There comes a point when the welfare state stops providing more and more services, when instead spending goes down – but taxes keep rising. Up until this recession, America had not experienced the full force of this dark side of the welfare state. Now, though, there is an emerging trend of austerity creeping across the country.
Before full-fledged austerity sets in, though, there will be one last effort by statists to raise taxes. This effort is already well under way in our state legislatures. Tax-hike advocates are desperately trying to draw more blood from taxpayers in order to preserve government spending. As a sign of rising desperation on behalf of the big-government advocates, they are no longer fighting tooth and nail for steady increases in government spending. For the most part, their campaigns to raise taxes are motivated by a desire to avoid spending cuts.
Soon enough the tax-hikers will realize – as they have in Europe – that they have run out of other people’s money. However, their realization won’t come until they have jacked up taxes to such levels that they discourage most productive citizens from pursuing higher-paying jobs and starting businesses. The tax base will shrink by such proportions that government will run chronic deficits. That is when austerity panic will set in across America. Greece will be coming stateside.
The best way to bring this Greek disease is to try to preserve the welfare state by first maxing out taxes. Oregon is a good example of a state where this is about to happen. Government-worker, tax-funded unions and big government activists are hard at work to increase the penalty on success in The Beaver State. From the Portland-based Oregonian:
A union-backed group is deciding whether to move forward on proposed ballot measures that would raise taxes on corporations and the wealthy — and that would certainly re-ignite the bitter tax wars that split the state two years ago. The group, Our Oregon, this week received ballot titles on five tax measures that in many respects resemble the controversial tax package that Oregonians approved in January 2010 after an expensive campaign that gained national attention. Like the latest proposals, the earlier measures also raised taxes on wealthier individuals and on corporations.
Let us stop for a moment and look at where Oregon is today, in terms of taxes and government spending. Oregon already has high taxes: the Tax Foundation reports that The Beaver State’s marginal income tax rate for a couple is 9 percent from $15,500 in annual income. At $250,000 it rises to 10.8 percent and at $500,000 to 11 percent flat.
Not even California punishes hard workers to that level. Their highest state income tax rate is 10.3 percent, and it does not kick in until a couple makes more than $2 million per year. Idaho’s top rate is 7.8 percent at $52,800, and Washington state has no state income tax at all.
The Tax Foundation also reports that Oregon has the 13th best business tax climate in the country. This is better than California, which ranks 48th, and Idaho (21st) but worse than Washington state (7th). However, the CNBC State Business Climate Study for 2011 shows that the difference between Oregon and its neighbors are less favorable than is indicated by a strict focus on business taxes. Oregon, ranking 27th overall, still beats Idaho and California, but those states now rank much closer: 31st and 32nd. Washington still outperforms Oregon, placing 20th.
In the critical category of how the overall state economy is doing, the CNBC study suddenly places Oregon at the national bottom (48th) while California ranks 30th, Washington places 32nd and Idaho comes in at 38th. This is a clear indication that Oregon cannot afford to raise its taxes.
To further aggravate the situation, Bureau of Labor Statistics data shows that the state of Oregon increased its number of employees by 7.5 percent over the past four years. This happened while the private sector cut its number of employees by 7.4 percent. Even though local governments made a 4-percent cut in their staff, the overall balance between tax-paying private sector jobs and tax-consuming government sector jobs has shifted negatively in Oregon: in 2007 there were 170 state and local employees per 1,000 private employees; in 2011 there were 182 state and local employees per 1,000 private employees.
It is worth noticing that between 2007 and 2011, Oregon lost 150 population-adjusted private-sector jobs for every 100 private-sector jobs that Washington lost. Its loss rate was, in other words, 1.5 times that of Washington. And some people still want to raise taxes on Oregon businesses??
The Oregonian continues:
Our Oregon spokesman Scott Moore said the group has not yet decided whether to proceed with one or more of the proposed ballot measures. But he said many of the supporters of the 2010 tax hikes – known as Measures 66 and 67 — are anxious to protect schools and other services from further cuts. “The votes on Measures 66 and 67 show clearly that Oregonians want to fund their schools and critical services,” Moore said, “and they believe that big corporations and the wealthy can do a little more.”
The National Association for State Budget Offiers reports that the state government in Oregon is not exactly on a diet. Between 2008 and 2011,
- General Fund spending fell by 7.5 percent; but
- Federal Funds increased by 102 percent;
- Other Funds grew by 63 percent; and
- Bonds funding expanded by a whopping 174 percent.
This resulted in an overall growth in total state spending of 51 percent in three years. The 2011 figures are still estimates, but NASBO rarely has to correct its estimates other than marginally. These are, in other words, reliable figures, and what they tell us is that there is absolutely no shortage of money floating around in Oregon state coffers.
All the talk about a threat to “critical services” is, as I have reported earlier, nothing but a smoke-and-mirrors show. The reality is, again, that state emloyment is growing and that private-sector employees had 14 percent more state and local government workers to feed in 2011 than in 2007.
Let’s make this point from another angle. In 2006 the sum total of private employee earnings in Oregon was $80.7 billion, while state and local workers earned a total of $12.1 billion. In other words, private sector employees cost $1 out of every $6.65 that private sector employees earned. In 2010 private employees earned $80.6 billion, a small drop, while state and local workers now took home a total of $14.4 billion. The government workers now claimed $1 out of every $5.60 that privately employed workers earned.
This is a 15 percent rise in the cost of government workers to private sector employees. Apparently not enough for Oregon’s big-government activists.
A far better plan for Oregon is to begin a program for structurally reforming away non-essential government functions. Here are three ideas to begin with:
- Introduce a full-scale school voucher system with completely free competition for elementary and secondary education; once the market is up and running, phase out the tax-funded voucher system, cut taxes and open for private needs-and-merits based scholarships;
- Use a similar voucher model to transition Medicaid out of today’s heavy-handed, inefficient and bureaucratic government model; couple it with stopping the implementation of Obamacare in Oregon and open the state for interstate health insurance purchases;
- Transition welfare out of today’s federally funded and regulated model into a locally based charity compact model.
In the long run this means less government, lower taxes and better education, health care and poverty relief – in short, a better life for Oregon families and businesses.