Tax impact of construction expenditure too low

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    IMPLAN Support
    Hello Sarin, A 4.8% tax share of gross output, rather than of GDP (or Value Added) is not that low.  To get a sense of what might be an expected scale of tax impacts, compare total state and local tax revenue to the region’s GDP estimate.  At the United States level, for example, total state and local tax revenue is about 5% of gross output.   That said, here are some reasons an IMPLAN tax impact report might appear lower than your expectations.   1) TOPI, which consists primarily of sales taxes and property taxes, in IMPLAN is net of subsidies.  So, if impacted industries tend to receive government subsidies, the TOPI value for those industries will be lower than gross taxes paid would imply, since the measurement is gross TOPI less subsidies.  We do not break out gross TOPI from subsidies since there are no detailed data on those elements at the level of industry detail reported in IMPLAN. 2) All tax impacts in IMPLAN are based on effective tax rates, not nominal tax rates.  IMPLAN obtains data on tax revenue governments receive and reports that as a share of the components of Value Added (Value Added is what pays tax.  TOPI consists entirely of tax; EC pays social insurance tax and pays households, which pays personal tax; PI behaves similarly to EC; OPI pays corporation – “Enterprises” in the SAM – which pay corporate income tax).  Effective tax rates tend to be lower than nominal tax rates due to deductions. 3) In a construction sector impact, the tax impact is based on the taxes paid by the industries (and, through induced impacts, the households) involved in the production process.  Notably, this will not include increased property taxes due to a higher valuation of the rehabilitated property. We recommend that users who have detailed knowledge of the tax structure in an area and of the taxes that would be paid by the directly affected industry(ies) and households use their own estimates and use our estimates for indirect and induced tax revenue. Note: Changing direct tax impacts will require that you manually sum total tax impacts. Using one’s own estimates of direct taxes can have implications for direct Value Added and Output, and you will need to consider if consistency between the tax impact estimates and Value Added and Output estimates are important. For example, if you think total TOPI taxes are higher than the total TOPI-paid estimates in IMPLAN’s tax report, then to ensure consistency, you need to recalculate total TOPI according to what you think it should be. This, then, might imply changes to Output and other components of Value Added, as well. The increased TOPI value, in the example, might imply higher total Output, in which case Total Value Added needs to be recalculated and so does total Output, but the other components of Value Added remain the same. Alternatively, perhaps the increased total TOPI comes at the expense of a different Value Added component, e.g., OPI, and Output remains the same and total Value Added remains the same. Then you will, if interested in maintaining complete consistency between the tax impacts and direct value added estimates, need to consider whether the decreased OPI implies lower taxes paid from OPI (i.e., lower corporate profits tax), or perhaps implies only lower retained earnings and leaves corporate profits tax as it was.  Our recommended method to split state tax revenue is to use Implan Online.  Alternatively, if you are working with a state model, one possibility is to use data from the Census of Governments, which reports total state government and total local government revenue by state.  See here: https://www.census.gov/govs/ and use either the “Tax Statistic” section or the “Government Finance Statistics” section.  If you are working at a substate level, it is a little more complicated, but you can use data from the Census to build a splitting method. Regards, IMPLAN Staff
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    sarin@vcu
    Dear moderator, Thank you for your quick response. I think I might not have explained clearly, but the 1000 million in the example I used was total input in the model. Compared to the gross output, the tax share comes out to be merely about 1%. And you are right, we have not yet considered tax revenue that would come from increased property value and subsequent use value of the structures. At this time the model represents money spent purely on construction activity and the short term impact caused by it. And thanks for the idea of using the government census tax ratios, this might help us dis-aggregate revenues. Sarin
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