We Told You So…about Measures 66 and 67

by Steve Buckstein Monday, August 30. 2010

economymoneycashdollar.serendipityThumb We Told You So...about Measures 66 and 67 In December 2009, Cascade Policy Institute published a research report by Randall Pozdena, Ph.D. and Eric Fruits, Ph.D. forecasting the impacts of tax increase Measures 66 and 67 on Oregon employment.

The study was based on thorough research of peer-reviewed literature and a quantitative analysis of taxes and economic growth across the U.S. and over a long period of time. They concluded that the tax measures would have a significant negative impact on Oregon’s employment picture, as shown in Exhibit 1 on page 7 of their report.

Needless to say, advocates of the tax measures lambasted their research, calling it “without merit.” Another advocate accused the economists of misleading the public and being untruthful.

According to the Oregon Center for Public Policy, Joe Cortright, chair of the Governor’s Council of Economic Advisers, reviewed our study. Cortright concluded that “neither the economic literature nor the data presented…support the claim that Measures 66 and 67 will be bad for the Oregon economy.”

Fast forward to today.

The state economist just released his latest forecast of the Oregon economy. This figure, based on Table A.1 on page 75 of the state’s forecast, shows that the state’s employment forecast is virtually identical to the employment forecast that Drs. Pozdena and Fruits projected in their study of the impacts of Measures 66 & 67. Despite the somewhat vicious criticism of their research, it is becoming more and more evident that their forecast was almost spot-on.

Steve Buckstein is Senior Policy Analyst and Founder at Cascade Policy Institute, Oregon’s free market public policy research center.

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Jim Ray

Now when a local school comes asking for a donation for this or that I remind ‘em of how funny they thought passing 66 & 67 was. NO more donations for athletic programs, etc. They(school admins) thought small business should be taxed more…well now, too bad sooo sad when they come calling!
Rupert in Springfield

Oregon has with full knowledge and awareness decided to steer straight into the mess we are in. No one can say they didn’t know or didn’t expect the results obtained. That 66/67 would further depress the economy was not very much in dispute. However that trade off, money now at the expense of future growth, was thought to be worth it.

When a neighborhood is burning, often looting will commence. People decide it is better to steal the very last from those who are about to lose everything rather than try and do something about the fire. That is the situation Oregon is in now. Our economy is on a glide path to disaster with special interests, getting what they can while the getting is good. That’s why we had Teds famous raises while increasing taxes to pay for them. That’s why Measure 66/67 did nothing, they spent it rather than use it to help plug the the deficit. Predictable, absurd.

At some point it is too late to stop the looting and put out the fire. You simply have to wait for both to exhaust themselves. When it’s over you can look at the looters and ask them if they have had enough. If they have gotten enough so that possibly they would consider leaving and getting out of the way so that those who want to do something a little more constructive can do something about their mess.

Is Oregon at that final stage? Not by a long shot I would say. Is there any sign of looting abating? Not really. Oregon still spends with wild abandon and any look at the spending increases over the years would show this.

Have the people had enough? I don’t really think so. When a former Governor who hardly was an outsider to the disastrous decisions that got us here has a real chance of replacing a the total incompetent that now occupies the office that tells me Oregonians aren’t terribly concerned.

valley p

“That 66/67 would further depress the economy was not very much in dispute. ”

Its not? I beg your pardon, but I don;t know many Oregon economists who think that in this short of a run, there has been any effect whatsoever.

“When a neighborhood is burning, often looting will commence. People decide it is better to steal the very last from those who are about to lose everything rather than try and do something about the fire. ”

I guess that sums up your attitude towards your neighbors. In my neighborhood, I think we would focus on the fire and not on looting, but maybe Springfield is different.

“That’s why Measure 66/67 did nothing, ”

Did nothing? I believe the estimate is that it has brought in 300 million more than would have been brought in otherwise to date. 300 million is not nothing.

“Have the people had enough? ”

You are invoking “the people” again. “The people” includes a lot of people who support well financed public services. Sometimes a majority, sometimes not. But the sort of service dismantling you and Catalyst advocate will never gain a majority.

Rupert in Springfield

>Its not? I beg your pardon, but I don;t know many Oregon economists who think that in this short of a run, there has been any effect whatsoever.

And this is why you are a certifiable idiot. The post is about exactly this fact. The study in the post was written by two PhD economists.

If you had read the study you would know this.

There aren’t a lot of economists who dispute that increasing taxes depresses economic activity. The fact that you dont know of many who hold this view, even when the entire article is about two of them is a testament to your utter ignorance.

I mean seriously – how big an idiot does one have to be to say they dont know of many economists who hold this view when the entire article is about two of them who made the prediction.

>Did nothing? I believe the estimate is that it has brought in 300 million more than would have been brought in otherwise to date. 300 million is not nothing.

Did nothing to help with the budget problem you utter fool.

I never said it didn’t bring in revenue. The legislature simply spent it all, and not to shore up the deficit. You missed this?

