more in gas taxes, the state would see a total revenue increase of only $116 million, due to dynamic effects. At the cost of lower employment, income, disposable income and investment, raising the state's gas tax is a bad policy at a bad time.

Tuerck: Support "Cut, Cap and Balance"

Having reviewed the House-passed Cut Cap and Balance Act of 2011, I have reached the conclusion that the Senate should adopt this legislation and send it on to the President. The Act provides the only effective solution to the country’s budget crisis, which is to cap federal spending well below current levels. The provision to cap spending at 19.9% of GDP by 2021 would bring spending back toward its historical norm and prevent the kind of binge spending that we have witnessed over the past two years. This is the only way to prevent a repeat of the misspending that has brought us to this point. I urge Senators Brown and Kerry to vote yes.

David G. Tuerck
Executive Director, The Beacon Hill Institute
Professor and Chairman, Department of Economics
Suffolk University

BHI on the Sales Tax Holiday proposal

CBS-Boston's Jim Armstrong interviews Paul Bachman on the proposed sales tax holiday for August 2011.

Video Link:

Taming the Amazon with taxes

States look to Internet taxes to close budget gaps

Internet retailers cite a 1992 U.S. Supreme Court decision involving catalog sales, Quill Corp. v. North Dakota, which ruled that states could require only companies that had a physical presence within the state to act as tax collector.

To get around the ruling, some states are expanding what it means to be physically present. For example, an online retailer hiring a marketing firm or owning a subsidiary inside the state would qualify under definitions adopted in some states.

In February, the Texas comptroller demanded that Amazon.com pay $269 million in back sales taxes because a subsidiary operated a warehouse near Dallas. Amazon is appealing the order.

Last year, New York enacted a law that said Internet retailers' practice of paying commissions to marketing agents based within the state constituted a presence. Arkansas, Colorado, Illinois, Rhode Island and North Carolina quickly followed with similar laws.

Bills are pending in Arizona, California, Florida, Hawaii, Massachusetts, Minnesota and Pennsylvania. Texas lawmakers passed such a measure, but Gov. Rick Perry vetoed it. Now legislators are trying to resurrect the bill by attaching it to a larger budget measure. The matter is now before a conference committee.

California estimates it loses at least $200 million a year in uncollected tax from online sales, $83 million from Amazon.com alone. A bill that has passed the state Legislature would force Seattle-based Amazon and others to collect that tax from California residents.

Amazon, Overstock.com and other big Internet retailers cite the Quill decision as their primary defense against collecting sales taxes, but they also argue that collecting tax in the District of Columbia and the 45 states where a sales tax exists would be extremely complex and expensive.

"There are over 8,000 taxing jurisdictions in the United States," said Jonathan Johnson, president of Overstock.com, which has offices only in Utah. "We think it's wrong that states are trying to cause out-of-state retailers to be their tax collectors."

Paul Bachman talks up BHI's recent study on education spending on Patriot Games Radio

Director of Research, Paul Bachman discusses BHI's recent study on education spending and student performance with D.R. Tucker and Stephanie Davis of Patriot Games Radio.

Listen to internet radio with Patriot Games Radio on Blog Talk Radio

Has the optimal gas tax been identified?

Mass High Tech's Kyle Alspach

In 2007, a study in the Journal of Economic Literature found that the ideal average gas tax for the U.S. would be $2.10 a gallonhttp://www.blogger.com/img/blank.gif. At the time, the average tax was 40 cents a gallon — 18.4 cents for federal and 22 cents for state (it’s currently 23.5 cents in Massachusetts).

The $2.10 figure takes into account greenhouse gas emissions, local pollution and oil dependency, along with the costs of congestion and accidents.

To make the tax palatable, economists say the government could cut taxes in other areas — say, the income tax for consumers or corporate taxes for businesses.

The tax trade-off seems like a reasonable idea but revenue-hungry politicians would never take up the offer.

In the rush to move toward a Pigouvian tax model, supporters of higher taxes tend to forget that such excise taxes are regressive. More than they did in the past, low-income workers rely more heavily on jobs in the suburbs and most use cars to get there.

BHI releases study on education spending in Massachusetts

The Commonwealth of Massachusetts could cut more than a billion dollars from education spending without measurably affecting the performance of public schools. This is a finding of a study released today by the Beacon Hill Institute and entitled, Why Massachusetts Should Spend Less on Education. Read more.

Complete study is available at beaconhill.org.

Video: David Tuerck testifies on H.R. 735

Testimony from BHI Executive Director David G. Tuerck begins at approximately 22:00 into this recording.

Text of BHI testimony in PDF is here.

