Ten years from now, it’ll be fascinating to look back and see who turned out to be right.
Across the country, falling tax revenues are forcing deep cuts in state budgets. Under Gov. Sonny Perdue’s proposed budget here in Georgia, for example, “per student state spending on k-12 education and the university system will fall to their lowest levels in a decade” after inflation, the Georgia Budget and Policy Institute reports.
Some states have tried to soften such blows with strategic tax increases that will raise a total of $24 billion in new revenue, according to the National Governors Association. But at a press conference Thursday, Georgia legislative leaders announced plans to slash rather than raise state revenue by cutting business fees and taxes and the state capital gains tax.
Asked about the impact on an already ravaged state treasury, state Rep. Tom Graves turned the question around: “We don’t see this as a cost to the state, we see this as a savings to the taxpayer.”
In Oregon, on the other hand, leaders are taking the exact opposite approach. They’ve already cut spending significantly, but this week, Oregon voters easily approved ballot measures that will increase taxes on business and on households with incomes higher than $250,000. The new revenue will close the remaining budget gap of $727 million and fend off further cuts in education and other public services.
That sets up an interesting test case. While Oregon raises taxes to preserve its public infrastructure and services, Georgia believes that it can stimulate a boom by offering investors a cheaper business environment. “We’re going to be the economic beacon and leader for the rest of the country” in recovering from this recession, Graves confidently predicted.
Today, median household incomes in Georgia ($50,861) and Oregon ($50,169) are quite similar. They start from a similar base on taxes as well, since Oregon voters have a tradition of fiscal conservatism equal to that of Georgia. In 2005, Oregon ranked 41st in per capita state taxes ($1,791) while Georgia ranked 42nd ($1,726), according to the Census Bureau. So it will be interesting to see where they stand in a decade.
Given Georgia’s already low tax structure and the condition of the national economy, I personally have a hard time believing that state taxes have been a significant hurdle to investment here. Dropping from 42nd to 44th or 45th in the tax rankings doesn’t seem like it will accomplish much except force more furloughs of teachers, but I guess we’ll wait and see.
This won’t be the first time that Georgia and Oregon have set themselves up as test cases. Beginning 15 to 20 years ago, the two states also took starkly divergent approaches to growth in their major urban areas.
Under Oregon law, the three-county Portland metro area was given the power to tax itself as a region for transportation. It has used that authority to commit to mass transit, investing in light rail, trolley lines and more recently commuter rail. That’s a stark contrast to the Georgia strategy, which has relied almost exclusively on highways and denied metro Atlanta the right to act as a region.
Wendell Cox, a highway advocate and a favorite transportation consultant for Georgia conservatives, argued in the Atlanta Constitution back in 1999 that the Georgia model would prevail. In fact, he predicted, “traffic congestion in Portland is likely to be worse than it is in Los Angeles by 2015.”
Well, it’s not 2015 yet. But when Cox wrote those words, Portland was 18th worst in the country in rush-hour delays per traveler; by 2007, it improved to 34th. Meanwhile, Los Angeles stayed at number one and Atlanta stayed at number three.
In the latest rankings, Portland has also improved significantly in the time-travel index, considered a standard measure of congestion. Again, Los Angeles and Atlanta didn’t budge.
Those trends have consequences on the quality of life a region can offer, a factor that in the modern world often has more impact on growth than low taxes. Quality of life has an especially strong appeal to the young college-educated people that high-paying employers need to prosper and innovate.
From 1995-2000, according to the Census Bureau, Atlanta was the fourth most attractive destination for that desired demographic. Portland was fifth.
Late last year, the Wall Street Journal took an updated look at what it called “the next hot youth magnets.” Portland was fourth; Atlanta didn’t make the list, and was mentioned only as another formerly ascendant Sun Belt city now in eclipse.