Goldwater Institute Study Leaves Out Impact of Losing Federal Matching Funds

We mentioned last week that UA economists informed us that the state will save more than 13,000 jobs if voters pass a temporary, one-cent sales tax on May 18.

An analysis done by UA Eller School of Management economist Alberta Charney notes that passage of the sales tax is not without consequence. Assuming that people will buy fewer goods if the cost is 1 percent higher, Charney estimates that up to 7,400 jobs could be lost in the private sector.

But if the state does not pass the sales tax and is forced to cut another $867.5 million in state spending, it will lose an additional $442.5 million in federal matching funds.

The loss of that money and the cuts to state government will result in the loss of 20,500 jobs, according to Charney’s model.

That’s a big difference from an earlier analysis of the impact of a sales-tax hike that was done by Beacon Hill at the behest of the Goldwater Institute, which projects a net loss of 9,155 jobs.

The UA study, which notes that it was unable to replicate the Beacon Hill numbers using accepted economic models, pokes a number of holes in the Goldwater study. You can find the details here, but we’ll point out one glaring oversight: The Goldwater study doesn’t take into account the loss of $442.5 million in federal matching funds if the sales-tax proposition fails at the ballot.

The bottom line: While the sales tax will drain dollars from private sector funding, “those dollars don’t disappear,” Charney notes in the report. “Government doesn’t bury (or burn or flush) the proceeds—it spends those dollars and thereby pumps money right back into the economy.”