How the big tax raisers and the non-tax raisers have performed since the recession

I very rarely respond directly to something my colleague Jay Bookman has written, although both of us write with some regularity about the same topics. However, I was intrigued by his post yesterday comparing Georgia and Oregon — intrigued enough to do some research of my own, which I figured I ought to share since I ended up spending so much time on it.

If you haven’t already read Jay’s post, please do so. Done? OK, let’s proceed.

Let me make one thing very clear from the very beginning: I am not accusing Jay of cherry-picking his examples of Georgia and Oregon, or anything else untoward. He chose those states more than four years ago, without knowing how events would unfold, and it’s perfectly legitimate for him to revisit that comparison now. Rather, the strikingly different performances of those two states made me wonder if they were indicative of what happened with all states that made similar policy choices in the wake of the Great Recession. It is from that point that I depart.

To select states for my own comparison, I tried to determine which states had raised taxes when their revenues were wrecked by the recession, and which ones avoided that. I found a publication — also from 2010 — from the Center on Budget and Policy Priorities, a group that advocates for higher taxes. In that publication, a CBPP writer noted that 33 states had raised taxes in response to the recession, including Oregon but not Georgia. But of course, not all tax increases are equal; 13 of those 33 raised taxes by less than 1 percent. However, 10 states raised taxes by more than 5 percent, including Oregon. Given that these 10 states together are relatively close in population and economic output to the 17 non-tax-raisers, I thought that’d make for a pretty fair big-picture comparison. Here’s what I found when I examined the same metrics Jay used to compare Oregon and Georgia: unemployment rate, real state GDP and median household income between 2010 and 2013 (or the present, in the case of unemployment). In most of these comparisons, I’ll show figures for Georgia and Oregon alongside those for the U.S. as a whole, the group of 17 “no increase” states and the group of 10 “big increase” states, with Georgia pulled out of the former and Oregon out of the latter in most cases.

1. Unemployment rate

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

As you can see from the above graph, both Georgia and Oregon started 2010 with jobless rates above all three groups and ended August 2014 likewise above them (in this case, I’m using the national jobless rate and non-weighted averages for the 16 other no-increase states and the nine other big-increase states; weighting this metric for population would have taken more time than I had to spend). But you can also see that the no-increase states maintained a jobless rate more than 1 percentage point below both the U.S. figure and the big-increase average until early 2014. The really strange thing is the decoupling of trends for both Georgia and Oregon from the national trend line starting earlier this year. Get the underlying data here.

2. Real state GDP

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

I looked at this a couple of ways. First, what did it look like in no-increase states vs. big-increase states and the national total? (In this case, growth rates are weighted for population.) As you can see in the graph above, the no-increase states have consistently out-performed both other groups — significantly so in 2010 through 2012.

It turns out that the no-increase figure goes up a bit if you remove Georgia, while the big-increase figure drops a bit without Oregon. Why? Because, as the next two graphs illustrate, Oregon is an outlier on the high side among the high-increase states, while Georgia falls toward the low end of the no-increase states and right in the middle of the big-increase states.

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

 

Source: Bureau of Economic Analysis

Source: Bureau of Economic Analysis

So, Georgia performed better than half of the big-increase states, and almost as well as two others, while ranking in the bottom half of the no-increase states. Oregon, meanwhile, performed almost twice as well as the next best big-increase state and would have been toward the top of the list among no-increase states (basically tied with Oklahoma) had I included it. (Note that, in that last graph, I didn’t include North Dakota among the no-increase states; its growth of 44 percent really skewed the graph to the point it was hard to see the other states well.) Get the underlying data here.

3. Median household income

Source: Census Bureau

Source: Census Bureau

This graph shows how each state or group of states has changed since 2010 (the group averages are again not weighted for population). This result honestly surprised me: I wouldn’t have guessed Georgia would rank above the other four in 2011 and 2012 and be surpassed only by Oregon in 2013. But once again, you can see that, minus Oregon, the other big-increase states have had trouble keeping pace with their no-increase counterparts and the national average. Get the underlying data here, Table H-8.

***

What does it all mean? I’m not totally sure. I think it means Oregon has had some kind of extraordinary success in recent years that helped it blow past its tax-raising peers. I think it means Georgia’s performance remains something of an enigma, as I’ve written before.

