Measures 66 & 67 were a disaster

Bill Valentine thb Measures 66 & 67 were a disaster

by Bill Valentine

Rarely can you convincingly “prove” anything to anyone about the economy. Economics is a social science, not a natural science like physics, chemistry, and biology. The Scientific Method doesn’t work with the social sciences. There aren’t real-life opportunities to test economic theories in a vacuum, and cause-and-effect is virtually impossible to substantiate. That’s what makes economics so interesting.  That we’re still debating the effectiveness of Roosevelt’s New Deal, and Keynesianism, and Supply Side theory, and so on, shows how little consensus there is around the central ideas that make up the study of the macro economy.

However, there are rare times when an argument can be supported deductively—if not in total, then at least persuasively so. Allow me to put forth one such argument, and let you arrive at your own conclusion based on the direct evidence now at hand. And it regards the impact of Oregon’s recent tax experiment.

In 2009, the Legislature of the State of Oregon put forth changes to state tax law to address its yawning deficit (later taken to the voters as Measures 66 and 67).  Measure 66 raised the personal income tax on the state’s highest-earning individuals to as much as 11% for 2009-2011, and then by a lesser amount going forward [1].  Measure 67 raised corporate income tax rates, and imposed a vastly increased minimum “excise tax”—a schedule based on revenue for corporations that don’t have earnings.

Supporters said M66/67 would help balance the budget, prevent cuts to valuable services like education, health care assistance, and public safety, and thus make Oregon a more attractive state for people and businesses to locate.

In reality, what it really meant to its key proponents was preventing scrutiny of compensation arrangements and employee benefits for unionized workers which continue to put an ever increasing amount of the strain on state and local budgets in Oregon.  The funding for the pro-66/67 message at the time came almost entirely from the state’s inordinately powerful unions via their thinly veiled 501(c)(4) advocacy organizations.   Proponents vastly outspent opponents and their message got out.

The rest of the nation watched with curiosity to see if a state would be able to raise taxes in the throes of a recession.  Oregon did not disappoint.  On January 26, 2010, voters passed both measures, and they applied retroactively back to the beginning of 2009.

So, how has Oregon fared in the wake of these new tax increases?

Let’s start by addressing the primary objective of the tax increases: balancing the budget to prevent having to cut spending on services.  Not only did Oregon not solve its deficit problem through the additional tax revenue, things have gotten worse. By the latest count, Oregon will be more than $3.5 billion dollars in deficit for the current 2011-2013 biennium.

Measures 66/67 failed to raise the money they were supposed to.  Measure 67 raised $249 million, versus $261 million, during the last biennium—a $11 million shortfall.  It’s expected to fall another $29 million short for the current biennium versus projections.

More alarmingly, Measure 66 proceeds haven’t come close to what they were supposed to.  Over the last budget cycle, Oregon raised nearly one-third less from Measure 66 taxes ($349 million vs. $504 million [2]) than was projected.   The latest estimates project that we’ll raise just above half of what was originally projected for the current biennium.  

All in, taxes raised from M66/67 will be $356 million short – about three-fourths of what was expected for the current and past biennia.

So what happened to the missing $356 million?  The Wall Street Journal has some ideas.   In an article from December of last year titled “Ducking Higher Taxes -  Oregon’s vanishing millionaires”, the Journal points out that vanishing millionaires are a well documented phenomena.  When Maryland instituted its own “millionaire tax” in 2008, one-third of that state’s millionaire households vanished.

Where might Oregon’s millionaires have vanished to?  It’s pretty clear a lot went to our neighboring state to the north.  The Department of Motor Vehicles (DMV) in Washington state publishes data on the driver’s licenses issued to, and surrendered by, citizens in Washington, by state.

For example, if an Oregonian takes up residence in Washington, they surrender their Oregon driver’s license and are issued a Washington one.  And if a Washingtonian does the same in Oregon, that information too is tracked by Washington DMV.  It’s an imperfect measure of state migration, but I think it’s a pretty good proxy.

I recently downloaded the data, and found that for the decade ending in 2008, there had been an average of 1.9 people moving to Washington from Oregon for every one going in the other direction.  Check out 2009.  Oregonians flooded Washington, with 4.5 people moving north for every one moving south!

Ratio of Migrants WA OR Measures 66 & 67 were a disaster

Unfortunately, when individuals with financial capital relocate, they also take their intellectual capital with them.  98% of Oregon’s companies are small businesses and they rely to an extent on the intellectual and financial capital of successful types, the likes of which are increasingly calling the Evergreen State their home.

Interestingly, not long after Oregon passed M66/67, Washington tried its own “millionaire tax” (Initiative 1098) and it was shot down two-to-one.

The loss of people and money to Washington, and other more tax-friendly states, is what’s known as an “externality” and an “unintended consequence” that I believe can be directly tied to M66/67—there are no other reasonable explanations for the exodus in 2009.

