Beware of Papers Bearing Complex Equations and Faulty Conclusions

Opponents of Proposition 24, which would repeal three business tax cuts enacted as part of the September 2008 and February 2009 budget agreements, frequently cite a deeply flawed study by Professor Charles Swenson of USC. The Swenson study argues that there is such a thing as a “free lunch” and that one of the three tax breaks – single sales factor (SSF) apportionment – that would be repealed by Proposition 24 would both increase jobs and state revenues. Regular Budget Bites readers know credible economic research shows that there is no such thing as a free lunch.

The Swenson report is so deeply and fundamentally flawed that it took Center on Budget and Policy Priorities researchers Michael Mazerov and Robert Tannenwald twenty pages to begin to inventory the study’s faults. Key among them are the facts that Swenson:

  • Cites employment data that diverge dramatically from official government statistics;
  • Misstates the dates that the states he compares to California adopted SSF apportionment;
  • Misidentifies the number of firms that benefited from SSF apportionment in the comparison states. In Georgia, for example, Swenson concludes that 3,109 firms in Georgia benefited from SSF, while the state’s own study found that the actual number was 12,426, almost four times as high; and
  • Fails to look at national employment trends during the period covered by the report.

And if that weren’t enough, the Swenson paper is riddled with mathematical and typographical errors. As we’ve noted before, not all research is created equal. Prudent consumers would be wise to do a “reality check” on studies that make claims that appear too good to be true.

— Jean Ross