But I also think it means the picture is not terribly good for the states that raised taxes the most. And it’s worth noting that some of the tax increases in question were only temporary — including most of Oregon’s — while in North Carolina the increases were not only reversed but actually reduced below their previous levels.

Not to mention that, even though Georgia’s leaders have talked a lot about lowering taxes, they haven’t actually done it. The big tax-cutting talk of 2010 became a study committee that reported its findings before the 2011 session, during which a wide-ranging bill was debated and eventually scuttled. Some parts of the bill were passed in 2012, but most of the decreases (e.g., ending the “birthday tax” on motor vehicles each year) were offset by increases (e.g., creating a tax on person-to-person sales of used cars).

If Georgia’s economic performance has been lacking, perhaps it isn’t because it refused to raise taxes and instead cut the state budget. Perhaps it’s because it hasn’t gone as far as some other states in updating its uncompetitive, 20th-century tax code.

Reader Comments 0

68 comments
LogicalDude
LogicalDude

Great examination Kyle. 


" Georgia’s leaders have talked a lot about lowering taxes, they haven’t actually done it."


Because they realize the state needs to pay its bills and lowering taxes below the low tax rate now would actually lower revenues.  Georgia is on the lower end of the Laffer curve where lowering taxes means lowering revenues. 


"Georgia. . .  hasn’t gone as far as some other states in updating its uncompetitive, 20th-century tax code."

Or, 

Georgia keeps reducing spending on long-term items that benefit the state such as education, transit, and healthcare.  This long-term neglect has its consequences in the long term. We are reaping what we have sown. 


zekeI
zekeI

Thanks, Kyle for the REAL information!

Finn-McCool
Finn-McCool

Thank God for Site Selection magazine!



mwuahhahahaaaaaaaaaaaaaa

AvailableName
AvailableName

It would be interesting to look at Georgia and Kansas in a couple of years to compare Georgia, the state that didn't go far enough with the state that jumped over the cliff and currently seems like it is drowning in red ink.  If Kansas pulls out of its nosedive and produces what Governor Brownback says it will, those of us skewing left will have a lot of crow to eat.  Until then, I'm going to stick to the Georgia has gone way to far with the tax cutting stuff crowd.

AvailableName
AvailableName

My last sentence is wrong, Georgia hasn't cut taxes except for a few corporations.  The comparison is between Georgia, standing pat on taxes and cliff diving Kansas.

HeadleyLamar
HeadleyLamar

Although we like to flaunt our supposed independence from Washington, the Tax Foundation also reminds us that thanks to low state taxes, we depend on the federal government for some 38.9 percent of our state budget, the eighth highest rate of federal dependency in the country.


http://jaybookman.blog.ajc.com/2014/10/01/ga-has-followed-gop-playbook-to-50th-in-the-nation/


Another very telling statistic. I would like to see the big increase vs no increase states and where they rank in federal dependency. 

zekeI
zekeI

@HeadleyLamar 

IF, IF, IF the central federal government would follow the Constitutional limits placed on it, the the various states would have their own revenue base from which to pay for roads, bridges, water, sewer, and, other programs WITHOUT THE UNCONSTITUTIONAL INTERFERENCE OF THE CENTRAL FEDERAL MORONS!

Kyle_Wingfield
Kyle_Wingfield moderator

@HeadleyLamar But then, I'm not sure the dependency thing is all it's cracked up to be. If two states receive the exact same amount per capita for federal programs, but one state voluntarily spends more on other programs, the second state would appear to be more "dependent" simply because its overall budget is smaller. The dependency argument, it seems to me, would make more sense if we were talking about federal spending in each state on the same programs.

Maybe the "dependency" would show up the same in such a comparison. But that data point doesn't tell us that.

HeadleyLamar
HeadleyLamar

@zekeI @HeadleyLamar When 40 percent of your budget is coming from those feds ( and by ext the blue states which send in more than they get back ) id be careful what you wished for.

HeadleyLamar
HeadleyLamar

Kyle makes a valiant attempt but there is no amount of lipstick that can be applied to this pig ( Georgia Economy ) to make her look good.


Go read Bookmans article today.

