Sunday, March 18, 2012

Math is hard at Minnpost

You'll probably be surprised to learn that there exists something is the virtual world called "Minnpost," a web site run mostly run by former and wanna-be journalists who put a liberal spin on the day's news.

While it undoubtedly has more readers than my site, its presence is miniscule. But because they focus so heavily on state politics a few political junkies scan it, which is how I got roped into a story about the stadium debate.

Minnpost ran a story by someone named Marlys Harris, who claims in her bio to have been "an investigative reporter and editor with specialties in consumer protection and finance for Money Magazine and Consumer Reports." For someone with that alleged experience, her math skills are pretty weak.

The folks at Minnpost are pretty much opposed to a new Vikings stadium, and Harris regularly editorializes - under the guise of reporting - about what a bad idea a new stadium is. Last week she wrote a piece with the breathless headline "Five things they're not telling you about the Vikings stadium."

Her points are mostly laughable - Did you know that when you borrow to build something for $975 million that there are interest costs as well? - but the funniest one demonstrates that the folks who run Money Magazine and Consumer Reports must not care about the logic or math skills of their reporters.

Harris' point #5 alleges that the proposed legislation contains an exemption to Minnesota sales taxes for construction material used for the stadium. True enough, but she then goes on to explain that "At the current (sales tax) rate of 6.875 percent, that's a loss of $67 million to the state treasury." (Emphasis mine.)

Two points beg to be made. First, if you DON'T build the stadium the state gets ZERO sales tax dollars from a stadium project. If you DO build the stadium with a sales tax exemption on material, the state also gets ZERO sales tax dollars from the stadium project, so it's pretty hard to understand how building the stadium results in "a loss of $67 million to the state treasury."

Second, even if you want to assume Harris' twisted logic, her math - and her understanding of construction - stink. She gets her $67 million figure by taking the stadium's estimated $975 million cost and multiplying it by the sales tax rate.

Except that - and this is sort of an important point - the sales tax exemption only applies to material. The stadium wouldn't be built with $975 million of steel and concrete, it would be built with about $487 million of material, and about $487 million of labor (projects vary, but a 50/50 split between labor and material is common) and of course, you don't pay sales tax on labor.

So right off the bat, you can cut her $67 million figure in half to about $33-34 million in "lost" sales taxes. But then there's the matter of the $487 million of labor. People - as most of us who maybe aren't smart enough to be Minnpost reporters or Consumer Reports editors understand - pay state taxes on their income. Most of the people who would work on the stadium and collect that $487 million in wages would fall into the state's middle income-tax bracket of 7.05 percent, meaning about $34 million in income tax revenue to the state.

That's right, the income taxes generated by the project would pretty much offset any "loss" of sales tax revenue - revenue that, as noted earlier, would never be generated if you don't build the stadium. So the "loss of $67 million to the state treasury" turns out to nothing but Harris' hot air.

Minnpost allows comments after the article, and so I pointed out the lunacy of her logic. That comment caught the eye of someone named Paul Udstrand, who has been making goofy left-wing comments on Minnpost for several years. In a response, he makes the remarkable assertion that if the stadium isn't built, the income taxes "would be collected in any event" and "the loss of $33 million in sales taxes is real."

I'm at a loss to explain how the state would collect income taxes from workers on a stadium project if you don't build a stadium, but I guess that's economics in the world of Minnpost and its readers.

I would say to Harris and Udstrand that I can explain it to you, but I can't understand it for you.

No comments:

Post a Comment