Monday, March 30, 2009

Goldater Institute: How to significantly worsen and lengthen Arizona's recession

Senate Republicans recently announced their intention to balance the state budget without increasing taxes, as suggested by the governor. That will require significant reductions in spending.

want adsASU economist and professor Dennis Hoffman recently argued that reducing state spending by $1 billion would "significantly worsen and lengthen the economic recession." He estimated that 20,000 workers, including 12,000 private employees, would lose their jobs.

But, Dr. Hoffman's analysis looks only at one side of the coin. If legislators don't reduce spending, they'll have to increase taxes to close the gap--and increasing taxes will result in significant job loss.

The Goldwater Institute commissioned the Beacon Hill Institute at Suffolk University in Massachusetts to model the consequences of a $1 billion tax increase. A $1 billion increase in the sales tax would cause the loss of 13,000 private jobs. Several thousand government jobs would be preserved, but the trade-off is about three private jobs lost for every government job preserved.

When the impact of spending reductions and tax increases are both accounted for, it looks like the surest way to "significantly worsen and lengthen" Arizona's recession is to raise taxes.

No comments: