Tax Cut Scenario

Comments

3 comments

  • Avatar
    IMPLAN Support
    Hello, Labor Income and Household Income Changes are Induced spending, so they will only show up in the Induced impacts. This is a definitional aspect of these types of changes, because they are induced by some other change in the economy. When modeling a decrease in taxes, and an increase or savings to households, there are some caveats. The way you entered the values assumes that households will spend that savings in the same way that they would normally spend, so you would be saying that households would spend their tax-savings on rent or debt rather than savings or a big screen tv. In addition this assumes that Households will spend and save in the same pattern that they do with normal income, which may not be an accurate assumption. If you are ok, with that assumption, then this is fine, but you would want to state that in your report. We typically recommend importing a Household Spending Pattern and removing items that would most likely not be bought. You also need remove all taxes and savings from the value before you enter it, as every dollar in the Activity Level will be spent through the spending pattern. However the considerations also, of whether or not that money would be spent and how it would be spent will still apply. The other interesting thing about the Household Spending Pattern is that because Household spending is redefined as Institutional spending you will see Direct Effects, although they will look very different from the standard Direct Effects you see for Industry changes (especially if you look at them in Detail Results). You may also want to consider the net effect. Presumably if Households are getting some sort of abatement the government is having to reduce it's spending on some function of program which likely will have some compensatory negative effect on the local economy. Please let us know if you have additional questions. IMPLAN Group Staff
    0
    Comment actions Permalink
  • Avatar
    YardCrowes
    Hello, This post ties into a question I had, pertaining to this part of the response, "You may also want to consider the net effect. Presumably if Households are getting some sort of abatement the government is having to reduce it's spending on some function of program which likely will have some compensatory negative effect on the local economy." If we don't know which activities the government would have to reduce spending towards, what's the best way to model that? My first thought was to import Government Institution Spending pattern (whether it's education, noneducation, or investment) and enter the level in negative terms for the amount of the tax cut? Is this correct? Are there other/additional steps that should be taken? Thanks for any help you can give me.
    0
    Comment actions Permalink
  • Avatar
    IMPLAN Support
    Hi Rob, Thank you for your forum post! If you do not know what government programs may see a negative impact; we recommend to not model it but mention it in your report. Although, if it is assumed that the government will have to reduce its spending by the amount of deduction (i.e., the amount of money that households now get to keep instead of giving to the government), then you could certainly run that as a negative Institution Spending Pattern. In other words, there would be a positive Activity and a negative Activity, both of the same magnitude but of opposite sign and using different institutions. If you model it this way, we recommend mentioning these assumptions in your report (e.g., “We are assuming that since government will no longer be receiving these funds, it will reduce its spending accordingly. However, since we don’t know for sure which activities would receive reduced funding so we are using a general government spending pattern). I hope that this helps! Thanks
    0
    Comment actions Permalink

Please sign in to leave a comment.