Oregon Measure 97 would provide short and long-run boost to Oregon economy

The national recovery since the end of the Great Recession has been needlessly held back by spending cuts at all levels of government. Figure A below compares the growth in per capita spending by federal, state, and local governments in this recovery with previous recoveries.

Figure A

Fiscal austerity explains why recovery has been so long in coming: Change in per capita government spending over last four business cycles

1982Q4 1991Q1 2001Q4 2009Q2
-6 90.83817
-5 96.46779 91.33168
-4 96.72548 97.80345
-3 96.51523 96.35624 94.05089
-2 97.21731 98.09825 98.14218 94.4813
-1 98.26435 98.92533 97.98324 96.68474
100 100 100 100
1 100.3829 100.7468 101.5275 99.84022
2 100.9558 100.4456 102.3723 99.50632
3 101.005 100.9653 102.8023 100.7222
4 99.79553 102.3054 103.3013 101.0192
5 100.4771 102.4831 103.1351 101.1242
6 101.715 102.7714 104.3665 100.3432
7 102.037 102.2554 104.5556 98.88213
8 103.485 101.9195 104.6451 98.15822
9 104.602 101.724 105.4192 97.23836
10 106.0107 102.011 105.8382 96.86414
11 107.6073 101.868 105.804 95.9267
12 107.6288 101.2959 105.4445 95.78736
13 108.7749 101.4328 106.1767 95.40735
14 110.4932 102.1325 106.3521 94.83589
15 112.3029 101.9209 106.5289 94.21625
16 111.6476 102.6275 106.0185 93.90439
17 112.0741 102.8173 107.5423 93.62299
18 112.6221 102.3836 107.6773 93.04895
19 112.3952 101.1486  107.8776 93.22292
20 113.0807 101.9359 108.2144 93.60604
21 113.3476 103.2437 109.1187  94.245
22 113.3408 102.7047 109.0787 94.14226
23 113.108  102.7598 109.5846 95.09063
24 114.405 103.1194 109.8789 95.43504
25 114.9973 103.4402 95.722
26 116.1049 103.3562 95.86387
27 116.8758 103.2392 96.35498

 

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Note: For total government spending, government consumption and investment expenditures deflated with the NIPA price deflator. Government transfer payments deflated with the price deflator for personal consumption expenditures. This figure includes state and local government spending.

Source: EPI analysis of data from Tables 1.1.4, 3.1, and 3.9.4 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA)

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As tight as federal spending growth has been in recent years, the bulk of the differences between the current recovery and previous ones shown in Figure A actually stems from state and local spending decisions. These state-level spending cutbacks have held down growth substantially.

States, unlike the federal government, are generally constrained in their ability to boost spending by the need to raise revenue. But as a general rule, government spending boosts economic activity in a weak economy more than tax cuts drag on activity. (In economist jargon, spending increases have higher “multipliers” than revenue increases.)

Measure 97, which is on the Oregon ballot this year, gives Oregon voters the chance to invest in just such a boost to spending on education, health and senior services. These voters should approve it.

Measure 97 would change Oregon’s corporate minimum tax by placing a 2.5 percent gross receipts tax on corporate sales over $25 million. It is forecast to provide roughly $6 billion in funds between 2017 and 2019 that are dedicated for investments in health, education, and senior services. These investments would be most welcome for Oregon.

Oregon’s unemployment rate sits at 5.5 percent, compared to the national unemployment rate of 5 percent. Further, it has drifted up over the past year. As Figure B shows, much of this ongoing weakness in the Oregon labor market stems from weak local government employment, a sector dominated by public school teachers. As Measure 97 will free up resources to spend on public education, there will be near-immediate impacts in boosting the Oregon labor market.