Beacon Hill Institute testifies before U.S. Congress

Full testimony is available at BHI's website

David G. Tuerck
Department of Economics and Beacon Hill Institute
Suffolk University, Boston
June 3, 2011

Testimony Relating to the Government Neutrality in Contracting Act (H.R. 735) Before the Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Reform, Committee on Oversight and Government Reform, U.S. House of Representatives


Chairman Lankford, Members of the Subcommittee, I am Professor and Chairman of Economics and Executive Director of the Beacon Hill Institute at Suffolk University in Boston. I appreciate the opportunity to submit this testimony.

I will direct my comments at “H.R.735, and Project Labor Agreements: Restoring Neutrality to Government Construction Projects.” H.R. 735 effectively nullifies a February 2009 executive order from the Obama Administration “encouraging” federal agencies to consider using PLAs on construction projects costing $25 million or more.

My comments are my own and do not represent the sentiments my employer, Suffolk University. Nor do they represent my support for any organization or private interest that might stand to benefit from the passage of H.R. 735.

I would like to offer my strong support of this measure, subject to just one caveat. The caveat is that “neutrality” falls short of what is called for. What would be better is an outright ban on PLAs of the kind that was in force during the Administration of President George W. Bush, who forbade the use of PLAs on federal construction projects.

This subcommittee already knows how PLAs work. The adoption of a PLA amounts, in effect, to the conferral of monopoly power over the supply of construction labor on a select group of construction unions. The putative reason for adopting a PLA is to assure labor “stability.” But the real reason is to confer monopoly power on a select group of unions and to discourage bids from contractors who use other unions or nonunion labor.

The construction unions use the word “stability” as a euphemism for promising not to cause trouble. But the threat of trouble is mostly an empty one. A genuine worry arises only when an owner uses nonunion labor, in retaliation for which it has to put with antics of the kind for which Boston’s International Brotherhood of Electrical Workers is famous. But Boston building owners are on to the IBEW and are showing increasing willingness to say no to intimidation.

In my written testimony I provide the core argument against PLAs: PLAs are supposed to correct for a problem for which the best correction is simply not to adopt a PLA. The problem is that certain contractors – the PLA-union contractors – are so burdened with collective bargaining agreements that they would have a hard time performing a job on time and on budget, but for the PLA. The adoption of a PLA, however, amounts to a needless rescue operation for the PLA unions and their contractors. The best way to avoid cost overruns and delays is to encourage, not discourage, bids from contractors, whether unionized or not, who are able simply to bypass the collective bargaining agreements that hobble the competitiveness of the PLA-union workers and their contractors.

That’s the crux of it. A ban on PLAs is not an anti-labor measure. I am personally involved in a New York case in which the plaintiff contractor is suing because its union has been excluded from PLAs that are being foisted on the City of New York by a different union organization and a complicit mayor. And, anyway, there is nothing pro-labor about a practice that is aimed at protecting the jobs and wages of 13% of the construction workforce at the expense of the other 87%.

The research entity I direct at Suffolk found that PLAs increase school construction costs in two states by 12% to 18%. Reliable hard estimates of this kind are rare because the disparity between construction projects makes it difficult to get statistically significant results from sample data. Fortunately for policy makers grappling with this question, however, it is possible to dispel the case for PLAs merely by pointing out the fatuous reasoning on which that case is predicated.

Adopting a PLA serves no purpose other than to put the PLA-union fox in charge of the project chicken coop. Fortunately, and as I observe in my written testimony, there is growing recognition even on the part of union-friendly observers that the argument for PLAs, and to mix my metaphors, never held water in the first place.

Kevin Williamson explains socialism's appeal

NABE revises GDP estimates downward

Economy will grow more slowly than expected.

NEW YORK Economists are dialing back their expectations for U.S. economic growth this year.

A survey from the National Association for Business Economics predicts GDP will grow 2.8 percent this year - down from the group's February prediction that it would grow 3.3 percent. Their outlook for consumer spending and the housing market also weakened, in part because they expect oil prices to remain above $100 a barrel through 2012.

In a survey that the NABE releases Monday, a panel of 41 economists also said they "remain highly concerned" about the growing federal deficit, and said that growth in the first three months of the year had been weaker than expected.

The predictions of the economists reflect the jitteriness of a public that is still recovering from the financial crisis and now getting squeezed by rising prices for gas, groceries and other household items. Retailers of all stripes are paying more for the raw materials they need to make and transport their products, such as fuel, cotton and wood pulp, and saying they have no choice but to pass along the price increases to customers.

Read more: http://www.charlotteobserver.com/2011/05/16/2300372/economists-lower-growth-higher.html#ixzz1MY5t0GHH

State tax collections surge

DOR: "Total tax collections of $16.860 billion are up $1.927 billion or 12.9 percent, $732 million over benchmark" for April.

It's all about the entitlements

Jeffrey Miron explains the very big elephant in the room.

"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.