Sunday, March 16, 2008

Remedial economics

In a story on Bobby Jindal's amazing legislative success in Louisiana, the New Orleans Times-Picayune includes this paragraph:
Lawmakers passed bills to eliminate a 1 percent sales tax that businesses pay on utilities, an estimated annual savings to Louisiana companies -- as well as a loss of state revenue -- of $69 million.
(Via Memeorandum.) That little bit about an alleged "loss of state revenue" demonstrates the fundamental ignorance about economics that plagues American journalism.

While, indeed, the state will lose the $69 million from the utility surcharge, $69 million is a drop in the bucket of a $12 billion state budget. And what counts is not what the state collects from this or that category of tax; what counts is the total revenue.

Clearly what Jindal and his supporters have in mind is that this 1 percent surcharge on businesses' utility bills is a punitive anti-business measure, a small but significant disincentive to commerce and industry. By repealing the surcharge, Louisiana will encourage investment and expansion.

More business means more jobs, and the economic growth that results from the tax cuts will ultimately mean more revenue (not less) for the state.

The pro-growth economic agenda being pursued by Jindal's administration is clearly the best for Louisiana's long-term interests. It is safe to predict that by the time Jindal is up for re-election, state revenues in Louisiana will be at all-time record highs.

UPDATE: Linked by Jimmie at Sundries Shack, who touches on one of my pet peeves: Reporters who, when discussing proposed tax cuts, speak of "costs" to the government. If there is indeed such a "cost," then please show me the year-to-year numbers where a tax cut has decreased the government's revenue. This scenario simply never happens, in part because of the "Laffer Curve" to which Jimmie refers.

If some spokesman wants to claim that a tax cut will produce a "cost" (e.g., a decrease in total tax revenue), then the reporter should quote that spokesman. But the reporter who states such a "cost" as a fact (outside quotes) is practicing clairvoyance, not journalism.

Reporters should always beware of predicting the future, and since the "cost" of a tax cut is always a matter of conjecture -- the ulimate revenue numbers cannot be exactly predicted -- it should never be stated as a fact. Find some official source to whom these claims can be attributed, and always make clear that these are revenue "projections" or "estimates."

I should get paid to teach this stuff . . .

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