Jobs and Taxes

By William K. Jaeger, PhD of Corvallis, Oregon. Jaeger is a professor in the Graduate Program in Applied Economics at Oregon State University. He recently helped inform the debate on Measures 66 and 67 by publishing Perspectives on Oregon’s Taxes (PDF). Emphasis and link in text added by BlueOregon.

A central issue in the debate over Measures 66/67 is whether these tax increases will cost Oregon jobs. Dozens of scholarly studies on the economic effects of state and local taxes and public services have been published in peer-reviewed economics journals over the past 30 years, but to date none of this research has been used to inform Oregonians about the likely job impacts of Measures 66/67. Opponents have instead touted analyses from three economists tied only to a local libertarian advocacy group – analyses that do not reflect the professional standards of economics scholarship. Oregonians deserve better.

What does scholarly economics research say about the likely job impacts of Measures 66/67? There are three parts to this question: What are the typical negative effects of a tax increase? What are the typical positive effects of increased (or maintained) public services? How different is Oregon from a typical state?

First, how would tax increases such as those proposed for Oregon affect jobs for a typical state? Estimates vary considerably, but most scholarly research estimates that for each 1% increase in taxes there will be a 0.1% to 0.3% long-term job loss. For Measures 66/67 this translates into a loss of 7,000-20,000 jobs.

Second, how would the public services paid for with these tax revenues affect jobs in a typical state? This effect depends on how the funds are used. Research estimates suggest larger job effects for health services, medium for education and public safety, lower for highways, and no measurable effects for welfare spending. For Measures 66/67, the available estimates translate into a long-term gain of 9,000-17,000 jobs.

Third, the estimates above are for a typical state. But in states with taxes above average, we expect job losses from a tax increase to be higher that this; and for states with public services above average, we expect the job gains from increased public services to be lower than this.

Where does Oregon stand relative to a typical state? Oregon’s state and local taxes as a share of personal income are significantly below the national average. Oregon’s rank is 43rd based on the most recent data. Thus, because Oregon’s taxes are below average, we would expect job losses in Oregon to be lower than 7,000-20,000.

What about public services? Oregon’s teacher-student ratio places Oregon 49th out of 50 states; Oregon’s school year is the second shortest. Oregon’s university faculty salaries and benefits are significantly below the national average. So, with public services below average, we would expect job gains to be higher than 9,000-17,000.

Thus, scholarly research suggests the net change in jobs in Oregon is likely to be positive. However, there is no research on how much the effect for a typical state should be adjusted for Oregon and, indeed, the available research should be viewed as providing only “ball park” estimates. Nevertheless, the research provides no support for the claim that Oregon will lose jobs in the long run.

Indeed, even if keeping taxes low were to increase jobs in Oregon, this is not the same as increasing jobs for Oregonians. Many new hires by Oregon businesses come from other states, and in-migrants to Oregon tend to have higher levels of education than current Oregon residents. Thus, in-migrants are more likely to out-compete current Oregonians for high paying jobs. Since Oregon businesses can hire nationally but must pay taxes locally, it should not be surprising that businesses favor low taxes. This reality suggests that in addition to helping businesses create jobs, more attention should be paid to preparing Oregon’s workers to compete for those jobs that are created.