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State Budget

States that raised taxes significantly during the 2001 recession rebounded just as quickly as states that did not raise taxes. For example, North Carolina experienced strong income and employment growth after raising taxes. Leading economists agree that targeted tax increases are less harmful to state economies than spending cuts during recessions. Mark Zandi and other experts recommend closing budget deficits through a combination of cuts, tax hikes, and economic growth. Nobel Prize winner Joseph Stiglitz also argues that certain tax increases are less damaging than sharp budget cuts during an economic downturn.

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72 views1 page

State Budget

States that raised taxes significantly during the 2001 recession rebounded just as quickly as states that did not raise taxes. For example, North Carolina experienced strong income and employment growth after raising taxes. Leading economists agree that targeted tax increases are less harmful to state economies than spending cuts during recessions. Mark Zandi and other experts recommend closing budget deficits through a combination of cuts, tax hikes, and economic growth. Nobel Prize winner Joseph Stiglitz also argues that certain tax increases are less damaging than sharp budget cuts during an economic downturn.

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State

Budget

Spending Cuts Harm Georgia’s Economy


More Than Targeted Tax Increases
Tax Increases Versus Budget Cuts
States that raised taxes significantly during the 2001 recession Lawmakers should close the deficit and
were just as fast, on average, to rebound from the recession protect local economies by raising more
as states that did not. revenues: “It is important not to crush state budgets
For example, North Carolina, which raised taxes significantly by relying solely on spending cuts,” said Zandi of Moody’s
during the years of the downturn, experienced 6.7 percent Economy.com.
average income growth annually, compared
to the national average of 6.2 percent.
States That Raised Revenues did Not Hurt Their Economies
Its employment grew 2.5 percent each
year compared to the national average of 1.7 Average Yearly Growth 2004-2007
states that increased
percent. i
taxes significantly
6% between 2001 and
On the Contrary 2004

Leading economists agree that in order national average


to address large budget deficits, such as
Georgia’s, targeted tax increases are less 4%
harmful to states’ economies than cuts:
1. Mark Zandi, chief economist and cofounder
of Moody’s Economy.com, as well as an
2%
advisor to Senator McCain during the
2008 presidential election, made the
following recommendation to the nation’s
governors during a February 22, 2010
0%
National Governor’s Association meeting:
States should close their deficits through a Total Personal Median Wage Employment
Income
combination of budget cuts, tax increases,
and economic growth. ii Congressional Budget Office and now the director of the
Office of Management and Budget. iii
2. Spending cuts are likely to be more damaging to
a state’s economy during a recession than certain 3. A letter to Governor Patterson of New York, signed by
tax increases, according to Nobel Prize winner in 120 economists, states: “Raising taxes during a downturn
economics, Joseph Stiglitz of Columbia University, — particularly taxes that affect only higher income
and Peter Orszag, until recently director of the families — is generally better for a state’s economy, and
better for its citizens, than sharp budget cuts.”iv
i Nicholas Johnson, Andrew C. Nicholas, and Steven Pennington, “Tax Measures Help Balance State Bud- iii Peter Orszag and Joseph Stiglitz,“Budget Cuts vs. Tax Increases at the State Level: Is One More Counter-Pro-
gets: A Common and Reasonable Response to Shortfalls,” Center on Budget and Policy Priorities, updated ductive than the other during a recession?” Center on Budget and Policy Priorities, revised November 6, 2008,
July 9, 2009, http://www.cbpp.org/cms/index.cfm?fa=view&id=2815. http://www.cbpp.org/archiveSite/10-30-01sfp.pdf.
ii John Buhl, “Economist Tells Governors to Consider Tax Increases to Balance Budgets,” Tax Analysts, Febru- iv Letter dated December 13, 2008, available at http://www.fiscalpolicy.org/Letter_EconomistsOnFiscalPolicy_
ary 23, 2010. December2008.pdf.

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