by Kelly O'Donnell
Income tax cuts might be doing more
harm than good for New Mexico's economy.
Data released a few days ago by
the New Mexico Department of Labor show sluggish job growth and suggest reasons
other than tax cuts for what little growth there is.
Furthermore, budget
cots that may result from state and federal tax cuts jeopardize the health of
two of the four sectors - health care and government - in which growth is strongly
positive.
According to the Economic Policy Institute, President Bush's 2001
"Jobs and Growth" tax plan was supposed to create 20,400 jobs in New
Mexico in the nine months between June 2003 and March 2004. Job-growth numbers
released on
April 23 shows the tax cut plan fell 8,700 jobs short of its
New Mexico goal for that period.
The failure of the Bush tax cut to produce
promised job growth is not unique to New Mexico. In all 50 states and the District
of Columbia, job creation during implementation of the Jobs and Growth tax plan
has been lower than Bush administration projections.
New Mexico's lackluster
recovery stands out, because New Mexico is the only state in which state income-tax
cuts similar in structure to the federal cuts are being implemented at the same
time.
If tax cuts actually stimulated job growth, we would expect New Mexico's
performance to exceed, not lag, the administration's predictions. New Mexico's
March unemployment rare was 5.7 percent, an increase over February (5.6 percent)
and higher than the unemployment rates in both March 2001 (4.7 percent), when
the recession began, and November 2001 (5.1 percent), when the recession ended.
The
failure of the combined cut to increase employment points to the fact that income
tax cuts are a costly and ineffective way to grow jobs.
Since March 2003,
New Mexico has added 12,300 jobs: an annual growth rate of 1.6 percent. The New
Mexico Department of Labor cites construction, mining, health care and government
as the areas of strongest employment growth.
Job creation in these sectors
cannot be attributed to tax cuts. Other reasons for job creation are readily apparent,
and, in the case of health care and government, it is clear that tax cuts actually
threaten continued growth.
Construction employment is being buoyed by builders
trying to sell as many houses as possible before an increase in mortgage interest
rates drives down the demand for new homes. Strength in mining is attributable
to higher prices for oil and gas. Local and state governments have added 4,700
jobs since last year. In New Mexico, government provides 26 percent of all jobs
and 28 percent of all wages and salaries.
However, the ability of government
to provide good jobs for New Mexicans - not to mention essential state services
such as public education - will be increasingly compromised as the state income
tax cuts phase in and take an ever larger bite out of the state budget.
The
cost of the state income tax cuts will be felt most acutely in the health care
sector, where most of the job growth stems from increased Medicaid funding.
New
Mexico's recent modest job growth should also not be misconstrued as evidence
of a healthier economy. New Mexico is gaining population far faster than it is
gaining jobs.
So, while the job-growth numbers are positive, the percentage
of New Mexicans who are either underemployed or unemployed is on the rise.
Since
November 2001, jobs in New Mexico have increased only 3.5 percent. During the
same period, New Mexico's working-age population, ages 16 to 64, has increased
4.5 percent. If job growth since the recession had kept pace with growth in the
working age population, New Mexico would have 7,400 more jobs than it does now.
Even more troubling, New Mexico has lost 9,400 manufacturing jobs since November
2001 - a decrease of 9.4 percent.
The Bush administration's failure to revive
the U.S. economy through tax cuts provides ample evidence that this approach simply
doesn't work. This is especially true for New Mexico, which unlike the federal
government, cannot run a deficit.
Our state's constitutional prohibition
against deficit spending means that every dollar in state tax cuts must be met
with a dollar in spending cuts or increases in other taxes.
Spending cuts
translate to employment reductions in government and other sectors, such as health
care, that receive a lot of public funds.
Thus, cutting taxes to "stimulate
the economy" is essentially a shell game that shifts money from one place
in the economy to another, offsetting every "new" job with one that
is lost.
Unfortunately, it is a shell game we can't seem to stop playing.