But outmigration isn’t the only unfortunate development for Oregon, post-M66/67.

Supporters of the tax hikes made the case that we needed to pass them to improve the perception of the state to outsiders.  Surely a state that was willing to raise taxes in a recession to support services was one that should draw people and businesses.  Let’s set aside the “giant sucking sound” from people flowing to Washington, and take a look at some prominent surveys and rankings of states.

Upon the passage of M66/67, the Tax Foundation dropped Oregon eight spots on its list of states ranked by business climate, citing the referendum as its reason for doing so.

More recently, Kiplinger released their ranking of states by tax-friendliness for retirees.  Oregon has the dubious distinction of now being named the fourth most tax-unfriendly state in the nation for people considering where to retire.

This past June, the American Legislative Exchange Council (ALEC) released the fourth edition of its annual Rich States, Poor States report.  This report ranks the states along such metrics as income tax rates, property and sales tax burdens, recently enacted tax policy changes, debt service as a share of tax revenue, and public employees per 1,000 residents and more.  Oregon ranks 43rddown eight spots since 2008.

Setting others perception of us aside, Oregon ranks 38th by unemployment rate and 47th by “un- and under-employment” rate[3], a sad footnote to the whole deal.

So as we head into 2012, Oregonians find themselves living in an apparently less desirable state, with one of the worst employment situations, the fifth worst spending problem in the country, and no real reform proposals on the table.

Hopefully, the recognition of the failure of Measures 66/67 will prove sufficient to prevent a reincarnation of similarly ill-fated attempts to solve a spending problem with a revenue solution.

Bill Valentine is the founder of Valentine Ventures, LLC, a wealth management firm based in Bend, Oregon. Bill is a member of The CFA Institute – Portland Society and American Mensa. He is also a member of the Board of Trustees of The High Desert Museum. Previously, Bill served on the boards of Habitat for Humanity – San Francisco and The Cinnabar Arts Corporation.



[1] Starting in 2012, taxable income above $125,000 (single filers) and $250,000 (joint filers) is subject to a new, permanent marginal rate of 9.9%.

[2] Source: Oregon Legislative Revenue Office

[3] U6 – total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

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Posted by at 05:00 | Posted in State Taxes | 32 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Kellysorianobook

    Measure 11 isnt working for tax payers and 66/67 dont seem to be helping either.
    http://www.notallprisonshavebars.com/

  • Anon

    Everything you said sounds like a reason to pass the measures. Fleeing costly retirees and tax avoiding millionaire misers, fleeing big businesses that cut more jobs than they create, all work to make Oregon overall better. Thanks for the research!

    • the force

      So instead of having some jobs..you now have none..typical portlander mentality.

  • None

    So, wait a minute, people moved in 2009 because of a measure put to a vote in 2010? But then, in 2010, after the measure passed, the migration patterns returned to normal? And somehow that “proves” that measures 66 & 67 were a  disaster for our Oregon.

    How does that make the slightest bit of sense?

    • valley person

      Oregon’s GDP growth in 2010 was double that of Washingtons. So if those millionaires are moving north, they aren’t doing us much harm or Washington much good.

      I think you need to get your deductive cap tuned up.

      • None

        Definition of a conservative: Someone who has flunked logic.

        • valley person

          Its more like tying to do logic with 1/2 a brain, the other half having been banished due to ideology. So they can score a gentleman’s C and think they got an A.

        • Anonymous

          Better be careful None. That comment comes darn  close to being juvenile.

          • None

            Joel, explain to me how pointing out how conservatives seem to have problems with basic logic, like “A happened before B, therefore B caused A,” is “juvenile.”

            Unlike you, I don’t regularly call people names.

            I even call former President Bush by his name, or by his chosen nickname, “W.”

          • None

            You want some juvenile? Here goes:

            “The other day I was listening to Liars Liarson and channeling my Inner Joel.

            “First, he was talking about Rick Parody, and I nearly bust a gut, and there’s no way that guy’s going to be President. He then talked dismissively about Mitt Rummy, and I cringed as I realized that I agree with him. The he got to The Gingrich Who Stole Christmas, and I had to pull over to the side of the road, as I was a danger to myself and others  because I was laughing so hard and his cluelessness.

        • Rowdyrooster

          he’s a member of Mensa…I think he’s got logic in the bag, dude.

      • guest

        Shovel off, VP!

  • 3H

    “Unfortunately, when individuals with financial capital relocate, they also take their intellectual capital with them.”

    Fortunately, as Tom Peters argued, intellectual capital is randomly distributed. 

    But, those two measures did generate revenue, yes?  The budget would have looked more bleak without them. 

