Economic Recovery Proposals will Fail Oregon

October 1, 2001By Jeff Thompson

Oregon's economy, in recession with 6.4 percent unemployment and more layoffs to come, could use some help. With our economy going from top dog to just "dog" in a year, Oregonians are eager for government to deliver economic stimulus.

To be effective, stimulus should be temporary and delivered to people who will spend it. The Republican and Bush proposals do neither, dedicating 90 percent of their long-term cost to tax cuts aimed largely at upper-income households and businesses. Most of the upper-income tax cuts occur after the recession likely will have ended, and, like the tax cut earlier this year, the money will likely be saved, not spent. The business tax cuts are too long-range to accelerate investment. No strings are attached, so there is no assurance that any of the companies receiving hundred million dollar windfalls will forego layoffs or make additional investments.

The proposed one-time tax rebate, aimed at low and middle-income households, would be effective, but it is quite small compared to the other tax cuts.

The federal proposals also include additional spending on unemployment insurance, which could be an effective stimulus. Unfortunately, the current proposals are practically useless for Oregon. The House proposal is just one-third the size of the stimulus enacted during the mild early 1990s recession. States wouldn't have to spend the money on increased benefits, but could use the funds to shore up existing unemployment trust funds or cut taxes on employers. The staid Congressional Budget Office expects that only 30 percent would actually be spent as additional benefits for workers.

The administration's proposal limits additional unemployment benefits to workers laid off after September 11th. By August, Oregon had 50% more unemployed workers receiving benefits than a year earlier. These workers would be ineligible for Bush's extended and increased benefits. Even eligible workers would only get these benefits if Oregon's unemployment rises to 7.8 percent.

What can the State of Oregon do for us? Oregon is constitutionally prevented from deficit spending, and has no rainy day fund to draw upon. The Governor's goal to boost tourism is laudable, but with a worldwide economic downturn and a major military conflict heating up, it's hard to see how even our best efforts will increase tourism. In any event, additional tourist dollars are not a substitute for the high-paying manufacturing and technology jobs that we are losing.

Any razzle-dazzle that the Governor's newest task force might muster will pale in comparison to the damage already done though deliberate inaction. Not halting the $254 million personal income tax rebate due by December 1 will administer a fiscal drag on the economy. Most of the tax rebate is destined for upper-income bank accounts where it will be saved, not spent. Moreover, state spending will be cut deeply - the exact opposite of stimulus.

The rebate also eliminates our ability to leverage federal dollars, and will trigger $35 million in increased federal income taxes next April, pulling funds out of Oregon's economy.

A quick end to Oregon's and the country's recession will require effective fiscal stimulus. Oregon's Congressional delegation and state leaders need to put money into the hands of people who will spend it - low and middle income families. The current proposals on the table badly miss the mark.