Tax cuts as self financing

["Stephen Cooke" <scooke@uidaho.edu>]

Dear Visionaries,
	An argument was made in 1996, during the debate on the 1% Initiative that a
property tax rate cut in Idaho would be self-financing, i.e. lower property
tax rates would lead to more economic activity and more sales and income tax
revenues - enough in fact to offset the initial tax cut. This is similar to
the Laffer curve argument made at the national level. I recently finish a
study of this argument that will be published in May that suggests that this
claim is not true. The reduction in property tax rates from the 1996 1%
Initiative would have raise other state tax revenues enough to offset a
third of the property tax revenue reduction under the most optimistic
scenario. The abstract and citation are given below.
My guess is that a similar offset will take place with the current state
personal and corporate income tax rate reductions.
Steve Cooke
ABSTRACT
In 1996, Idaho voters rejected a property tax limitation initiative. Before
the election, proponents claimed the decrease in revenues would be offset
from the increase in economic activity. We developed a computable general
equilibrium model based on tradable and non-tradable sectors to hypothesize
the impact on Idaho's public finances, household income, and economic growth
with and without the Initiative's tax policy. The model predicts that each
$3 reduction in property tax revenues would result in a $2 loss in state and
local revenues overall. The benefits are predicted to be $35 per low-income
household and $738 per high-income households.
http://www.its.uidaho.edu/scooke/research.htm