More economic damage from Measures 66 and 67

Cascade Policy Institute just released a major economic study which uses two different methods to analyze the impact that the higher tax rates of Measures 66 and 67 will have on Oregon’s economy if approved by voters on January 26th. Written by two prominent Oregon economists, Drs. Randall Pozdena and Eric Fruits, the study concludes that:

“¢ Preliminary estimates made last June by Drs. William Conerly and Randall Pozdena of 70,000 jobs lost over time are entirely plausible and may even be conservative.

The study measures the likely economic impacts of the measures in these two ways:

1. Using a database spanning 31 years for the 48 continental states, the effects of tax rate increases on job growth are measured empirically using regression analysis. This exercise finds that the proposed tax rate increases will perpetually impair the rate of job growth in Oregon.

2. Using recent Internal Revenue Service (IRS) Statistics on Income (SOI) data, the pattern of migration of tax filers between Oregon and the other 49 states is examined statistically.

Among its conclusions, the study finds that:

“¢ The literature is clear that raising marginal tax rates is an impediment to economic growth and employment growth.

“¢ Between 47,000 and 55,000 jobs will be lost by 2018 from the increase in top marginal tax rates alone in the two measures. The study did not attempt to measure the job loss impacts caused from the phase-out of the federal tax deduction for higher incomes in Measure 66 or from the increased corporate minimum taxes in Measure 67.

“¢ Net out-migration of tax filers will be approximately 80,000 greater than otherwise over a ten year period. These lost filers are likely to have significantly higher incomes than the average tax filer. Again, this estimate is only based on the increase in top marginal rates; not other features of the measures.

“¢ The average biennial loss in Adjusted Gross Income (AGI) from Measures 66 and 67 is approximately $1.1 billion dollars— 50 percent higher than the $733 million first-biennial transfer of income from the private sector sought by the measures. Over ten years about $5.6 billion in AGI is expected to be lost. Such loses reduce the likelihood of the measures generating their full, anticipated revenue.

“¢ Finally, positive impacts of public infrastructure spending on state level output, if any, may be less than the negative consequences of suppressing private activity. In the literature, the case for raising taxes even to preserve education or health spending is not clear when the offsetting, long-run impacts on the private sector are considered. Raising taxes to preserve transfer payments has an even weaker justification when long-run impacts are considered. Thus, although maintaining public spending may seem to be a well-intentioned “safety net” policy, the result of diverting funds from the private to the public sector may actually prolong the return to prosperity of individuals affected by the recession.

The authors warn that even if the State does phase-out the tax increases to some degree (as the measures contemplate), it may be difficult to undo the perception that Oregon selectively burdens business and higher-income households rather than prudently restraining State spending. This perception will weaken investment in the state and lead to even larger job losses and net out-migration of tax filers than their models predict.

Oregonians now have two independent ways to judge the economic impact of these tax measures. Both confirm that we are likely to lose tens of thousands of jobs and tens of thousands of the very people who invest in businesses and create jobs in our state.

This study makes clear that Oregon may be embarking on a policy that will likely suppress and repel economic activity in the state. Doing this during good times would be bad enough. Doing it during one of the deepest recessions on record is very hard to understand.

Oregonians need to recognize that capital and people are mobile—especially the corporations and high-income individuals targeted by these two tax measures. If they move, Oregon loses the jobs that their companies, spending and investments create. Even for those that remain, these higher tax rates will reduce the motivation to work harder and create more jobs. The result will be damaging for countless Oregonians that tax proponents claim won’t be affected by these measures.

###

Tax Policy and the Oregon Economy:
The Effects of Measures 66 and 67

By Eric Fruits, Ph.D. and Randall Pozdena, Ph.D.
Cascade Policy Institute “¢ December 2009


Steve Buckstein is founder and senior policy analyst at Cascade Policy Institute, Oregon’s free market public policy research center.

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Posted by at 06:00 | Posted in Measure 37 | 32 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Jerry

    Of course tax increases are going to hurt Oregon. They hurt everywhere they are implemented.
    It is a fact.

    • check your facts

      OK Jerry, then why did the best economy the US has known since the end of WW2 happen after Clinton and the Democrats raised taxes in the 90s?