Its official. They have changed the state motto in Mississippi to


" Thank god for Georgia !!!! "

Kyle_Wingfield
Kyle_Wingfield moderator

@HeadleyLamar As I said earlier on this thread, the point is not to defend Georgia's performance. The point is it's not indicative of what happens when a state doesn't raise taxes. And, as I've explained at length in the past, metrics other than the jobless rate portray Georgia in a much more favorable light. Not No. 1, but not dead last, either. Every economist interviewed about the jobless rate has said as much.

RoadScholar
RoadScholar

"Some parts of the bill were passed in 2012, but most of the decreases (e.g., ending the “birthday tax” on motor vehicles each year) were offset by increases (e.g., creating a tax on person-to-person sales of used cars)."

Did you include the resulting local and county tax increases due to this program?


Also take Texas and the Dakotas out of the mix. They have oil!

straker
straker

Kyle, is it possible that no matter WHO is Governor of Georgia, things are only going to gradually get worse?

MANGLER
MANGLER

Having lived in both Oregon and Georgia, I'd like to add that both States are very similar in that slightly more than half the population lives in one large metro.  Therefore, the decisions made in the large metro carry most of the economic weight of the State.  Atlanta and Portland attract most of the people moving to their respective regions.  

Portland, however, has mainly focused on high-tech manufacturing (calling themselves Silicon Valley North) and aerospace and spending large amounts on higher education and the start-up community.  Atlanta has been focusing on a much more broad spectrum of industries including some bio-tech and military backed aerospace, but mainly logistics, service, and entertainment/tourism.

That's not a bad thing for us, it's just that different fields provide different pay scales.  I think that trend is why the median income has started to jump in Oregon as compared to Atlanta, despite having near identical patterns of unemployment rates.

Nobody_Knows
Nobody_Knows

How is Kansas doing?


I think the raise tax vs no increase is way to simplistic and doesn't take into account the circumstances in each state.


Good surface discussion but regardless of where one stands on the issue it certainly requires more detail and a deeper dive.

Kyle_Wingfield
Kyle_Wingfield moderator

@Nobody_Knows "regardless of where one stands on the issue it certainly requires more detail and a deeper dive"

Oh, I agree completely. There are unique circumstances in each state. My point is to tamp down the notion we can make sweeping claims about what works or doesn't based on a few data points.

Kyle_Wingfield
Kyle_Wingfield moderator

@Nobody_Knows But to answer your first question, Kansas is performing relatively well compared to the other 26 states examined here -- as well as or better than all but seven of them (don't forget ND, with its 44% GDP growth, isn't listed on those charts for reasons of legibility).

Nobody_Knows
Nobody_Knows

@Kyle_Wingfield @Nobody_Knows 

Thanks.

Must say that I do think it is a good idea that you took a Bookman article and did your own comparison.  Not sure how much you have done that in the past but it would be interesting if both of you did more of that on certain topics.  

I'm sure we could find the truth in between the distinct sets of data and narratives  j/k

Nobody_Knows
Nobody_Knows

@Kyle_Wingfield @Nobody_Knows 

Hasn't their tax revenue dropped and wasn't there debt rating downgraded?  

Not is all well with Brownback's policies in KS.  Not by a long shot.

But again one must look at more details than just the surface. 

Kyle_Wingfield
Kyle_Wingfield moderator

@Nobody_Knows As it has been explained to me, Kansas' credit rating was downgraded because it used one-time, non-recurring revenues to pay for the reduction in revenues due to the tax cut. The rating agencies don't like to see that; they'd rather see you offset tax cuts with spending cuts rather than by taking money out of reserves or using one-time gimmicks to get by.

RafeHollister
RafeHollister

Proggies desperately trying to hold onto the Keynesian approach of spending your way out of a recession, in spite of common sense and the data that proves it.  Big government might be at stake! 

MHSmith
MHSmith

Don't you love all these off-topic deflections that deviate from your article and argument, Kyle? ~ eyeroll

Finn-McCool
Finn-McCool

For Real GDP Growth changes, look at the changes from year to year. From 2011–2012 the no-increase states had a 45% (calculated as a % change using Kyle’s chart numbers (3.2-2.2)/2.2) increase while the big increase states had a 92% increase. The no-increase states didn’t even keep up with the national average change of 56% increase!


Looking at 2012-2013, the no-increase states had a decline of  34% while the big increase states had a decline of only 22%. The national average decline was 28%. Again, the no-increase states lag behind even the national average.


