Balancing state budget with cuts only would hurt the economy more than help

FOR the second year in a row, state lawmakers are faced with unprecedented budget challenges, thanks mostly to the national recession that has been deeper and more prolonged than initially projected.

Last year, the state faced a record $9 billion budget shortfall. A combination of one-time federal money and nearly $4 billion in deep cuts to education and health-care investments brought us into temporary balance. This year, the continuing recession has left the state with another gaping hole to fill, this one currently at $2.8 billion.

From our perspective as economists and small-business owners, we're concerned about our state's economic recovery and about preserving and creating jobs. We believe another year of only budget cuts would further undermine our recovery.

Neither cuts in public spending nor tax increases are ideal in a recession. But deeper cuts in spending on investments to education, health care and infrastructure improvements would be worse. Targeted tax increases are not likely to slow economic growth as much as cuts because individual consumers, especially those with higher incomes, are unlikely to reduce consumption by the full amount of the tax increase.

Other leading experts agree. Nobel Prize winning economist Joseph Stiglitz and Peter Orszag, director of the federal Office of Management and Budget, have said, "A reduction in government spending on goods and services is likely to be more harmful to the economy in the short run than an increase in taxes."

It makes little sense to cut public support just when more people need it. More budget cuts will mean additional teachers and health professionals will lose work. There will be fewer people to help respond to the needs of Washingtonians, and thousands spending less in their local communities. This is economic activity that small businesses can't afford to lose.

More cuts would slow our economic recovery and leave our state poorly poised for prosperity's return. De-investing in education and infrastructure now will leave our businesses at a competitive disadvantage in the future.

Businesses that count on a quality education system to train and prepare their workers will have to look elsewhere. All school districts — especially the 220 school districts in less-wealthy areas of the state — would lose funding. Critical grants that allow talented students to pursue higher-education opportunities would be lost.

Almost every other state in the country is facing a budget shortfall as a result of the recession. Most have relied on a balanced approach of spending cuts and new revenue. Republican and Democratic leaders alike have used tax increases to respond to the unprecedented crisis.

Options include closing underperforming tax loopholes and exemptions, raising targeted sin taxes to promote public health, and holding polluters accountable by increasing the Hazardous Substance Tax.

Legislators should also take the opportunity to modernize the sales tax to include more products and services. And given the depth of the recession, a temporary increase in the sales tax should be on the table to help us through this difficult time.

Funding the Working Families Tax Rebate for low- and moderate-income working families could help mitigate the impact of any revenue proposal on those already hit hardest in this downturn.

Voters in Oregon recently upheld two tax increases because they understood the need to avoid budget cuts that would do more harm to the very core services that people depend on in times like this.

After last year's one-sided approach, we should follow suit and raise revenue here, too.