Last month, Oregonians overwhelmingly approved ballot initiatives to increase taxes on high-end personal and corporate income. Only the richest individuals and corporations, or 2.5 percent of the state, will be affected—while Oregon generates $700 million in the upcoming year to protect vital services.
The debate around the issue was extremely contentious, but advocates effectively articulated the necessary message: increasing income tax rates at the top only affects a small number of state residents, and is economically sound, politically feasible, and popular with the public. This is especially true when compared to the alternative: massive cuts in education, infrastructure, and health care that endanger a state's economic and social vitality.
As 48 states confront shortfalls this year, budget will be the predominant focus for lawmakers across the country. In fact, the Center on Budget and Policy Priorities estimates $350 billion in cumulative state deficits for 2010 and 2011. The downturn has also taken an enormous toll on tax revenue. Mark Zandi, chief economist at Moody's Economy.com, reports that state and local tax revenues dropped nine percent in 2009, “the largest decline on record going back to just after World War II.”
The Oregon vote points to progressive tax, budget, and economic policies as the most appropriate measures to deal with deficits this year.
Despite virulent Right wing rhetoric to the contrary, there is actually substantial public support for progressive revenue generation as a means to make critical investments and foster economic growth. The Center for American Progress conducted polling and found that 79 percent of the public believes, “[g]overnment investments in education, infrastructure, and science are necessary to ensure America’s long-term economic growth.” Accordingly, in a time of economic hardship, when so many working families are struggling, voters are likely to support policies to raise revenue, strengthen public programs, and provide safeguards to those who have been affected by the recession.
In 2009 alone, California, Connecticut, Colorado, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, and Wisconsin instituted either a permanent or temporary reform of personal income taxes. Another 11 states considered or enacted business tax increases to help deal with budget deficits.
These trends provide insights on the failure of anti-tax campaigns in recent years as well. As the Ballot Initiative Strategy Center explains, "[t]he Grover Norquist, Club for Growth, Glenn Beck, Tea Party crowd tried to use the bleak budget picture as an opportunity to ratchet down even harder as states look to find the revenue necessary to protect priorities, create jobs, and get their economies going—but voters rejected that failed approach." For instance, of the Right wing’s 28 attempts to introduce the so-called “Taxpayer Bill of Rights” (TABOR), an effort to impose a rigid straitjacket on state revenue options, only Colorado has adopted this disastrous policy. The state has since experienced an increase in the number of adults and children without health insurance and a severe decline in education funding as a result of the misguided initiative.
This indicates an inherent acknowledgment that progressive tax policies do not undermine economic growth, lead to out-of-state migration of wealthy residents, or cause unemployment.
Furthermore, a common misconception about taxes is the idea that the wealthy have incredibly high tax burdens. The reality is the richest taxpayers have not been contributing their fair share for years. The Institute for Taxation and Economic Policy discovered that when you factor in sales, excise, property, and income taxes, states place a much heavier tax burden on working families as compared to the wealthy.
During an economic downturn, progressive revenue generation is preferable to deep cuts, as it allows states to provide funding for essential programs, pump money into the economy, make critical investments, and protect working families in this time of hardship.
A budget that relies too heavily on cuts will hurt the private sector and the economy as a whole by reducing consumer spending and increasing unemployment. According to the Economic Policy Institute, one dollar in cuts translates to $1.41 lost in economic activity and 41 cents less spending in the private sector. At the same time, families will have to deal with the reality of budget reductions: reduced health care services, less access to affordable housing, underfunded educational systems with larger class sizes, fewer police officers protecting communities, and generally diminished quality of vital programs.
Peter Orszag, Director of the Office of Management and Budget, and Nobel Prize winning economist, Joseph Stiglitz confirm: “[T]ax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”
Spending on programs that assist low and middle-income families is smart economic policy. Working families will more readily spend their funds on basic necessities, thus boosting short-run demand and fostering market activity. For instance, economic research indicates that one dollar spent on increasing food stamps creates $1.73 in market demand.
States are exploring several other progressive policies to deal with deficits. These include eliminating wasteful subsidies and ineffective tax credits, closing corporate tax loopholes, enacting combined reporting, expanding the sales tax base to include certain services, and collecting sales tax on Internet purchases. State lawmakers are also advancing transparency legislation to foster more comprehensive reporting of subsidies, contracts, and corporate tax breaks.
Given the fiscal and economic crisis, public investments in jobs and services for those in need are critical. Progressive revenue and budget approaches are not only economically effective, but also popular with the public—for good reason.