Stop using acronyms!

How do you feel when you are reading a story you find very interesting, only to hit a snag? It’s a word you don’t know. No, it’s not a new word. It’s a jumble of letters that certainly means something to someone, but not to you. You only know one thing about this jumble of letters: they stand for a phrase that would mean a lot more if it was just written in full.

Yes, you have come across an acronym: the scourge of comprehensible writing everywhere. In a place where an author could have given you a phrase, instead she gave you a vocabulary exercise.

Some technical writing takes the acronym to the extreme. I have seen government or think tank reports that include an entire glossary at the beginning that can be referenced by readers who are not fluent in their particular dialect of Bureaucratese. The author then wipes her hands and continues to write with any range of esoteric acronyms, knowing that the reader can “simply” scroll to the top of the document and locate the abbreviation she doesn’t understand before scrolling back down to the portion of the text she is reading.

The best practice of acronymizing within a report is to write out the full word when using it for the first time, then adding a parenthetical that includes the acronym you intend to use throughout the rest of the document. Theoretically, this allows the reader to internalize the acronym and then recognize that usage throughout the rest of the report.

There are two problems with this approach.

First, if you have to include a parenthetical to explain what an acronym refers to, you are effectively introducing a reader to jargon. If a reader does not fully process the acronym the first time, she will find herself confused as she continues to read and will either have to turn back to locate the first use of the acronym to see what it is referring to or will plow through reading, hoping the acronym isn’t important. If multiple acronyms are used, this gets even worse.

Second, if a reader only reads part of a report, book, or essay, she will not have the context of the first use of the acronym. This is likely to happen in lots of technical writing. If someone is consuming a study, report, or any other type of nonfiction, she often does not have the time to read every word of it and is best served by picking out the parts of it that are most useful to her. If she skimmed over the first establishment of an acronym, later uses of it will just lead to more confusion.

But we do like acronyms. Some of them have infiltrated our language to the point that they have become words in their own right. Some acronyms are commonly used or actually are more clear than the full phrase. For instance, wouldn’t you rather read “DNA” than “deoxyribonucleic acid?”

So what is a writer to do? At Scioto Analysis, we conduct technical writing for a general audience and we write in a field, public policy, that looooves acronyms. So how do we handle these stumbling blocks of clear writing? Below are some tips for guidance for using acronyms in a way that is productive and facilitates the primary goal of writing: clear communication.

1. Know your audience

The very most important consideration when using an acronym is audience. If you are writing primarily for an audience that is very familiar with how the tax code impacts people in poverty, you might be good to use the phrase “EITC” in place of “earned income tax credit.” If you think a minority of writers might not be familiar with the phrase, it is probably better to spell it out.

Remember that writing is not the same exercise as speaking. Sure, you may say “EITC” exclusively when you are referring to the earned income tax credit, which is okay when people you are speaking to can clarify the meaning of the term. When writing, the reader cannot ask for that type of clarification from you. So unless you want that reader to do extra work to understand the meaning of what you are writing, spelling out the phrase will make it more clear than using an acronym.

2. Understand the acronym

Another important consideration is which specific acronym you want to use. An acronym like “CDC” or “EPA” are commonly used in public policy and many people outside of the public policy world understand what they mean. Using them is probably less frustrating for a reader than an acronym like the “OECA,” which stands for the Office of Enforcement and Compliance Assurance, or even worse, the “AOC” when it stands for “Architect of the Capitol,” a federal agency in charge of stewarding public landmarks on Capitol Hill.

Probably the worst offense of all is coining your own acronym. Forcing a reader to learn new vocabulary that did not exist until they read your paper is a capital offense for an analyst who is trying to make concepts more understandable for the readers, not less. 

3. Avoid the acronym whenever possible

It is okay to repeat phrases. I repeat: it is okay to repeat phrases. If you say “Department of Transportation" throughout your report instead of “DOT,” even many people who are employed by the Department are not likely to be offended by hearing its name. Most people will not think twice hearing a phrase that is important to your report, analysis, or research over and over again: that is what they expect when they read something on that topic. What people will be offended by is if they have to read a phrase that they do not understand and flip (or more commonly “scroll”) from page to page to figure out what you are talking about.