      • Steve Plunk

        check your facts, your logic is flawed. The economy very could have been good for a number of reason and in spite of the tax rates. The legacy of the 80’s and the Reagan years? The creation of 401K plans and the pool of investment money?

        If we follow your logic how high should we raise taxes? Perhaps we are already there.

        • Rupert in Springfield

          Well, Dean might want to check his facts as well since he consistently gets this one wrong.

          Fact is we were in a pretty mild recession when Clinton came in and certainly didn’t have a surplus until after the Republicans gained control of congress in 1994. That doesn’t mean the Republicans created the good economy, but it also means that by 1994, after over two years of the Clinton tax hikes, its hard to argue that they were responsible for a good economy.

          Remember, Dean is of the school that believes that tax cuts lead to deficits. The fact that, historically, tax cuts do not correlate to decreased revenues does not phase him.

      • Jerry

        Raising taxes has never, ever helped any economy. It is in spite of, not because of.
        If you can’t figure that out, what’s the point of even discussing this?
        No country has ever taxed its way to prosperity. Not one. EVER.
        Get real.

  • oregon sucks ass

    I know of one company that will lay off 16 employees and close it’s doors if 66 and 67 pass. I’m sure it won’t be the only company to do so. What will the idiots in Salem say when 66 and 67 pass and unemployment goes to 25%?

    • Tax Payer

      They’ll raise more taxes and fees and drive more businesses out of Oregon.

    • come again?

      Right. Because they will pay $150 instead of $10? I mean….get serious. If they are closing it is because they are failing to make money, not because they will pay a bit more in taxes.

    • Steve Robinson

      What a ridiculous statement! This company probably has sales in the $2 million range, with 16 employees. If like most companies this size they are a proprietorship, they would pay no corporate taxes at all. If they are a partnership or S-Corporation, they would pay $150. If, in the unusual case, they are a C-corporation, and they had zero taxable income, their minimum tax would go from $10 to $2,000. And if they had, say, $100,000 in profits (a 5% net), they would pay no more than they did before.

      Under which of these scenarios would the extra zero to $2,000 contribution – to keep Oregon from cutting education, public safety, etc. even further – cause them to lay off even one employee for even one month?

      Add to the above that the taxes will create at least $1 billion additional economic activity in the state, on the order of 1 percent. If your company were “average,” it would realize a 1 percent boost in sales, say $20,000. If its gross margin were very low, say 10 percent, it would generate enough additional profit to pay the $2,000 worst case tax load.

      Under almost any scenario, your company will actually come out ahead if the measures pass. You are falling for the Big Lie, again.

  • matthew vantress

    hey they pay more than 10.00 now including thousands and millions more in hidden taxes like fees,system development charges,taxes on their profits,property taxes,income taxes much more than 10.00 a year.why dont you liberals start reporting the real truth about how much businesses really and actually pay instead of this nonsense that they only pay 10.00 a year.if that 10.00 figure was so true then oregon would have the lowest unemployment rate in the country then and businesses would all want to come and be in oregon then.

    • Steve Plunk

      Well said Matthew. Oregon business already pays too much in taxes and fees.

    • come again?

      “if that 10.00 figure was so true then oregon would have the lowest unemployment rate in the country”

      That would only hold if there were a linear correlation between business taxes and employment. But there isn’t. There are a lot of variables, including proximity to markets, energy costs, productivity (and education) of the work force) and more. If low taxes were the only issue the south would be the richest place in America, only it is the opposite.

      You want to see a future of underfunded, lousy public education, go the the south.

      • zer0

        On the other hand, if you want to see hugely expensive and really lousy public education go to Oregon.

        • come again?

          Statistically we are middle of the pack on spending (K-12) and middle of the pack on testing results. For universities, we are at the low end on spending and middle of the pack on results. In this case we get more than what we pay for.

          You may be among those who think we can keep cutting education spending and improve results. You may also believe in the Easter bunny.

          • Steve Plunk

            Texas seems to educate it’s population well enough to create a stable economy. It’s more complicated than spending alone.

            Why are we always back to cutting education? There are other place to cut state government. I suppose the tax proponents want to keep the focus on “the children” in order to scare parents.

