Tax Increases Will Hurt the Economy, Destroy Jobs

In tomorrow's Seattle Times, Washington Research Council economist Kriss Sjoblom has a good op-ed analyzing the effects of tax increases on the economy. The article is online now.

WITH Washington state lawmakers poised to adopt nearly $1 billion in new taxes on families and businesses, it's important to set the record straight.

These tax hikes will cost Washingtonians jobs and depress the economy. The damage will be greater than it would have been had lawmakers shown more restraint and cut spending deeper.

Sjoblom responds to an earlier Times op-ed arguing that spending cuts would be more damaging the tax increases. He tests the assertion.

Using a well-established economic model of the state economy, [the WRC] simulated several different $1 billion tax-increase scenarios. The simulations show increased taxes would result in the loss of 11,200 to 12,250 jobs in 2011. In contrast, a simulated spending cut of the same magnitude would cost only 8,600 jobs. If lawmakers handle the budget with spending restraint rather than raising taxes, 2,600 to 3,650 more Washingtonians keep their jobs.

Moreover, inflation-adjusted personal income is $600 to $900 million higher in 2011 when spending is cut than it is when taxes are raised.

Sjoblom's op-ed also examines the claim that state spending stimulates economic growth (as contended here).

Some of the confusion in Olympia on this point stems from a misreading of a widely publicized estimate made by Mark Zandi of Moody's Analytics. Zandi has written that an additional dollar of state government spending increases gross domestic product (GDP) by $1.41. This estimate appears in an article he wrote last October laying out a fiscal-policy road map for the federal government in 2010. The $1.41 GDP increase is for the nation as a whole and assumes that the state spending is funded by the federal borrowing. As such, the number has no relevance to a state decision to increase spending by raising its own taxes.

Right. The proposed tax increases will cost Washingtonians jobs.