People in government love to hate acronyms. People outside of government love to hate acronyms in government. Give these people one less thing to hate. Stop using acronyms.

What would “mass deportations” do to Ohio’s economy?

The dust has settled on the 2024 presidential election and we now know that Donald Trump will once again be President of the United States.

Trump has promised many things for his second term in office: deregulation, tax cuts, an end to Russia’s war with Ukraine, tariffs on all goods from other countries. The step he could take that could have the most immediate impact on both human rights and Ohio’s economy, however, would be on immigration.

Trump has promised to conduct mass deportations of unauthorized migrants, rounding up immigrants in workplaces, schools, homes, and places of worship to send them back to their countries of origin. Local law enforcement will be a key player in determining how “mass deportations” will be carried out in the state of Ohio. 

Municipal police departments, county sheriffs offices, and the state highway patrol will have to decide how much to defer their work from policing violent crimes and property crimes to carry out federal immigration policy. What decisions local law enforcement make around prioritization could have a significant impact on Ohio’s economy.

Earlier this week, Ohio Capital Journal Reporter Marty Schladen wrote about the important role immigrants play in Ohio’s economy. Immigrants in Ohio are taxpayers, consumers, business owners, doctors, software developers, professors, cooks, health care workers, and college students.

An analysis done by researchers at the American Enterprise Institute, Brookings Institution, and Niskanen Center released before the election shines some light on what the new administration’s immigration policy could do to immigration. Trump’s immigration plan is estimated to reduce both authorized and unauthorized immigration, increase removals from the interior, increase adjudication of current cases leading to more removals, and encourage others to leave on their own. 

These researchers estimate this would mean as many as 740,000 fewer immigrants in the United States in the first year of Trump’s presidency. Weighted for Ohio’s foreign-born population as reported in the American Community Survey, that could mean as many as 9,700 fewer immigrants in Ohio in about a year. 

The AEI/Brookings/Niskanen study reports this massive reduction in the number of immigrants in the United States would cost the country 0.1 to 0.4 percentage points in GDP in 2025. In Ohio, weighted for Ohio’s foreign-born population, that would mean somewhere between $330 million and $1.3 billion in lost gross state product. 

For comparison, the Ohio Department of Development estimates 21 counties in Ohio have a gross domestic product of $1.3 billion or less. So if these policies are carried out as planned, Ohio could lose a small county’s worth of its economy in fewer consumers, business owners, and workers. On a per capita basis, this means a cost of $28 to $110 per person in the state. So you can consider this a head tax of $28 to $110 per person to pay for having fewer immigrants living in this state.

Just because something shrinks the economy doesn’t mean it is bad. We might decide it appropriate to institute policies that trade off economic growth for reductions in poverty and inequality, improvements in environmental quality, or more time for people to spend with their children or elderly parents. But what exactly are we buying for this immigration crackdown? After all the national conversation on this topic, I still don’t have an answer to this question.

This commentary first appeared in the Ohio Capital Journal.

Columbus Foundation releases 2024 Benchmarking Central Ohio report

Yesterday, The Columbus Foundation released a new community research report, Benchmarking Central Ohio 2024. Commissioned by The Columbus Foundation and developed in partnership with the Columbus-based firm Scioto Analysis, this year’s report examines five key areas: population vitality, economic strength, personal prosperity, lifelong learning, and community well-being. Within these five key areas are dozens of indicators, ranging from housing affordability and small business ownership to pre-K enrollment and air quality. The 2024 report is the latest in a series of community benchmarking reports commissioned by The Columbus Foundation, starting in 2007.

 “This report, now in its eighth edition, shows our commitment to providing information about and for our community. It is essential to regularly examine the region’s health, economic competitiveness, and quality of life so that we as a community can respond to pressing challenges and emerging opportunities,” said Doug Kridler, President and CEO of The Columbus Foundation.

Similar to an annual physical—during which a physician examines a patient’s overall health by gathering health information and monitoring changes over time—the Benchmarking Central Ohio reports track and assess how the Columbus region is doing across indicators over time and how the region compares to other metropolitan areas in the United States. The 2024 study compares the Columbus metropolitan region to 22 other metropolitan areas, including peer communities of similar size and geography and high-performing communities.

