Tuesday, January 12, 2010

Yes on Measures 66 and 67

Here is my take, published today on The Oregonian's web site:

I support measures 66 and 67 because, based on economic evidence, I believe that the risk to the economy from declining education funding far outweighs the potential harm of the taxes themselves.

Economists understand that taxes have consequences, but the effect of these taxes on most businesses and individuals in Oregon will be minimal and the state will remain one of the lowest business tax states in the country. How low? According to the conservative Tax Foundation, even with the new taxes, Oregon will rank 14th in lowest tax states. Thus Oregon businesses are neither excessively burdened by taxes, nor likely to find greener pastures elsewhere. The effect of the new taxes on employment is therefore likely to be very small, and may be more than offset in the short-run by jobs preserved in social services, public safety and education.

Rejecting these new taxes will, however, likely lead to very severe and long-run consequences on the Oregon economy through the decline in investment in education. The positive economic effects of education are empirically well founded. Economic research by Eric Hanushek of Stanford University has found ‘significant growth effects’ from the improved cognitive abilities that result from investments in education. Claudia Goldin and Larry Katz of Harvard have found that a large part of what explains the phenomenal economic success of the United States in the 20th century is the investment the country made in education. The same is true for states: more educated states tend to be more economically successful than less educated states. It is no accident, for example, that the state of California built the world’s best system of public higher education and saw its economy grow to the 10th largest in the world and become a key engine of growth for the US economy in the second half of the 20th century.

So how is Oregon currently doing in terms of public investment in education? Miserably. In K-12, Oregon currently ranks 49th in the nation in terms of class size and has a school year that is three weeks shorter than the national average. In higher education, Oregon ranks 41st in terms of per-student funding. The percentage of Oregonians earning a college degree is actually decreasing through time. Clearly we are not currently on track to create an economy characterized by healthy growth and job creation and we cannot afford to fall any farther behind.

It is also important to note that private business benefit directly from public investment in education: research by Enrico Moretti of the University of California at Berkeley has found that businesses enjoy increased productivity from locating in cities with a large share of college graduates. In other words, a highly educated population makes businesses more productive.

The Oregonian and others have argued that we should hold out for something better and reject 66 and 67. But the country and the state are in the midst of the worst economic crisis since the Great Depression, we do not have the luxury to wait for something better. Research has shown that even temporary disruptions in education can have lifetime consequences for students. Inarguably the state needs to fix its broken revenue system and we should all demand that it do so soon. But we need the temporary fix that 66 and 67 provide right now. Without investment in the education of Oregon’s children, the future economic prosperity of the state is at risk.

Last week Fred Thompson shared his take on the measures on this blog. I largely agree with him but I am less sanguine about the disruptive effect of the failure to pass the measures and about the legislature's ability to come up with a quick compromise solution (including borrowing). Though I am much less of a student of the state government than Fred is, so keep that in mind.


Jeff said...

Here's an alternative take on Measures 66 and 67 in the Register-Guard:




Ralph said...

According to the Tax Foundation, Washington state is #9 in the ranking of favorable business climates. I wonder if we'll see a migration of companies across the river.

ben said...

Hold out for better? We voted down a sales tax nine times. We've capped our property tax. We've essentially put our entire revenue source on the corporate tax and income tax. Top it all off we have a kicker rule. So I've been curious about those who say wait for better, what is better? Define it so I know what it looks like, and if "better" includes a sales tax. Then I need to find a site where I can bet on election outcomes.