How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales...
Transcript of How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales...
![Page 1: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/1.jpg)
How to Predict the Future And Forecast Sales Taxes
Doug Macdonald
Economic Policy Analyst
Utah League of Cities and Towns
![Page 2: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/2.jpg)
Economists are Evolving
![Page 3: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/3.jpg)
Retail Sales Flat in August
![Page 4: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/4.jpg)
But Compared to Last Year Still Up 7%
![Page 5: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/5.jpg)
http://abc.go.com/shows/jimmy-kimmel-live/video-detail/featured/republican-debate-promo/pl_PL5520977/vd_VD55142095
![Page 6: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/6.jpg)
GDP = Consumption
+ Investment
+ Government
+ Net EXports
![Page 7: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/7.jpg)
![Page 8: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/8.jpg)
Taxable Sales = Consumption
+ Investment
+ Government
+ Net EXports
state law = “tangible personal property” plus certain services
![Page 9: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/9.jpg)
CONSUMPTION depends on:
1) Consumer Income (wages, salaries, business
income, transfers) (up) 2) Population (up) 3) Prices and availability of goods (up) 4) Tastes 5) Consumer Confidence (down)
![Page 10: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/10.jpg)
Taxable Sales v. Wages Correlation ≥ 90%
0
2000
4000
6000
8000
10000
12000
14000
1991 1993 19941995 1996 1997 1998 19991998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Utah Wages
SLCoTaxable Sales
![Page 11: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/11.jpg)
Taxable Sales = Consumption
+ Investment
+ Government
+ Net EXports
state law = “tangible personal property” plus certain services
![Page 12: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/12.jpg)
Investment depends on:
1) Last year’s production 2) Technological progress (up) 3) Interest rates (flat) & other input prices (up) 4) Prices of related goods (up) 5) Business confidence (down)
![Page 13: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/13.jpg)
Business Investment Purchases Correlate with U.S. Equipment &
Software
0
200
400
600
800
1000
1200
1400
1600
1800
1991 1993 19941995 1996 1997 1998 19991998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Equip&Software
SLCo Bus.Inv.
![Page 14: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/14.jpg)
Business Investment also correlates with Residential Construction Values
0
200
400
600
800
1000
1200
1400
1600
1800
Utah Residential Construction Values
SLCo Bus.Inv.
![Page 15: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/15.jpg)
Salt Lake County 4-Equation Model
1. Retail Nondurable Sales = Utah wages
2. Retail Durable Sales = Utah wages, SLCo Residential Construction, U.S. Consumer Sentiment Index
3. Business Investment = U.S. Equipment & Software, Utah wages, SLCo Residential Construction
4. Services = Utah wages, SLCo Nonresidential Construction Value, U.S. Equipment & Software
![Page 16: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/16.jpg)
Farmington 1-Equation Model
• Utah wages
• Utah unemployment rate
• Lagged Farmington sales taxes
![Page 17: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/17.jpg)
Farmington One Equation Model
![Page 18: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/18.jpg)
Andre Baksh Senior Economist
Utah State Tax Commission
![Page 19: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/19.jpg)
Forecasting with Leading Indicators
• Why leading indicators?
• What leading indicators and where do we find them?
• How do we model leading indicators?
![Page 20: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/20.jpg)
Why leading indicators?
• Although univariate forecasts tend to be more reliable than multivariate forecasts, they don’t explain why a forecast is up, down or flat.
• Leading indicators allow us to infer and explain our forecasts.
![Page 21: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/21.jpg)
What leading indicators and where do we find them?
• State Level Indicators:
– Utah manufacturing work hours (Bureau of Labor Statistics)
– Utah single family housing, building permits (FRED—Federal Reserve Bank, St. Louis)
– Utah initial claims (United State Department of Labor)
![Page 22: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/22.jpg)
What leading indicators and where do we find them (cont’d)?
• National indicators:
United States index of leading indicators (Federal Reserve Bank, Philadelphia)
![Page 23: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/23.jpg)
How do we model leading indicators?
• Transfer function models (multivariate ARIMA)
• State-space modeling (Kalman filter)
• Vector Autoregression and Bayesian Vector Autoregression.
• Dynamic regression (family)—my favorite is the full
information maximum likelihood (FIML) method because it takes care of multicollinearity.
![Page 24: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/24.jpg)
My approach
• Forecasting is foremost an art. Judgment based on current information is key.
• I like to use a combination of univariate and multivariate methods rather than just one.
• Check for reasonableness. Again judgment is key.
• The models are run to provide an upper and lower bound for forecasts.
![Page 25: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/25.jpg)
How to Predict the Future And Forecast Sales Taxes
Doug Macdonald
Economic Policy Analyst
Utah League of Cities and Towns
![Page 26: How to Predict the Future And Forecast Sales Taxes · How to Predict the Future And Forecast Sales Taxes Doug Macdonald Economic Policy Analyst . Utah League of Cities and Towns .](https://reader034.fdocuments.in/reader034/viewer/2022042710/5f5d8e9640d72c601c0a1efe/html5/thumbnails/26.jpg)
Simple Sale Tax Model Percent Change
• Utah (or your county) wage growth
• Utah unemployment rate (up 1%, lower 1%)
• U.S. Equipment & software (up 10%, up 3%)
• County residential construction values (up 30%, then add 3%)
• County nonresidential construction values (up 30%, then add 1.5%)