          • zer0

            How’s that Kool Aid? Oregon is near the high end on funding of the government schools and on the low end of quality, not to mention a high dropout rate. Making claims about how good and cost effective the public schools in Oregon are is a little like claiming the earth is flat.

            The cost of K-12 education could be dramatically reduced with improved quality. The proof is private and charter schools. They achieve excellent results for a fraction of the cost.

            What? There’s no Easter Bunny? ROTFLMAO

          • eagle eye

            “Oregon is near the high end on funding of the government schools and on the low end of quality,”

            You simply don’t know what you’re talking about. Is this Jerry as usual with his nonsense about the Oregon public schools?

          • eagle eye

            “Texas is #49 in verbal SAT scores in the nation (493) and #46 in average math SAT scores (502).”
            source:
            http://www.window.state.tx.us/comptrol/wwstand/wws0512ed/

            Is that what you want for Oregon?

            As for

            “Why are we always back to cutting education? There are other place to cut state government.”

            The biggest chunk of the state budget is education. You are crazy if you think education is not going to be cut if the tax measures fail. Including the state subsidy to SOU. You are going to be paying more tuition, Guaranteed!

          • come again?

            What anti-government yahoos always fail to calculate is that Oregonians voted ourselves a property tax cut and limitation and shifted the responsibility for K-12 funding to the state 2 decades ago, yet we failed to provide any source of new revenue. We also decided to lock up way more people, causing a huge growth in prison spending. The results were predicted. We have had trouble with state budgets ever since, have cut back on police and other services, and treated university tuition as a bottomless piggy bank. California did the same experiment, and it has not worked in either state. Nor did it work in Colorado under their Tabor tax limitation. We are piling debt on college students and graduates, reducing the quality of their education, and then we complain that high end businesses that require educated workers don’t locate here. Its nonsensical. We are creating a Wallmart economy. Cheap crap made elsewhere sold by uneducated workers to uneducated non-workers. And we blame this on liberals and unions? Ridiculous.

            So the evil Democratic legislature finally raised the only taxes they could, on income and business, and now the world is coming to an end. We need to grow up. Quality education costs money, which is why you pay a lot more to go to a private college than a public one. Charter schools are great, but they also cost plenty. Good teachers want and deserve decent, professional level pay. Texas is a great symbol of where the yahoos want to take us. If only we had enough oil wells to cover our other failings. All hat and no cattle…that’s us.

          • Steve Plunk

            It’s not crazy to think we can cut the state budget in places other than education. Those state employee raises are an example of how the government has failed us during this recession.

            And Eagle, I get it. My son goes to SOU and you like to throw that in my face regularly. That doesn’t mean I have to advocate bloated government.

          • eagle eye

            Apart from the notion that public, including many state salaries, are not part of the “education budget” — you think those raises can be legally rescinded now? Do you really think it would stand up in court?

            And I really don’t think you get it. I mentioned SOU tuition because you mentioned that your son goes there. And you put forth the idea that education will not be cut.

            Maybe you’re OK with the coming tuition increase? Alright then, I get it.

  • capitalism rocks

    All levels of government – federal, state, county, etc. – should never be exempt from downturns in the economy. When the economy goes south government needs to do what private businesses do. Cut your overhead, layoff nonessential employees and operate more efficiently. There are lots of government workers in this State that can be gone tomorrow and no one would notice. The fact is most economic problems are caused by government in the first place through high taxes and the overregulation of businesses.

    Keeping the financial fortunes of the government class sound should depend on a healthy private sector economy only. This way the government would have an incentive to let businesses grow and prosper.

    I had a great economics professor that said “Government can’t do much to help the economy, but can do a hell of a lot to damage it”. Two perfect examples are 66 and 67.

    • eagle eye

      Businesses do all the things you mention when “the economy goes south” precisely because business is bad i.e. they don’t have the customers anymore. You’ll find a lot of restaurants and other businesses in that situation these days. Sometimes they actually seem relieved to have a customer walk in.

      But government “business” hasn’t “gone south”, it’s increased. In some cases, a lot. e.g. where I live, in Eugene, both the local university UO and the community college Lane CC have bulging enrollments with budgets that have stagnated or been cut. And yeah, “business” for the Ducks was good Jan. 1, there were plenty of people watching on TV.