The Columbus Foundation has long invested in community research to help enhance community knowledge across a range of important issues, such as mental healthcare, digital equity and inclusion, youth services, aging populations, and homelessness. This research serves to educate the community, inform regional priorities, identify local assets and pain points, and help local nonprofits determine where to focus their programming.

“Research is an extremely valuable resource that, when used strategically, can help us better understand our community’s strengths, weaknesses, inequities, and possibilities,” said Matt Martin, Director of Community Research at The Columbus Foundation. “By creating a shared understanding of our community’s challenges and opportunities, research can help galvanize impactful actions, policies, and investments that ultimately improve people’s lives.”

The Benchmarking Central Ohio 2024 report shows that the Columbus metropolitan region ranks towards the top across several indicators, including preschool enrollment, women in corporate leadership, and rates of volunteerism and library usage. However, the report also raises areas of concern, such as high poverty rates and public health challenges like infant mortality and overdose deaths. Viewed holistically, the data in the report reveal a multifaceted landscape of the community’s strengths, challenges, and potential.

“The power that comes from having all of this data compiled in one place goes beyond seeing how Columbus performs on individual metrics,” said Rob Moore, the study’s principal author. “The most valuable insights come from how these metrics interact with each other. For example, how can we leverage Columbus’ strong workforce and relatively low cost of living to address its challenges with poverty and health?”

What are marriage bonuses and penalties?

In July of 2023, my cousin got married. This was an exciting time for my family because she was the first of our generation to get married. But she didn’t legally get married in July–that’s just when she had the ceremony. As far as the state of Missouri is concerned, she had been legally married since April.

You may have been able to guess this based on when she chose to get married, but my cousin and her husband wanted to file their taxes jointly in 2023. She was just finishing up her time in med school, so they were living almost exclusively off of her husband’s salary at the time. This meant that by filing jointly, they ended up paying less income tax.

This phenomenon is often referred to as the marriage bonus, and it comes from the fact that in the eyes of the government, marriage is an important financial contract. Because married couples share all of their resources, they get to add their income together when filing taxes and are treated as a single unit. A married couple where both partners earn $50,000 a year would pay the same amount of taxes as one where a single earner makes $100,000 a year. 

The main reason this can lead to such a big decrease in taxable income is because we have progressive income tax brackets. Married couples essentially double the size of those income brackets and end up paying less as a result.

On the other hand, some couples can incur a marriage penalty if combining their incomes makes them ineligible for certain tax credits. Take the Earned Income Tax Credit for example. Below is a table from the IRS showing the income eligibility thresholds:

Under the wrong circumstances, married couples can lose thousands of dollars in tax credits by filing their taxes together. As the number of children increases, the threshold for joint filers to receive the Earned Income Tax Credit becomes relatively closer to the threshold for single filers. This means that families with more children face even more severe marriage penalties than those with fewer children. 

Some couples can also see marriage penalties if both partners are high earners and have similar incomes. The 2017 Tax Cuts and Jobs Act lessened this penalty for middle- and high-income families, though in some cases they could lower their tax liability by filing separately. 

A 2018 analysis from the Tax Policy Center found that 43% of married couples receive a marriage bonus, and 43% of married couples receive a marriage penalty. The average bonus was $3,062 compared to if those couples filed separately, and the average penalty was $2,064.

Last year at the Association for Public Policy Analysis and Management annual conference, I listened to a roundtable discussion about tax policy. In one of the opening remarks, a presenter talked about how tax policy is often viewed as an accounting problem, with little attention paid to how it shapes the way we live.

Marriage bonuses and penalties reward couples that are able to live off the salary of one individual. This implicitly punishes couples who rely on two incomes to get by. While this is technically an avoidable problem (couples could file their taxes separately), it’s extremely difficult to know whether or not that would actually lead to savings for some people. It definitely will lead to more work and confusion that comes with filing taxes in the first place. 

This quirk of the tax code is another example of how interconnected all aspects of public policy really are. A seemingly innocuous decision like allowing married couples to file their taxes together can reward people for tying the knot–or punish them for it.