Yeah, I think we can all see who the winners are!

Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool You are really stretching there. Regardless of how the rate changed from one year to the next, the rate remained higher in the no-increase states in each and every year ... and cumulatively, as well.

Finn-McCool
Finn-McCool

@Kyle_Wingfield @Finn-McCool


LOL, really?


Kyle, what you are saying is something to the effect that GM is a better company than “insert any smaller US company’s name here” just because GM has a bigger market cap or bigger revenues number.


Everyone knows you look at changes over time to see which companies are performing well and which ones are not. This means looking at growth rates, not absolute numbers.

Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool "Everyone knows you look at changes over time to see which companies are performing well and which ones are not."

Yes ... and in this case, the no-increase states are performing better than the big-increase states in every single year.

If you would rather be in the big-increase states because one year their rate changed by 1.1 percentage points vs. 1 percentage point, even though it was still lower by 0.9 percentage points, then you really don't understand the issue at hand.

Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool If you would rather be in the big-increase state based on the change in the rate of change, rather than actual performance, then we are never going to resolve this discussion. Or, it's probably safe to say, any discussion about economics.

Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool Remember, the real rate of change is the number listed on that chart. You're talking about the change in the rate of change.

Finn-McCool
Finn-McCool

@Captain-Obvious



You sure are looking a lot further ahead than your Con friends. Are you sure you don't believe in global warming and Climate Change?

Finn-McCool
Finn-McCool

Be interesting to see all those states and buckets of states in comparisons of the crime rates, literacy rates, abortion rates, home ownership rates, bankruptcy rates, and increase/decrease in usage of predatory lending institutions.

RafeHollister
RafeHollister

@Finn-McCool Gotta find something, right Finn, can't have the common sense approach to kick starting the economy actually proven true, when the Dems have been telling us for years this "19th Century approach"  doesn't work anymore.



Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool @RafeHollister All three groups have moved in tandem ... but in each case, the no-increase states have been growing faster than the national average and the big-increase states. You're grasping at straws.

RafeHollister
RafeHollister

@Finn-McCool @RafeHollister I believe Kyle's response negated this desperate reach to find something.  Overall is what we are looking at, not short periods that could be related to unique things happening in those states.

dontstereotypemeyo
dontstereotypemeyo

Another claim that Deal defenders make: that Georgia's high unemployment rate is due to the state's high number of black citizens and its increasing Hispanic population.


But look at the DOL list again. Texas, Virginia, Ohio, Indiana, Louisiana, Massachusetts, Pennsylvania, Florida, Missouri, Maryland, New York, South Carolina, New Jersey, Illinois, North Carolina and Alabama all have very large black/minority populations and they all have unemployment rates that are a full percentage point lower than Georgia's. As a matter of fact, even California and D.C. have lower unemployment rates at 7.4% and 7.6%. California is 39% white. Washington, D.C. is 51% black (and its economy is improving so well that the white percentage of the population has gone from 31% to nearly 40% in the past few years, as the city's leadership has gone from left-liberal to more moderate, and specifically has become pro-business and embraced charter schools, plus the crime rate has dropped ... in other words the same reason why the white population of Atlanta is also increasing). 


The Georgia GOP record on jobs (not just Deal but Perdue also) is horrible whether you are comparing Georgia to Democrat states or Republican states. It is time to admit it and start asking why. Basically, David Pennington was right all along, and maybe the GOP primary voters should have taken him more seriously.

Finn-McCool
Finn-McCool

Look at those trend lines in chart 3. Looks like the future will be increasingly bleak for the no increase states and Georgia.

Finn-McCool
Finn-McCool

@Kyle_Wingfield @Finn-McCool


Yes, Chart 3. GA and the no-increase states have trendlines pointing down. Looks like GA and the no-increase states have peaked.

Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool Again, chart 3 shows the big-increase states, not the no-increase states. In any event, you're reading the chart wrong: Those are not trend lines, they're the figures for each state cumulatively from 2010 to 2013.

Kyle_Wingfield
Kyle_Wingfield moderator

@Finn-McCool Ah, OK. That makes a lot more sense.

Still, the no-increase states performed better in 2011 and 2012 before performing worse in 2013. It's too early to say if that's the beginning of a reversal in the trend, or a momentarily blip.