How To Diversify a State Economy

As with many states and regions, Wyoming is looking for ways to strengthen its economy through diversification of industry. Gov. Matt Mead launched an initiative called ENDOW, which stands for “Economically Needed Diversity Options for Wyoming”.

At a meeting of the ENDOW Executive Council in May, two REMI staff members based in Washington D.C. – Chris Brown, Manager of Business Development, and John Bennett, Senior Economic Associate – joined Alex Kean, Principal Economist at the Wyoming Department of Administration and Information, in presenting socioeconomic analysis to help guide council members.

Check out a video of the presentation, courtesy of the Wyoming Business Council and ENDOW:

Evaluating Energy-Efficiency Tax Incentive

REMI evaluated the economic impacts of extending and enhancing a federal tax incentive to encourage energy efficiency in commercial buildings.

We estimated the effects on jobs, personal income, and gross domestic product from changes to the Section 179D deduction. The American Institute of Architects, which co-funded the study, announced the results this week.

Please feel free to check out the full study by clicking here.

Evaluating the Impact of Local Development

When state and local policy makers want to know the impact of economic development, they can find answers through dynamic economic modeling. Through simulations, analysts can simulate the effects of a proposed development over time.

W.E. Upjohn Institute for Employment Research prepared a study using the REMI model to evaluate the potential impact of commercial development in downtown Kalamazoo, MI. A private firm is planning to redevelop a building into a franchised hotel and adjacent buildings into retail, residential, and office spaces.

You can check out the full report by clicking here.

States Take Lead in Health Care

With the Affordable Care Act likely to remain largely intact for the foreseeable future, state policy makers are reconsidering their options under former President Obama’s signature law.Among the issues policy makers are revisiting is the question of whether or not to expand Medicaid. Under the ACA, states can extend health care insurance through an expansion of Medicaid, with the federal government covering most of the cost. The federal contribution currently covers 95 percent of the additional cost. However, the federal share will phase down to 90 percent by 2020.

Most states adopted Medicaid expansion, but 19 states opted to forego the federal funding. Now, several of those 19 states are revisiting their decision.

Among the states considering change is Oklahoma, which originally chose not to expand Medicaid in 2012. This year, REMI collaborated with George Washington University to analyze the economic effects of Oklahoma accepting federal funds for a new private insurance plan, and to prepare a report for the State Chamber of Oklahoma Research Foundation.

We presented the research via webinar, which you can access by clicking here.

Since House Republicans have been unable to agree on a replacement for the current law, state officials may decide it’s worth it to accept the funds and extend health insurance to more low-income residents. Critics argue the long-term prospects for ACA remain uncertain, and accepting the expansion now could in the long run impose fiscal burdens on states.

How many states will end up expanding Medicaid remains to be seen, but policy makers and advocates in several states have shown an interest.

Kansas’ legislature approved Medicaid expansion, though it failed to override Gov. Sam Brownback’s veto of the measure. A group of Republican state lawmakers in North Carolina also want to expand Medicaid. In Maine, supporters of expansion have collected enough signatures for a ballot initiative asking voters to approve the plan.

Clear analysis can help policy makers choose a course of action.

At REMI, we have analyzed the potential economic impacts of expanded Medicaid, looking at implications for revenue, employment and output. Prior to the Oklahoma study, we have prepared reports in North Carolina, Kansas, and Iowa.

We contributed to a study that influenced the debate in Ohio, a report that was described as a “major watershed moment” in a New York Times article. Gov. John Kasich successfully fought for expansion in the Buckeye State.

With the future of federal health care policy uncertain, states are in the driving seat. It’s a good time for clear objective analysis of their choices.

The Debate Over Border Adjustments

The border adjustment tax, or BAT, is part of a larger tax reform plan proposed by House Republicans. With Washington turning its focus to tax reform, we are likely to be talking more about BAT.

Tax policy changes are often controversial because they can produce “winners” and “losers”. If BAT is adopted, businesses would no longer be able to deduct imported goods as business expenses. At the same time, businesses would not have to pay taxes on the revenue they earn from goods sold overseas.

As a result, the border adjustment would reduce the cost of exporting, while increasing the cost of importing. Companies that export – agriculture, tech, and manufacturing – stand to benefit, while sectors that rely on imports – from retailers to oil refiners – could be hurt by the change.

Major retailers – such as Walmart, Target, and Best Buy – have lined up against the change. The National Retail Federation aired an ad that parodies infomercials, with a pitch man telling viewers, “You need an everything tax like the BAT tax!”

On the other side, a pro-BAT group called American Made Coalition has launched its own ad campaign to promote the reform. The ad flashes text that reads: “Stop favoring foreign-made imports over American-made goods. Support tax reform and create 1.7 million new American jobs.”

The coalition, which is includes major corporations such as Boeing, Caterpillar, GE, and Pfizer, is pitching the proposal as a way to boost manufacturing, create jobs, and discourage companies from shifting operations overseas.

Ultimately, the effects of border adjustments depend on other components of tax reform, such the possibility of a lower corporate tax rate. The impact could also depend on the overall economy. If we’re at full employment, then then job gains in one sector must be offset by job losses elsewhere.

At the moment, however, some industries and regions may not be at full employment. While major cities and the coastal regions are at full employment, regions in the middle of the country have not fully recovered. Discouraged workers have dropped out of the workforce, and could be drawn back into the labor market with additional growth. Tax reform that benefits manufacturing could help boost employment, and reverse this “hysteresis” effect.

Another vital question in the border adjustment debate is the exchange rate. If the value of the dollar increases, it will offset the import cost increase, as well as the export cost decrease.

The primary effect of the border adjustment may then be in the shift away from income-based taxation towards a consumption-based taxation. As with other tax proposals, BAT’s merits rest on fundamental questions about what is the right way to approach taxation.

Fred Treyz, Ph.D., REMI’s CEO and Chief Economist, gave a presentation on border adjustments and tax reform as a guest on a National Association of Business Economics webinar. You can view the slides from his presentation by clicking here.