Investments In Services Trumps Tax Cuts, Report Says

Tuesday, May 1st 2007, 4:35 pm
By: News On 6

OKLAHOMA CITY (AP) _ Investments in education, health care and transportation will help Oklahoma's economy grow more than cutting taxes, according to a report released Tuesday.

The Community Action Project, a Tulsa-based anti-poverty group, released the report to lawmakers and state officials.

The group said the report was based on a review of economic research, historical data and comparative studies with other states and countries and considers a broad array of fiscal policy tools for spurring economic development.

It cited studies showing access to a productive labor force, good schools, highways and other quality of life factors trumped tax cuts in rankings of factors figuring into business location decisions.

``This brief clearly demonstrates that we can encourage stable, long-term economic growth in the state by investing in the priorities needed to support Oklahoma's families, businesses and communities,'' said David Blatt, CAP director of public policy.

``Investing in public services helps those who run businesses that depend on a skilled work force and functioning infrastructure,'' Blatt said.

``By helping to decrease significant business costs and improve the environment for revenue generation, Oklahoma policy makers can encourage business investment and entrepreneurial growth, significantly impacting Oklahoma's economic growth rate.''

In contrast, he said, the study finds that tax cuts are ``an extremely inefficient fiscal tool for achieving economic growth.''

Blatt referred to one study in which researchers found that 96% of the revenue given up by a typical tax cut is ``wasted money, going to firms whose investment decisions were not affected by taxes.''

The Oklahoma Legislature enacted record tax cuts in 2005 and 2006 and supporters of those reductions have generally said the legislation will bring more businesses to the state.

Sen. Mike Mazzie, R-Tulsa, co-chairman of the Oklahoma Senate Finance Committee, disputed the report's conclusions.

``I would disagree with the report's statements that tax cuts have a negligible impact on economic growth when history is filled with evidence that tax cuts stimulate jobs and new jobs drive an increase in tax revenue receipts,'' Mazzie said.

Jim Alexander, policy analyst who wrote the CAP brief, said research shows that ``public services, especially those dealing with education and infrastructure, are key determinants to business location and investment decisions.

``Likewise, policy that improves the health and the opportunity for greater educational attainment of all Oklahomans creates a more productive, better-skilled work force that attracts businesses and high-skilled workers.''

Rex Pjesky, an assistant professor of economics at Northeastern State University in Tahlequah, said economic growth is ``a complicated process caused by many factors'' but the relationships among those factors are not as clear as some Alexander and other analysts might think.

Pjesky, who commented on behalf of the Oklahoma Council of Public Affairs, a conservative think-tank, said while the CAP research shows states with well-funded quality schools have stronger economies, ``this does not suggest at all that increasing public budgets will increase economic performance.''

``Perhaps states with strong economies have the ability to fund schools more,'' Pjesky said. ``That is, growth caused highly funded schools, not the other way around.''

Alexander wrote that some analysts have attributed strong economic growth to tax cuts by measuring the economy from the depths of a recession to the next business cycle peak.

However, he said economists looking at historical trends, accounting for peaks and troughs in the business cycle, ``have found very little relationship between tax cuts and economic growth.''

The report did not comment directly on the recent tax cuts in Oklahoma, but said states that had large tax reductions during boom years of the late 1990s experienced ``far greater fiscal hardships and budget shortfalls'' during and after the 2001 recession.

It included a graph showing that recent Oklahoma tax cuts would result in lost revenue of about $777 million in Fiscal year 2010.