    So, as None asked, how is it that that people migrated from Oregon to Washington left at a higher before Measures 66 and 67 became low, then after?  If your claim that Measures 66 and 67 are a cause of migration, why didn’t the numbers increase even more for 2010?

  • 3H

    Oh, FYI, local governments other than the State have been loosing employees.  It’s the major reason the unemployment figures have remained relatively flat.  Private sector has been adding, and public sector (local government) have been shedding employees.

     

    • Donald D

      Do have factual data to back this up or just conjecture?

      • 3H

        Of course… unemployment Statistics

        You’ll note there was an uptick from September to October, but overall the State labor force has remained flat while there were losses in both Federal and Local governments.  Private sector has seen an increase, offset, as I claimed, by decreases in public sector jobs.

        • None

          The quickest way to shut up a Republican: Provide some facts and reason.

          • Donald D

            No need to be snarky “None”, I was just asking for facts to back up the assertion.  Do you assume everything you read under the Comments section of a blog is fact-based because I sure don’t.

          • None

            Asking for facts is perfectly valid. I do it all the time (and notice that Rs rarely are able to provide them.)

            I was just noticing the silence that ensued after they were provided.

  • Critical thinker

    How do total net migration figures prove anything about millionaire migration? Maybe all the people moving to Washington are poor. 

    • Bradw2k

      Yes, I think the measures were unjust and destructive and GOOD economics can prove that, but the argument of this article is totally speculative.

  • Greenhitecpa

    NONE makes a good argument; although I admire Bill Valentines attempt to quantify the effects of Measure 66, I believe that it is the quality – rather than the quantity – of those moving to Washington that is more important.

    As a CPA, I am constantly counseling those who made – or are making – the move to Washington.  Even for a middle income earner, Oregon’s treatment of capital gains (say, the sale of a rental house) can quickly cause them to be treated as one of the “rich” people that Oregonians want to shake down.  Anyone selling a business in Oregon knows that they just need to move to Washington first – and avoid an 11% “haircut” on their capital gains sale.  Not only does Oregon lose the 9% they would have had (or the 6% they should have had) if Measure 66 was not in place, the business is subject to an out of area owner. 

    Oregon’s draconian tax system further complicates the problem.  ANON (below) may gleefully believe that all the new “For Lease” signs are good for Oregon; I don’t.  There are many good people at Revenue department; even a few good ones at the Employment department; but they are crazily overworked, and surrounded by incompetent idiots who delight in using their authority to pursue ANONS objectives.  I expect Oregon to remain near the bottom of the “Best Places” and high unemploymentslists for some time, despite its enormous natural advantages.

    • valley person

      The latest available data has Oregon’s unemployment rate at 9.5%, Washington’s at 9%. Idaho is at 8.8, California at 11.7, and Nevada is at 13.4 (worst in the nation). So the picture of all the states surrounding Oregon plus Oregon is that we are in the middle of the pack, and much closer to the best than worst.

      The Tax Foundation ranks Oregon 14th best for business tax climate.  Washington is marginally better at 11th. Nevada, with the worst unemployment in the nation, is 4th best on business taxes. Idaho, which is better than Oregon in unemployment, is worse in business taxes at 18th.

      Oregon’s economic growth rate, since it passed 66 & 67, is better than all of our neighboring states.

      This all suggests Greenhit, that Oregon’s tax structure is hardly draconian when it comes to business, and that if we made it better, like Nevada, we might not improve anything at all.

      http://www.taxfoundation.org/taxdata/show/22661.html

      http://www.bls.gov/web/laus/laumstrk.htm

  • Rupert in Springfield

    What this article really needs is a breakdown of filers. How many rich people were filing pre 66/67 versus how many after.

    Some logic points – The measure was passed in 2010 but the article clearly states the measures were retroactive, thus not a big surprise for the 2009 spike in moving.

    GDP growth can’t be taken in isolation, as any business start up knows. If your GDP is low, the a high growth rate doesn’t indicate things are going great anymore than the fact that when just about any business opens its door, they have a phenomenal growth rate month to month since they started from zero.

    The real bottom line here is measure 66/67 were instituted largely to pay for fat cat raises to state workers, as if they needed any more. Ted handed out around $250M in raises for state workers a few months before the measures. Measure 67 wound up bringing in right around that much. Essentially it wound up being a transfer payment. If you own a business, you pay an extra fee that simply is handed to a state worker thanks to Ted.

    • valley person

      “Some logic points – The measure was passed in 2010 but the
      article clearly states the measures were retroactive, thus not a big
      surprise for the 2009 spike in moving.”

      So you are suggesting that people started moving a year before the measure passed? Fascinating idea. And they moved to Washington, which has as bad or worse an economy? Also fascinating.

      “GDP growth can’t be taken in isolation, as any business start up knows.”Any business start up probably doesn’t care much about a state’s gdp growth. They care whether there is a market for whatever product or service they are selling and whether they have enough capital to survive until revenues catch up with expenditures. Still whining about your $200 tax increase? Get over it dude.