The Teacher Gap

Local government employment and the number of jobs needed to keep up with enrollment in Oregon, 2003–2016

Local public employment  Jobs needed to keep up with enrollment
2003-01-01 179900
2003-02-01 178900
2003-03-01 177700
2003-04-01 177200
2003-05-01 176300
2003-06-01 174200
2003-07-01 173500
2003-08-01 175900
2003-09-01 174800
2003-10-01 175400
2003-11-01 175200
2003-12-01 175600
2004-01-01 175300
2004-02-01 175800
2004-03-01 176200
2004-04-01 176600
2004-05-01 176600
2004-06-01 177600
2004-07-01 178500
2004-08-01 179300
2004-09-01 179400
2004-10-01 178700
2004-11-01 179000
2004-12-01 179400
2005-01-01 179900
2005-02-01 179300
2005-03-01 179500
2005-04-01 179800
2005-05-01 179200
2005-06-01 179500
2005-07-01 179800
2005-08-01 179700
2005-09-01 180300
2005-10-01 179900
2005-11-01 180000
2005-12-01 180500
2006-01-01 180900
2006-02-01 181300
2006-03-01 181200
2006-04-01 181400
2006-05-01 181900
2006-06-01 182400
2006-07-01 182500
2006-08-01 181800
2006-09-01 183000
2006-10-01 183000
2006-11-01 184300
2006-12-01 183100
2007-01-01 183200
2007-02-01 184000
2007-03-01 184400
2007-04-01 185000
2007-05-01 185700
2007-06-01 186100
2007-07-01 186600
2007-08-01 187000
2007-09-01 187400
2007-10-01 188200
2007-11-01 188100
2007-12-01 189500
2008-01-01 189600
2008-02-01 189600
2008-03-01 190600
2008-04-01 190600
2008-05-01 191300
2008-06-01 192100
2008-07-01 193900
2008-08-01 194000
2008-09-01 193900 193900 193900
2008-10-01 193000 193983 193900
2008-11-01 193400 194067 193900
2008-12-01 193000 194150 193900
2009-01-01 192400 194234 193900
2009-02-01 192400 194318 193900
2009-03-01 191700 194401 193900
2009-04-01 190800 194485 193900
2009-05-01 191500 194569 193900
2009-06-01 189700 194652 193900
2009-07-01 194500 194736 193900
2009-08-01 192800 194820 193900
2009-09-01 190600 194904 193900
2009-10-01 190700 194988 193900
2009-11-01 189900 195072 193900
2009-12-01 189700 195156 193900
2010-01-01 189400 195240 193900
2010-02-01 189300 195324 193900
2010-03-01 189100 195408 193900
2010-04-01 189900 195492 193900
2010-05-01 189300 195576 193900
2010-06-01 191900 195660 193900
2010-07-01 188300 195744 193900
2010-08-01 191300 195829 193900
2010-09-01 187800 195913 193900
2010-10-01 188700 195997 193900
2010-11-01 189500 196082 193900
2010-12-01 188000 196166 193900
2011-01-01 189000 196250 193900
2011-02-01 188400 196335 193900
2011-03-01 187900 196419 193900
2011-04-01 187700 196504 193900
2011-05-01 187100 196589 193900
2011-06-01 186000 196673 193900
2011-07-01 185100 196758 193900
2011-08-01 182900 196843 193900
2011-09-01 182900 196927 193900
2011-10-01 183500 197012 193900
2011-11-01 183100 197097 193900
2011-12-01 184100 197182 193900
2012-01-01 183300 197266 193900
2012-02-01 183300 197351 193900
2012-03-01 183300 197436 193900
2012-04-01 183000 197521 193900
2012-05-01 182900 197606 193900
2012-06-01 182500 197691 193900
2012-07-01 183100 197776 193900
2012-08-01 182700 197862 193900
2012-09-01 182700 197947 193900
2012-10-01 182500 198032 193900
2012-11-01 182100 198117 193900
2012-12-01 181500 198202 193900
2013-01-01 180500 198288 193900
2013-02-01 181200 198373 193900
2013-03-01 181000 198459 193900
2013-04-01 180700 198544 193900
2013-05-01 180900 198629 193900
2013-06-01 180600 198715 193900
2013-07-01 179700 198800 193900
2013-08-01 179500 198886 193900
2013-09-01 180900 198972 193900
2013-10-01 180000 199057 193900
2013-11-01 180000 199143 193900
2013-12-01 180200 199229 193900
2014-01-01 180800 199314 193900
2014-02-01 180800 199400 193900
2014-03-01 180900 199486 193900
2014-04-01 181500 199572 193900
2014-05-01 181800 199658 193900
2014-06-01 182300 199744 193900
2014-07-01 182900 199830 193900
2014-08-01 183200 199916 193900
2014-09-01 183600 200002 193900
2014-10-01 183700 200088 193900
2014-11-01 183800 200174 193900
2014-12-01 184100 200260 193900
2015-01-01 184100 200346 193900
2015-02-01 184200 200433 193900
2015-03-01 184400 200519 193900
2015-04-01 184200 200605 193900
2015-05-01 183900 200691 193900
2015-06-01 185100 [label=”100 local public jobs gained”] 200778 193900
2015-07-01 184900 200864 193900
2015-08-01 185500 200951 193900
2015-09-01 186200 201037 193900
2015-10-01 187500 201124 193900
2015-11-01 187800 201210 193900
2015-12-01 187900 201297 193900
2016-01-01 188500 201384 193900
2016-02-01 188800 201470 193900
2016-03-01 189700 201557 193900
2016-04-01 190000 201644 193900
2016-05-01 190200 201730 193900
2016-06-01 189900 201817 193900
2016-07-01 191500 201904 193900
2016-08-01 191500 201991 193900
2016-09-01 194000   202078   193900
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Source: EPI analysis of Current Employment Statistics  public data series and U.S. Department of Education (2015)