Are state politics dead in Ohio?

In 2018, I conducted an analysis of state House races. In this analysis, I found that Hillary Clinton’s 2016 election results explained 90 percent of the variation in state House races and 98 percent of the variation in state Senate races.

This week, we got new evidence about why local elections might be dead in Ohio. In 2022, Republican lawmakers voted to make state Supreme Court races partisan. While Democrats have won state Supreme Court seats in nonpartisan elections, the three candidates this year with “R” next to their name won with 55.7 percent, 55.2 percent, and 55.1 percent of the vote, nearly identical to Donald Trump’s 55.2% of the statewide vote.

Sherrod Brown, who had won his first election to Senate against then-Senator Mike DeWine by 12 percentage points in 2006, reelection in 2012 by six percentage points, and a third time in 2018 by about seven points, finally lost to Trump-backed challenger Bernie Moreno by about four points. Moreno ran about five points behind Trump, but the “R” next to his name was certainly crucial.

The function of a federal system is to offer different services at different levels of government. At the federal level, national defense and basic human rights are ensured. At the state level, provision of health care and education are provided. At the local level, public safety and infrastructure is provisioned. Voters are given power to elect people at different levels of government who will ensure they get the services they need at each level of government.

This approach breaks down if state and local government is just seen as an extension of national politics. The past two speakers of the Ohio House of Representatives have left office after investigations by the FBI for corruption. One is now serving a 20-year prison sentence after being convicted in the largest racketeering case in Ohio history. What has that cost the party in power? Zero statewide offices and maybe a few state legislative offices that would have changed hands due to redistricting anyway. They still hold a supermajority in both houses. But the nationalization of politics has made the “R” next to their names more important than the actions of their members.

When I lived in Nebraska a decade ago, I saw a state government that had strong institutions built on nonpartisan elections. State legislators were elected without party affiliations on the ballot. There was no party caucusing in the capitol building: the speaker and all committee chairs were elected by a secret ballot. Even though only 17 registered Democrats were in a House of 49 members, nine of them held committee chairs the first year I was there. This was because people were elected on the merits of their trust from other members, not their partisan affiliation.

I don’t know what the cure is for Ohio’s state politics becoming subsumed by national politics. But I do think that politicians making all elections more partisan is not helping. Ballot boards, redistricting commissions, courts: what do any of these roles have to do with partisan politics? The answer is nothing. Nothing, that is, except trying to fool and manipulate the public into believing that state government doesn’t matter.

This commentary first appeared in the Ohio Capital Journal.

What are tariffs?

Early Wednesday morning, major news networks reported that Donald Trump would win the 2024 presidential election. Now that the dust has settled, we can start to envision how the next four years might unfold.

Scioto Analysis usually focuses on state and local policy decisions. However, one significant national topic that will have an impact on pocketbooks across the country is President-Elect Trump’s proposal to raise tariffs.

Trump has called “tariff” the “most beautiful word in the dictionary,” while Vice President Harris has referred to his plan as the “Trump sales tax.” This discrepancy makes it easy to understand why many people are unclear about what this potential policy might mean.

A tariff is a tax on imported goods. Much of the debate in the media has focused on who ultimately pays this tax—whether it’s foreign nations or domestic importers (technically, importers pay the U.S. government). However, who writes the check is less important than who bears the actual increased cost.

In economics, we look at the tax burden to understand who ends up paying a tax. Even if importers pay the government directly, they can often raise prices to offset their costs. Fundamentally, a tax on producers and a tax on consumers are identical. 

The actual cost to either party is based on how willing and able they are to substitute their spending into other categories. Classical economic theory tells us that the degree to which a tax is passed to consumers depends on the elasticity of supply and demand. The elasticity of a good tells us how much supply and demand respond to changes in prices. Essentially, whichever side is less dependent on the taxed good or service bears less of the burden of the tax.

Consider President George H.W. Bush’s ill-fated yacht tax in the early 1990s. This tax on luxury yachts aimed to raise revenue from wealthy Americans. However, yacht buyers—who don’t “need” yachts—easily redirected their spending to other luxury items when prices rose. Yacht producers, however, had a harder time pivoting, so the tax burden fell heavily on luxury shipbuilders instead.

