Tuesday, January 20, 2004

Employing a conventional, yet rigorous, statistical estimating procedure, we found that by 2006 the Governor's plan would cost the Virginia economy $10 billion annually in personal income - about 3.3 percent. We also found that his plan would cost Virginia some 28,000 jobs - slightly less than 1 percent. To put this in perspective, the impact would reduce the Warner administration's forecast of 90,000 new jobs in 2006 to 62,000. Senator Chichester's plan would cost Virginia's economy more than twice as much - $24 billion (approximately 8 percent) and some 68,000 jobs (just under 2 percent). Our analyses also revealed that across broad categories of income, the expected indirect costs to households more than offsets any savings on taxes. Obviously, the Governor's claim that 65 percent of Virginians would pay lower taxes is highly misleading.

The Governor's supporters, Senator Chichester, and others have criticized our work because it doesn't consider the positive effects of new spending. However, reports by Robert Reichauer, former director of the Congressional Budget Office when both Houses were held by the Democrats; by Douglas Holtz-Eakin, the current director of that office; by Alicia Munnell, a member of the Council of Economic Advisers under President Clinton; and others find that as a general proposition it is simply not possible to conclude that new spending by the public sector is more productive than the spending in the private sector it displaces. This is not to say that critically directed spending might not be beneficial to the state's economy. But given the research results thus far, it's up to the Governor and the Senator to make a compelling case.

posted by Shaun Kenney | 1/20/2004 05:17:00 PM | 0 comments

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