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This short-run economic improvement alone would be a compelling reason to vote for Measure 97. However, as other backers of Measure 97 have noted, the benefit of public investment—particularly spending on education— goes well beyond simple short-run stimulus. In Oregon, increased public investment is needed to reverse a disturbing long-run trend in reduced state and local government spending. The cuts to local government jobs highlighted above have resulted in Oregon having one of the highest student/teacher ratios (and hence most crowded classrooms) in the country. And too often outcomes have reflected this failure to invest— even with some recent improvements Oregon has one of the worst on-time high school graduation rates in the country. Given that public education spending relies overwhelmingly on these state and local budgets, reversing this trend is crucial to sustaining valuable investments in America’s children. The value of public education as an investment is beyond dispute.

For example, a recent paper in the Quarterly Journal of Economics used data from California ballot measures that allowed increases in school spending and found that approving these ballot measures helped solve a clear underinvestment in school facilities. They found that each extra $1 of school spending made possible by such ballot initiatives led to a $1.50 increase in home prices for the affected school districts, and were also accompanied by rising test scores for students.

Another recent academic paper examined data from a wave of post-1990 school finance reforms that boosted per pupil spending. The authors find that these reforms “cause increases in the achievement of students in these districts, phasing in gradually in the years following the reform. The implied effect of school resources on educational achievement is large.”

Finally, as a matter of state policy, public investments have been shown to be much more promising in fostering economic development than focusing on low business taxes. As Robert Lynch demonstrates in a 2004 book, Rethinking Growth Strategies: How State and Local Taxes and Services Affect Economic Development:

In particular, there is little evidence that state and local tax cuts—when paid for by reducing public services—stimulate economic activity or create jobs. There is evidence, however, that increases in taxes, when used to expand the quantity and quality of public services, can promote economic development and employment growth.”

Politicians and policymakers often like to engage in plenty of rhetoric about the importance of education as an investment. Measure 97 lets the voters of Oregon show that they think this rhetoric should be backed up by concrete policy changes.


  • gkw

    Where does the six billion come from, I’m sure the corporations will just swallow it. Not likely, so what about the jobs lost by a six billion dollar re-direction of consumer spending, i.e., the dollars now going to this veiled sales tax? Is there perhaps an impact to the private sector from this? Oregon has a huge problem with funding it’s bloated PERS system and it seems your analysis completely ignores this and in fact adds to it. I do believe in tax reform, and also support funding education, along with reforms to PERS that allow the dollars to go to existing teachers rather than those who have not contributed in many years. Do you actually talk to anyone when your write these or just read other peoples stuff, and apply it to your own preconceived notions? More taxes to fuel government spending sucks money out of the private sector, even worse borrowing to fuel these “investments” to kick start the economy… It’s a mindset that make me ill. And one that the politicians seem to adore (even when they deny it). Is it possible that our economy should grow at a sustainable rate for more than a year or two and that would be OK?

    • MOnodb Bart

      I wonder if you would favor discontinuing the corporate income tax, and instead tax distributions from corps. and also tax corp idle money?