When evaluating new tariffs, we shouldn’t focus solely on who sends money to the Department of Treasury but rather on which goods are taxed. Ultimately, American consumers are likely to face higher prices on items that rely on foreign imports. But this doesn’t mean tariffs are always a poor policy choice.

Since tariffs increase the price of imported goods, they can make domestically-produced goods relatively cheaper, potentially boosting domestic industries and creating jobs locally. If producing something domestically has positive side effects (like reducing pollution or increasing wages), a tariff might be sound policy. These benefits could be offset, though, by lower spending domestically due to higher prices caused by tariffs.

A tariff is just another type of tax. Taxes generally create distortions for the economy, but they raise revenue that can fund important public services. If, for instance, tariff revenue were used to fund an expanded Child Tax Credit, the benefits might outweigh the added costs.

At this point, all we know is that President-Elect Trump intends to raise tariffs. Exactly what these tariffs will look like and how the revenue will be used will be crucial in determining their real impact on the American people.

What will the election really mean for inflation?

When voters cast their ballots for president next week, they will make a decision that will have a substantial impact on Ohio’s economy. According to the Pew Research Center, “the economy” is the top issue for voters this election, with 81% of registered voters saying it is very important to their vote in the presidential election this year. So let’s see what the implications of this election will be for the top economic issue for voters: inflation.

According to a late summer survey by the Pew Research Center, 74% of U.S. adults are very concerned about the price of food and consumer goods. The return of high levels of inflation for the first time in generations over the past few years has certainly had an impact on the public.

Vice President Harris has tried to blame rising prices on “price gouging” and corporate greed while Trump has focused on energy.

Harris’s proposals around a national ban on price gouging have caught skepticism from economists. A panel of preeminent economists recently rejected the assertion that price gouging was driving grocery prices.

The same panel also agreed tariffs, one of Donald Trump’s favorite policies, would increase consumer prices. The Peterson Institute for International Economics estimates Trump’s more aggressive tariff proposals would cost the average American household over $2,600 a year. Trump calls “tariff” “the most beautiful word in the dictionary. More beautiful than love, more beautiful than respect.” Your wallet disagrees.

Maybe the most important thing from the next president is what the chief executive will not do. Despite the rise in inflation to over 9% in the summer of 2022, action by the Federal Reserve pushed inflation down to 3% by the summer of 2023 and as of September of this year, it has dropped to 2.4%, its lowest rate in over three years.

Yes, tariffs will put upward pressure on inflation. But the difference between the presidential campaigns’ approach to the Federal Reserve might be even more important to the trajectory of prices. While Vice President Harris has made clear she supports continuing the tradition of independence of the Federal Reserve, Trump has repeatedly said he would want to exert power on the Federal Reserve as president.

While Trump was unable to use his political power to substantially threaten the political independence of the Federal Reserve in his first term, he was able to erode the political independence of and public confidence in a more central American institution: the U.S. Supreme Court. The Supreme Court bottomed out in 2022 at its lowest approval rating in generations partly because of its overtly political rulings, including rulings to shield the President from the reach of the law.

Turkey gives us a great example of what happens when politicians control monetary policy. President Recep Tayyip Erdogan has argued that low interest rates decrease inflation and put his hands on the levers of their national economy. This led to Turkish inflation reaching 85% in 2022, nearly 10 times as high as the U.S.’s generational peak that year. Inflation has only started to cool as Erdogan has taken his hands off the levers and allowed its central banks to increase interest rates.

If the U.S. has to contend with the twin problems of tariffs and loss of Federal Reserve independence, prices will increase again and could get worse than they were in 2022. Maybe it needs to get this bad for America to learn the dangers of authoritarian economic control. But while we learn that lesson, food will be harder to put on the table, rent will be more difficult to pay, and prices at the pump will increase. And state and local governments will be scrambling trying to figure out how to clean up the mess the federal government made.

How do basic income programs impact employment?