      So that’s fine to say “cut government in a recession”, as long as you realize you are talking about cutting services.

      Or in the case of UO and LCC, their budgets will be cut, and tuition will go up.

      And when that happens, don’t complain!

      Oh, you can say they should cut fat in Salem. Or maybe you will say the lazy professors should be happy to take pay cuts, and the janitors give up their step increases. But dream on! Generally when business is good, pay cuts are a hard sell. Dream on!

      • capitalism rocks

        Hey eaglet, could you be a bigger moron. If the demand for government “business”, like education at the U of O and Lane CC, has gone up then the cost of the services should be paid by those buying the service. The costs should not be passed onto the overburdened taxpayers.

        This is a perfect example of free market economics working in its purest form. The cost of the service is so affordable that the demand is huge (“bulging enrollments”). Therefore, the cost of the service should go up in the form of higher costs (tuition) to the consumer until the demand softens. This would maximize sales and revenue all without raising taxes.

        Of course I wouldn’t expect you to understand any of this…LMAO

        • un-retired UO (science) prof!

          Cap — I don’t know if EE gets it, but I do. And I’ll tell you, I’ve wished for years that UO could be free from this stingy, uneducable bunch of bottomfeeders who make up the Oregon populace. Free to set their own tuition, set their own admissions standards, determine their own programs. Build something to be proud of. The ex UO president Dave Frohnmayer proposed something a little along these lines just a few months ago, public corp and all that. I’m all for it, but it apparently went over like a lead balloon.

        • eagle eye

          cap and un-retired — yes, I get it.

          First let me thank cap for his kind, reasoned words.

          Should UO (and other public higher education institutions) become private? It’s not up to me; ask the Oregon public. My guess is the idea would sink faster than a ball of uranium. un- is certainly right about Frohnmayer’s modest idea for a “public corporation”.

          My own opinion is that publicly subsidized higher education is a good thing. You may disagree, but if you cut the subsidy, expect the cost to the user to rise. Don’t expect the faculty or someone else to pick up the tab. That is my point. And don’t complain when tuition goes up and people are priced out.

          By the way, if you don’t believe in publicly subsidized higher ed, why have publicly subsidized schools at all? You could start by abolishing the public schools. Then refrain from any subsidy of any kind. Kind of a libertarian paradise, I guess. Try it out on the public and the legislature. A good platform for the next Republican candidate for governor?

    • retired UO science prof

      Eagle Eye, whoever that may be, I think he may be someone I know, EE is right. They asked UO professors if they would like to “volunteer” for pay cuts last Spring. I hear that about 9% took small, temporary pay cuts. But UO was doing aggressive faculty hiring for next (this) year’s enrollment bulge. My take is that if they ask for voluntary pay cuts again, the faculty will tell them where to take a walk. They want to get paid.

  • un-retired UO (science) prof!

    retired and, if I read correctly, EE have it about right. I was one of the good-guy suckers who took a small pay cut last Spring to help out. And it’s true, they hired a bunch of new faculty for this academic year, because they knew they would need them, and because the national market was more favorable than usual — supply and demand and all that.

    So, they can afford to hire new people? Then if they come up short after the tax election, I won’t be volunteering for any more pay cuts. I don’t expect any raises for a while, but a cut? No thanks, pass the hat somewhere else, we’re busier than ever this year. My department and as far as I know others took a cut of 2-3% this year. That was in CURRENT dollars. But enrollments are up substantially. As one of those worthies put it, business is good! We sucked it in, look for tears somewhere else.

    By the way, I’ll probably vote against the tax measures. But I won’t feel good about it, especially knowing that the students will have to pay more tuition. But if the taxpayers don’t want to pony up, neither do I.

    In case you think I’m one of those lazy professors, I’ve been at it since 5:50 a.m. With a break for breakfast and lunch, and now a beer and dinner before I get back to it until I nod out. I’m not complaining, but I don’t feel underworked. Take one of my classes and I suspect you won’t be underworked either! If you think it’s overpriced, go elsewhere. I hear plenty of private colleges are taking applications.

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