Two hundred economists from 37 states–including the University of Tulsa’s Steve Steib have joined the rising chorus of voices cautioning states against solving short-term deficits by cutting budgets and public services. They’re urging states to:
Maintain the public services that are critical to the health of the economy and the well-being of working families. Cutbacks at this time would further slow the economy and harm those already hardest hit by the downturn.
Budget cuts make the economic downturn worse, they argue, because almost every dollar of state spending–whether for salaries, supplies, or assistance–hits the local economy immediately. So budget cuts equal less overall spending, which equals an even weaker economy. The damage could be as bad, or worse, over the long run since the services state and local governments invest in–education, transportation, public safety, and a stronger social fabric–are essential to the long-term economic health of the state and the nation.
The economists argue that raising taxes is a better alternative to budget cuts. Tax increases also cut spending in the local economy but by a much smaller amount, since upper-income taxpayers don’t spend all they earn.
In our view, it is too simplistic to look at only two choices–cutting budgets or raising taxes. Each state should consider these options as well as others–using rainy day funds that were collected in better years and borrowing, not to plug budget holes but, to stimulate the state economy through construction and other investments.
In Oklahoma, legislators are wrestling with a shortfall of at least $600 million for the upcoming fiscal year 2009-2010. The budget hole should be smaller thanks to federal stimulus money. Our budget outlook is better than most. Tax increases may not be necessary and will not receive serious consideration. Only budget cuts are on the table at this time. House Speaker Chris Benge warns that all agencies can expect some cuts. Interestingly, tax cuts are still under discussion. The rainy day fund is full but the governor and legislature don’t want to touch it since it may be needed later.
The economists join Nobel laureate Paul Krugman, who warned in the New York Times that the states have the potential to be “50 Herbert Hoovers” with the power to undermine the federal stimulus package and prolong the downturn through badly timed and excessive budget cuts. We hope Oklahoma leaders keep this in mind as they face the tough choices over the coming weeks.