In recent years, many communities across the world have begun to test basic income programs, unconditional cash transfers to low income people. This type of assistance solves a problem that exists in other social safety net programs: in-kind transfers (such housing subsidies or food assistance) don’t offer much flexibility to the people that receive them.

A common criticism of basic income programs is that they might encourage people to exit the workforce. If people can get by without working, then what incentive do they have to keep working? This is just speculation right now, and there is some evidence to suggest that there aren’t negative labor market consequences to basic income programs. 

In a new working paper this month, there actually seems to be some evidence that at least one basic income has some positive impacts on the labor market. Researchers looked at a basic income program in Maricá, Brazil, a small city in Rio de Janeiro state. There, approximately 42,000 residents receive around $25 USD per month in the form of Mumbuca, a local currency. Recipients have the freedom to spend as they wish, and since Mumbuca is only accepted within the city, it ensures that the funds directly support the local economy.

The study found that Maricá’s basic income program positively impacted local employment rates. After the program's implementation, formal employment in Maricá was about 20% higher than in comparable municipalities without a similar program. The researchers offered three potential reasons why employment rates actually increased. 

1. Increased Local Consumption and Demand
   The unconditional income provided through the program strengthens the purchasing power of residents. With more reliable monthly income, recipients can spend more on goods and services locally. Since Mumbuca can only be used within Maricá, this spending stays local, boosting the revenues of city businesses. This increased demand requires businesses to expand, often by hiring more workers, which leads to job growth.

2. Reduced Financial Constraints for Job Seekers
   Basic income also reduces financial constraints for residents. With a steady income, they feel more secure financially, allowing them to engage in formal employment opportunities they might have avoided previously due to upfront costs like commuting or child care. Additionally, the program may encourage entrepreneurship, as recipients have the flexibility to use their funds to start small businesses. As these businesses grow, they add to the demand for labor, generating further employment opportunities.

3. Economic Spillover Effect of Local Currency
   The use of Mumbuca as a local currency amplifies the economic effects of the cash transfer. Since the currency cannot be used outside Maricá, it effectively locks the cash into the city’s economy. This restriction ensures that any funds spent by program recipients remain in Maricá, creating a higher local economic multiplier effect than if residents could spend outside the area. For businesses and employees, this local spending translates into stable, predictable demand, which further incentivizes hiring.

Maricá’s experience shows that basic income can potentially strengthen employment rather than hinder it, particularly in a tightly knit local economy. The boost to consumer spending and the spillover effects of the local currency help make the formal job market more vibrant and sustainable. While basic income programs are often viewed as a way to provide social safety nets, Maricá’s model suggests they may also stimulate local economic activity and job creation. 

The Maricá basic income program appears to have provided recipients with the flexibility to make different choices regarding their work. According to the study, labor income among recipients decreased by 17%, which researchers believe indicates that some participants may have transitioned to lower-paying but more personally fulfilling jobs. This trend suggests that the security provided by a basic income might enable individuals to pursue work that aligns better with their personal preferences or offers better work-life balance, especially important considerations during the pandemic.

This shift challenges the common assumption that basic income could reduce the incentive to work. Instead, it highlights how unconditional cash transfers can give individuals the freedom to choose jobs based on factors other than salary alone. This autonomy to pursue desirable work, even if it is lower-paying, underscores one of the potential benefits of basic income: it allows people to prioritize well-being and personal goals without the constant pressure to maximize earnings. For policymakers, this is a promising indication that basic income programs could contribute to a more adaptable, satisfied workforce.

We might worry that the unique nature of the basic income being paid in the form of a specific local currency might increase the potency of these positive effects, but this remains a positive sign for policymakers interested in exploring basic income programs for their own jurisdictions. Money gets multiplied as it moves through the economy. If well designed, basic income programs could make everyone better off. 

Ohio economists: “benefits cliff” creates barriers to career advancement

In a survey released this morning by Scioto Analysis, all 19 economists surveyed agreed that “benefits cliffs” caused by strict income requirements for public benefits create significant barriers to career advancement for low-income workers. The benefits cliff refers to the phenomenon where small increases in wage income can lead to large decreases in total income because people no longer qualify for benefits. For example, a low income worker might not want a raise or an increase in hours if those things would mean they no longer receive a valuable tax credit.

