The headline may read, "Budget Shock in Oregon," but we here at NTU who work on budget and tax issues for a living are not surprised at all. Four months ago, despite already having some of the highest income tax rates in the nation, Oregon approved a staggering $737 million income tax hike. Proponents of the tax hike argued that it was necessary to raise taxes on hard-working individuals and small businesses in order to prevent "perilous" cuts to education. That statement now seems a little premature. This week, the state economist announced that Oregon did not collect its revenue estimates and now faces a budget deficit of $563 million. Governor Ted Kulongowski announced at a press conference the other day that he will direct state agencies, including education, to reduce spending by nine percent across the board.
Oregon is the latest example of what we have consistently argued to state policymakers: you can't tax your way out of a deficit. The problem for the Beaver State is massive spending increases over the years, even during this recession, and a heavy tax burden. Sunshine Review reports that the "all funds budget" was $51.2 billion in 2007-09 and increased to $55.9 billion in 2009-11, a nine percent increase. When you factor in the state's high income tax burden that keeps taxpayers away and drives current taxpaying residents out of the state, it is clear that these spending increases cannot be sustained.
Oregon's government now has to do what it should have done long ago, which is to reduce state spending to a more manageable level. Some will argue - as tax and spenders across the country have argued - that reducing spending is a draconian measure. But is it? Closing the new budget gap simply by reducing spending would leave the state spending the same amount of money as it did in 2007-2009. In all likelihood, most Oregonians would probably say that the state was not unlivable just two years ago. Plus, reducing spending back then probably would have been a lot less painful than now.
Let's hope that Oregon's legislators have learned a valuable lesson from this debacle and will make more prudent decisions going forward. If they do, maybe the next headline out of Portland will read, "Oregon Shocks Nation: State Rides Out Recession With Prudent Spending and Tax Policies."