    • Rowdyrooster

      also, 66 & 67 were passed in JANUARY of 2010, and was retroactive in effect, so a migration in 2009 is in fact, logical, especially given that polls showed the measures passing by wide margins as far back as September 2009.

      doesn’t take a genius to figure that one out and make a quick move….

      • valley person

        So based on polls on a ballot measure, people picked up and moved? Seriously?

        And since they moved north, Oregon’s economy has grown faster than Washingtons. Can you explain that one?

  • Bob Clark

    What makes estimating the effects of 66/67 difficult is economic performance should ideally be measured against how Oregon’s economy would have performed otherwise.  Also, the effects don’t happen all at once. For instance, a leading Portland area commerical real estate developer told me, the effect of 66/67 in pushing businesses out-of-the-state will become more pronounced when the economy improves; because during a recession capital for moving a business is much more limited.  We do know per capita income in Oregon has been steadily falling relative to the national average for sometime.  Washington state’s per capita income has outpaced that of Oregon’s, and if I recall correctly is some 10% greater now.

    We do know a number of folks who have moved to Washington to avoid Oregon’s income tax, taking advantage of the more regressive sales tax oriented Washington.  There is the former president of Northwest Natural, the former stock broker company owner (Bidwell), and I personally know of several state workers who once earning their pensions move to Washington from Oregon just to escape the income tax.  This occurs even without 66/67, and intuitively, one would think this relocation only speeds with 66/67 (at least for the few thousand folks affected with higher incomes).

    On the other hand, there is Phil Knight who remains in Oregon but complains Oregon is in an economic death spiral.  I tend to think Oregonians are their own worst enemy generally having a suspicious attitude towards business success in favor of a rank-and-file, flat economic reward structure.  I think this is what Knight is referring too in part.  Personally I would like to break out away from our bureaucratic structures like Metro, and take the reins off the private sector with lower tax rates and leaner government.  Much of rural Oregon has had depression like symptoms for over ten years now.  Maybe a lower rate of taxation for the rural areas with some regulatory relief would allow us to test the waters in a real world like experiment. 

  • OregonSlim

    All I know is that if it wasn’t for high taxes Oregon would not have the money needed to provide me with free housing, health care, food, transportation, education, counseling, etc.
    So I say, bring it on. Keep it coming.
    It is amazing what you can do with a fake gambling addiction in this state. I have a counselor that got me a place to live, food stamps, free health care, and even a free bus pass, all because I pretended to be hooked to video poker.
    It was pretty easy. Also, I get unemployment monies even though I have not worked for years.
    I figure that the state is spending about $4500 per month on me, which is better than I can earn with my jounalism degree, so I just collect video poker stubs from the floor of the various bars and then show them to my counselor, who then gets me more “help” to cure my addiction.
    Nice work if you can get it, and you can, believe you me.

  • Sol668

    Yes its certainly a “race to the bottom” who will accept the grestest deprivation for the 1%

    I guess washingtons winning!

  • Greenhitecpa

    Valley Person – I like the fact that you are arguing; and even better that you are providing facts.  However, your conclusions are poorly drawn.  The fact that Oregon is only 3rd worst out of 5 states in the worst block of states in the US is only an indication of how bad Oregon’s unemployment is.

    And your use of the Tax Foundations statistics is extremely misleading.  If you go on to read the article at  http://www.taxfoundation.org/research/show/25680.html  you will see that instead of rating Oregon at #14, they would have rated Oregon at #8 if Measure 66 and Measure 67 had not passed!

    Most other rating of Oregon’s business tax put us around #30; and on the regulatory side (which included our draconian taxes!) put us about #45.

    • valley person

      Statistically the west is not the worst block of states by most measures. We aren’t the best, but then I don’t hear anyone here arguing that rich Oregonians are moving to the Dakotas.

      My point was that to assume businesses are leaving Oregon for neighboring states due to Ms66 & 67 is not supported by the data that most matters, the growth rate since they passed. The tax levels were not raised very much, and our overall tax rate on business is still modest, whether we rank 8 or 14 out of 50. In fact, since we had that #8 rating the year before, why weren’t businesses flocking in?  Could it be the whole premise that says businesses base location decisions primarily on taxes is wrong?

      I work for a company that could do business north of the river or south. It wouldn’t matter since our projects are nation wide and regional, not concentrated in Oregon. I didn’t hear a single suggestion before or after M66&67 about moving. It wasn’t even on the table. I suspect 99.9% of Oregon businesses felt the same.

      8, 14 or 30. Oregon’s economy has been growing faster than most other states SINCE M66&67 passed. This fact should cause those who predicted doom to re-think their theory rather than to search for obscure and probably not relevant data to prove they were right.

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