To address this problem, Ohio's Department of Job and Family Services announced earlier this month that they were introducing a new sliding scale for SNAP benefit levels in the state. ODJFS Director Matt Damschroder said "Fear of losing food benefits can be a deterrent to taking a new job, working more hours, or even accepting a promotion. Instead of an all-or-nothing approach, we are creating a sliding scale that encourages people to earn more by slowly reducing their benefits as  their income grows. This provides an incentive to accept promotions and pay raises knowing they won’t immediately lose benefits." 

When asked about this particular policy change, 13 economists agreed that the sliding scale will lower barriers to work for low-income people. The other six were either uncertain or had no opinion. As Curtis Reynolds from Kent State wrote “This should lower some barriers.  More importantly, however, it would likely help people retain some SNAP benefits.  Good research has shown that sharp work requirements lead some people to enter the labor market but cause a larger decrease in SNAP participation (see Harris, Timothy F. ‘Do SNAP Work Requirements Work?’)”

The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists. Individual responses to all surveys can be found here. 

How do you calculate the marginal excess burden of taxation?

Last week, I wrote about what the marginal excess burden of taxation is and why it’s important. The basics of that article are that usually, we don’t count transfers in cost-benefit analysis because what counts as a benefit to one person counts as an equal cost to another. The net cost to society comes from distortions the tax and transfer system makes to the economy: incentives or disincentives for work or consumption. This is because when the government has to raise taxes in order to initiate this transfer of dollars that creates a drag on the economy that we need to account for within a cost-benefit analysis.

Today, I want to talk about how we actually calculate the marginal excess burden of taxation. Below, I presenthat steps there are and what considerations need to be taken into account when estimating the marginal excess tax burden of a policy. 

Determine what indicators need to be included

In a cost-benefit analysis, it is not always obvious which indicators need to be viewed through the lens of marginal excess tax burden. In general, this should be anything that involves public dollars being spent, even in situations where a benefit or cost is not directly connected to a theoretical change in the tax code. This is because tax dollars ultimately are needed to finance these programs, and these taxes create distortions within markets.

This came up in a cost-benefit analysis we are currently working on. We are analyzing the impacts of a Universal Pre-K program in Ohio, and one of the benefits is the avoided spending on public schools as a result of fewer students having to repeat grades. 

Although this benefit is not directly associated with a change in marginal tax rates (this avoided spending could in theory just be redirected to some other public school program), because we are dealing with a reduced spending of tax dollars the benefit should be the loss of the theoretical drag on the economy. 

Choose a value for the marginal excess burden of taxation

Depending on what source you look at, the marginal excess burden of taxation could be as high as 75% or as low as 11%. Clearly, what value you choose can end up having a major impact on your final results. As James Hynes from the University of Michigan explains: 

“A major practical difficulty in measuring the excess burden of a single tax, or of a system of taxes, is that excess burden is a function of interactions that are potentially very difficult to measure. For example, a tax on labor income is expected to affect hours worked, but may also affect the accumulation of human capital, the intensity with which people work, the timing of retirement, and the extent to which compensation takes tax-favored (e.g., pensions, health insurance, and workplace amenities) in place of tax-disfavored (e.g., wage) form. In order to estimate the excess burden of a labor income tax, it is in principle necessary to estimate the effect of the tax on these and other decision margins.”

And that is just for the marginal excess burden of income tax. We know that there are different rates of excess tax burden for different types of taxes as well. 

If you know how a potential policy is going to be funded, then you should try and use an estimate for the marginal tax burden associated with the type of tax you expect to be levied. If it is unclear, then finding a median estimate is likely the best way to proceed. 

Multiply

The easiest step by far when determining the marginal excess burden of taxation is calculating it. If a program is going to cost $100 and you have determined that your marginal excess tax burden is 50%, then the social cost of your program is $50. 

Understanding and calculating the marginal excess burden of taxation is crucial in evaluating the true economic impact of public spending. By carefully selecting the appropriate indicators and using reliable estimates for the excess burden, we can more accurately assess the broader social costs of government programs.