Thursday, April 13, 2006


Garbage In, Garbage Out

With April 15 almost upon us, its that time of year for the release of outrageous claims and bad data by anti-tax groups. The number one offender is typically the Tax Foundation. As is often the case, their data is typically flawed and often revised after the fact.

According to my colleague David Ellis, The Tax Foundation's rankings are not viewed seriously by most public finance professionals for several important reasons:

First, the rankings reflect estimates rather than actual tax collections. There is no way to know taxes and income for this year at this time. That’s why the Tax Foundation is commonly forced to revise the rankings once actual taxes have been paid. For instance, in the 2005 data, 2002 rankings for 25 states were changed by at least 5 places. And, thirteen states rankings were changed more than 10 places.

Second, the Tax Foundation assigns taxes actually paid in other states to Ohio. For example, when Alaska collects taxes from oil companies based on the amount of oil they produce in the state, the Tax Foundation does not count those taxes as part of Alaska’s revenue. Rather, they add those taxes to the tax burden in the states where oil is consumed.

Third, about two-thirds of the tax burdens in the Tax Foundation calculations are federal tax burdens. The amount of federal taxes paid by the residents of Ohio thus has a large impact on that state’s “Tax Freedom Day.”

Fourth, their lack of transparency is a red flag of shoddy research. Analysts across the country have attempted to replicate the Tax Foundation's work, but were unable to because they do not fully and clearly present their data and methodology.

The most commonly used data to assess state and local tax burdens is still the information carefully collected and assembled by the US Census Bureau and Bureau of Economic Analysis. The most recent data published indicates that Ohio's combined state and local tax burden ranks 9th when controlling for personal income, and 21st when controlling for population. Ohio state only ranks 28th when controlling for personal income and 27th when controlling for population.

If you want to learn more about how the Tax Foundation's methods don't add up, you can read

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