Back in January of 2010, Georgia leaders were advocating additional tax cuts as a way to boost the state economy, even though revenue shortfalls were already forcing layoffs of teachers, police officers and other public employees.
However, leaders of other states were proposing a different course.
In Oregon, for instance, voters had just approved ballot measures that would impose $733 million in tax hikes on businesses and those earning more than $250,000 a year, with the revenue being used to keep teachers in the classroom and police officers on the beat. The Oregon business community wasn’t happy — Phil Knight, the influential founder of Nike — predicted that “There are words to describe what we are doing with (measures) 66 and 67: It is called a death spiral.”
At the time, I proposed that Oregon and Georgia might serve as an informal test case of their respective economic strategies. It has now been almost five years, so let’s check in to see how things are going.
Let’s start with unemployment. Oregon was hit even harder by the recession than Georgia had been, with an unemployment rate of 11 percent in January 2010 compared to 10.4 percent in Georgia. Since then …
Georgia’s unemployment rate, which began the test period below that of Oregon, is now almost a full percentage point higher than that of Oregon.
How about economic growth? Did those 2010 tax hikes cause growth in Oregon to flat-line or even go into a death spiral, as Knight and others had predicted?
OK, how about median household income? As I noted, the two states were quite similar in 2010. How about now?
Just to be clear, this is hardly a controlled experiment, because such things are impossible in economics. Both Georgia and Oregon have economies in which wood products and housing are major sectors; both are dominated by a single large metropolitan area. But they have more than enough differences to make it impossible to claim a scientifically valid apple-to-apple comparison.
Clearly, however, the predictions of disaster that accompanied Oregon’s decision to protect its education system from the worst ravages of the recession have not come true. Clearly, the simplistic notion that economic calamity follows tax hikes as surely as night follows day is wrong. Quite the contrary.
One more point: Georgia’s conservative Legislature has bought into the claim that we’re being held back by our state income tax. If we lower or even abolish the income tax and replace the lost revenue with a higher sales tax, GOP ideology holds that businesses will flock into the state. Maybe, maybe not. It’s worth pointing out that Oregon has no sales tax, and its income tax is considerably higher than that of Georgia, topping out at 9.9 percent on income above $125,000. Yet somehow it’s doing OK.
In addition, we know for an absolute fact that lowering the income tax in favor of a higher sales tax would constitute a major tax break for wealthier Georgians and a major tax increase for lower-income and middle-income Georgians. We also know that even without such a change, Georgia’s state and local tax system is already heavily skewed in favor of the affluent.
To document that fact, let me throw one more chart at you:
In Georgia, the lowest-earning 60 percent of households already pay almost twice as much of their income in state and local taxes as do the richest 1 percent, which at the time the data above were collected meant those with income of $433,000 and above. The long-term Republican tax strategy is to make that differential even larger, on the theory that it will eventually trickle down to the rest of Georgia.
In effect, we insist on applying a 19th century economic strategy to a 21st century economy, and then wonder why it doesn’t work.