Sustainability and taxes

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Sustainability means different things to different people, both in terms of what we should try to sustain, and how we should go about it. Our collective interest in sustaining both environmental public goods and the public goods and services provided by government may at times be viewed as pitting private interests against public interests. The upcoming vote on Measures 66 and 67, which would raise taxes in Oregon, is a case in point, where opinions differ on how best to sustain jobs, public services, and quality of life. But while opinions on this issue may differ, the economic facts should not.

Let’s examine some of those economic facts. First, we’ve got to look at taxes and public services together. You can’t do benefit-cost analysis of an issue by looking only at its costs or only at its benefits. Second, if our long-term goals include a healthy and competitive economy and a high quality of life, then a balance must be struck between the private and public sectors.

The benefits of public services are inextricably linked to the costs of paying for them. As a result, taxes and public services can be too high if the benefits of sizable public services do not offset the costs of relatively high taxes. But it’s equally true that taxes and public services can be too low if the benefits of relatively low taxes do not compensate for the costs of poor public services such as education, public safety, and health care.

With this economic orientation, where does Oregon stand? A straightforward way to evaluate taxes is to look at the share of personal income paid by Oregonians in taxes and compare that amount to what is paid in other states and to historical trends. The data reveal that state taxes in Oregon (currently 5 percent) are significantly below the national average (currently 6 percent), leaving Oregon ranked 44^th out of the 50 states. The data also show that the gap between Oregon and the national average gets wider during recessions like the current one, and that the gap has widened over the past 17 years. When local taxes are added to state taxes (so the figures include all property taxes, income taxes, sales taxes, etc. for all 50 states), the story is the same.

Where do Oregon’s relatively low taxes leave the state’s public services? In particular, what about education, the largest expenditure category? Oregon’s public school systems have an average student-teacher ratio that places Oregon 49^th out of the 50 states. But it hasn’t always been this way: in the 1970s, Oregon ranked in the middle. At the same time, we’ve seen a trend toward a less educated workforce: A larger share of older Oregonians (ages 55-64) have bachelor’s degrees than do younger Oregonians (ages 25-34). This trend is occurring at a time when the rest of the world is going in the opposite direction because it is widely recognized that education is essential for competing in the global economy.

These key indicators suggest that Oregon’s taxes and public services are relatively low, and that Oregon’s workforce is becoming less educated compared to its competitors.

Opinions differ on Measures 66 & 67 for reasons of principle, ideology and self interest, but the evidence examined here indicates Oregon’s public services and the taxes that pay for them are low compared to most other states, and that passage of Measures 66 & 67 would only partially narrow that gap.

Interests that appear to be in competition with each other may actually reinforce each other. This can be true for environmental sustainability when economic growth provides society with the means and willingness to invest in environmental protection. It is also true for taxes and economic growth. Oregon’s long-term competitiveness depends on making adequate investments in public education to ensure a skilled workforce, which in turn will strengthen the economy and its ability to fund public services in the future.

William Jaeger is a professor in the Graduate Program in Applied Economics at Oregon State University. His study on Measures 66 & 67 can be accessed at http://ir.library.oregonstate.edu/jspui/bitstream/1957/13620/1/em8997.pdf

William Jaeger is a professor in the Graduate Program in Applied Economics at Oregon State University.