I ♥ New York . . . Economists
Chuck Sheketoff
Sure, New York has brought us some Big Apple-sized stinkers of late, from the Wall Street derivative house of cards to the Bernard Madoff massive Ponzi scheme.
But there’s still some good that emanates from the Empire State, or at least from more than 100 of its economists.
In response to the state’s 10 percent revenue shortfall ($12.5 billion) in the current fiscal year, a group of New York economists recently wrote to New York Governor David Paterson (PDF), urging him to take “a balanced approach” to closing the revenue shortfall. These economists from academia and the private sector rejected the Governor’s strategy of balancing the budget through cuts only, and implored him to raise taxes on those with very high incomes:
We are concerned, however, that steep state budget cuts will exacerbate the economic downturn and harm vulnerable low- and moderate-income New Yorkers. Constrained by a balanced budget imperative, states face only difficult choices in balancing their budgets during recessions. Economic theory and historical experience gives a clear and unambiguous answer: it is economically preferable to raise taxes on those with high incomes than to cut state expenditures.The reasoning is straightforward: in a recession, you want to raise (or not decrease) the level of total spending—by households, businesses and government—in the economy. That keeps people employed and buying things, and makes it more likely that businesses will want to invest to serve that consumer demand. Budget cuts reduce the level of total spending. Raising taxes on high income households also will reduce spending, but by much less than the amount of the tax increase since those with plenty of income typically spend only a fraction of their income.
By contrast, almost every dollar of state and local government spending on transfer payments to the needy and for the salaries of public servants providing vital services to our communities enters the local economy right away, generating a greater economic impact. The New York local spending impact difference is even greater when you consider that much of the higher state income tax will be deductible against federal income taxes, and that non-residents who commute to high-paying jobs in New York will pay much of the increase.
It is economically preferable to raise taxes on those with high incomes than to cut state expenditures to address the revenue shortfall. That is a message that rings true from coast to coast, and one that Governor Kulongoski and state lawmakers ought to heed as they grapple with Oregon’s own revenue shortfall this budget period and next.
Oregon needs to address our revenue problem with revenue solutions, as well.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org</p
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Dec 19, '08
Perhaps the policies supporting Ireland's booming economy is a better benchmark than those burdening New York's languishing economy:
"The expansionary fiscal policy of the late 1970s of large increases in current spending did not achieve its objectives and led to a massive increase in debt. The difficulty with using a fiscal stimulus in terms of tax cuts or rebates in an Irish context is that a sizeable proportion of extra spending will leak abroad as a result of higher imports. Borrowing for a large extra stimulus of this form would have to be paid back by taxpayers in the future."
Dec 19, '08
Booming Irish economy?
what are you talking about?
Dec 19, '08
I'm talking about this:
Ireland has in recent years been described by analysts as the "Celtic Tiger" economy because of its prolonged period of double-digit growth in the 1990s, which placed it among the richest nations in Europe.
Dec 19, '08
Please forgive my ignorance, but does anyone know where I can locate, online, info regarding the amount of monies paid in state taxes by income level. I have done general searches, but nothing comes up that is useful.
Thanks for your help.
Mike
10:31 p.m.
Dec 19, '08
Mike,
OCPP publishes a graph and table showing Oregon state and local taxes as a percent of income by income group(PDF).
The Oregon Department of Revenue publishes annual reports on our personal income tax system showing payments by income levels. The annual personal income tax statistics can be foundhere.
Dec 20, '08
I don't know how much you can compare us with Ireland. The main difference would be that their population was overeducated and underemployed, before the boom.
9:10 a.m.
Dec 20, '08
Chuck - Did you hear Gov. Patterson on Moyers last night? Seems like those economists may not be the apple of his eye...He sure wasn't signing their tune.
9:10 a.m.
Dec 20, '08
Chuck - Did you hear Gov. Patterson on Moyers last night? Seems like those economists may not be the apple of his eye...He sure wasn't signing their tune.
9:12 a.m.
Dec 20, '08
Chuck - Did you hear Gov. Patterson on Moyers last night? Seems like those economists may not be the apple of his eye...He sure wasn't signing their tune.
9:13 a.m.
Dec 20, '08
Chuck - Did you hear Gov. Patterson on Moyers last night? Seems like those economists may not be the apple of his eye...He sure wasn't signing their tune.
9:13 a.m.
Dec 20, '08
Chuck - Did you hear Gov. Patterson on Moyers last night? Seems like those economists may not be the apple of his eye...He sure wasn't signing their tune.
Dec 20, '08
I'm pretty sure that the Irish economy benefitted immensely from the billions of development subsidies they got from the European Union, as did Spain and Portugal.
And good for them.
Dec 20, '08
Oregon might try asking the well-to-do to pay more for the college education they get for their family members at taxpayer expense. Afterall previous research indicates that Oregon's higher education system benefits those from well-to-do familes more than it does the poor, or lower class.
Dec 20, '08
Chuck
Thanks, that was exactly what I was looking for.
Mike
Dec 20, '08
It is economically preferable to raise taxes on those with high incomes than to cut state expenditures to address the revenue shortfall.
I think we have a perfect opportunity to perform an experiment with regard to economic theory. Liberals states like Oregon want to raise taxes during this recession as a means of weathering the storm, while conservative states such as S. Carolina want to cut taxes for the same purpose.
Mike
Here is what I propose: THe state of S. Carolina, per the Governor, wants to eliminate corporate taxes and cut the personal tax rate in half, from 7% to 3.5%. The commenters here want to raise taxes on businesses and "the rich." Great. Raise the top personal to 10-11% and business to the same.
In 5 years, compare how Oregon and SC fared. Then once and for all, maybe then we can end this debate.
Dec 20, '08
It is economically preferable to raise taxes on those with high incomes than to cut state expenditures to address the revenue shortfall.
I think we have a perfect opportunity to perform an experiment with regard to economic theory. Liberals states like Oregon want to raise taxes during this recession as a means of weathering the storm, while conservative states such as S. Carolina want to cut taxes for the same purpose.
Here is what I propose: THe state of S. Carolina, per the Governor, wants to eliminate corporate taxes and cut the personal tax rate in half, from 7% to 3.5%. The commenters here want to raise taxes on businesses and "the rich." Great. Raise the top personal to 10-11% and business to the same.
In 5 years, compare how Oregon and SC fared. Then once and for all, maybe then we can end this debate.
Mike
Dec 21, '08
mp, it's hard to run a rigorous economic experiment on a large scale because it's very hard to establish control groups. If Oregon and S. Carolina did what you suggested, there are still so many differences in their economies that it would be hard to attribute any economic change to this one tax rate issue.
9:56 a.m.
Dec 21, '08
David Sirota has a good post this morning blasting Patterson's statements on taxing the rich.
(P.S. - apologies for the duplicate posts yesterday; the server kept short circuiting, but then seems to have put through my multiple attempts all at once.)
Dec 21, '08
And we love YOU Chuck. And OCPP. Seriously, we're lucky to have you there.
Dec 21, '08
Daniel Pete, how do you do it? That was a great read.
Dec 22, '08
Another point about the Celtic Tiger, besides Lister's that the EU helped a lot, is that a goodly part was turn of the millenium, export the .com fraud. The tiger had become pretty toothless, and is now his ribs are showing.
Conservatives aren't ideologically bankrupt only on this side of the pond!
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