>Sometimes a majority, sometimes not. But the sort of service dismantling you and Catalyst advocate will never gain a majority.

Sorry idiiot – it doesnt have to gain a majority idiot.

To bring you up to speed, there is a proposed across the board cut in services.

We all know you are a complete boob, so maybe you are unaware of this. Services are going to be cut, get used to it.

valley p

Oh right…I meant non-ideological economists who don’t work for Catalyst. Hence I used the word “many,” which last I checked is not the same as “any.” All of which makes you guilty of the misreading skills you usually accuse me of.

So you are saying that the general proposition that increasing taxes has some depressing effect on business activity means that any and all depressing of current economic activity in Oregon is attributed to raising taxes? And that many economists hold this view? Interesting.

“Did nothing to help with the budget problem you utter fool.”

300 million extra did not mean 300 million more in the budget? You have a strange accounting system. How do you keep your business going? If you earn say $30,000 more this year, do you not count that? I think the IRS may want to talk with you.

“We all know you are a complete boob, so maybe you are unaware of this. Services are going to be cut, get used to it. ”

Yes, even we boobs are completely aware that Oregon has cut, and will continue to cut services until the economy and tax revenues recover. I did not argue otherwise. But then you sort of knew that right?

You know Rupert, you always resort to name calling when you lack a decent argument. Its your “tell,” as you would call it.

jim karlock

Are you trying to claim that higher business taxes encourages businesses to stay here?

Are you trying to claim that higher business taxes encourages businesses to expand here?

Thanks
JK
valley p

Did I say anything that says what you think I said? I didn’t think so.

Businesses have all sorts of reasons for locating or expanding where they do. Tax level and policy is one of many factors. A state with low taxes and a poorly educated, poorly trained work force will keep some types of businesses away. The Tax Foundation has South Dakota ranked best, and Alaska ranked 3rd in tax friendliness, and I don’t see corporations flocking to either place. Oregon ranks 14th, even with M66&67. Businesses are not flocking here either.

But then New Jersey ranks 50th, meaning they have the worst business taxes in the nation, and yet they have the highest average household income in the US, while South Dakota ranks 43rd. So much for business taxes as a determinant.
Anonymous

Alaska has a weather factor and it is a long way from most places
valley p

So you are saying geography is more important than tax rates? OK…that is a start. Now explain why New Jersey is number 1 in both income and business taxes. And what that fact does to the Catalyst/Rupert thesis?
Anonymous

all I was pointing out was Alaska was far away and had harsher weather

dartagnan

“There aren’t a lot of economists who dispute that increasing taxes depresses economic activity.”

There are NO reputable economists who would express the relationship between taxes and the economy in such simplistic terms.

But I guess that from a simple mind we must expect simplistic thinking.

There are many reasons why Oregon’s economy is in the tank, the main one being that the collapse of the real estate bubble hurt us much worse than many other states. To claim that the extremely minor tax increases of M66 and M67 are the only factor or even a major factor is ridiculous.

Anonymous

If we just give them the kicker too, all will be well in Salem!

We are just are not giving them enough and that is why today in the news, Our hard working State Employees are receiving a 5% step raise.

They works so hard and the rest of the taxpayers still have money in the bank. And that, just is not right.

Ron Marquez

Amen, Anon. We should also implement a sales tax and raise the gas tax and all sin taxes by 50%.

Probably not enough but it will be a good start.
Anonymous

You know, with the talk about a kicker windfall going into effect for corporations, I can’t blame the union workers for taking their negotiated step increase.

Maybe at the next negotiation, the state can make a better deal for itself. Until then, the state will just have to suck it in and tighten its belt!

Anonymous

At least the corporations earned it
the public employees lied to get 66 & 67 passed to get their raise.

the State is broke because of the state giving out raises to the unions
when they do not have to money to0 pay for it

The raise is not sustainable and the unions are getting too greedy!

Jim Ray

There is only 1 solution to the 3+ billion dollar shortfall upcoming in the next bi-enium. Bankruptcy!
Nothing else reduces the PERS nightmare(s) that Dr. Pozdena expressed in detail way back in the mid 90′s.
Oregon declare, in fact, you are Bankrupt and start over!
Anonymous

It’s nice to have a prediction come out right. However, this post avoids an obvious question: Is the worsening of the Oregon economy due to M66/67, or the worsening of the national economy? How do you sort this out?

Without even an attempt at this, it’s hard to take the “success” of their prediction very seriously.

Steve Buckstein

How do we sort out the negative effects of the national economy and Measures 66 and 67 on the Oregon economy? It’s of course difficult. But, everything else being equal, we made the case in our December report that M66 & 67 would be negative for the economy and now the state employment forecast matches what we forecast. Proof? No. Added weight to our argument? Yes.

Anonymous

You know, a stopped clock is spot-on twice a day. I’m not saying you are wrong, only that your claim now is lame without an attempt to sort things out after the fact. (That answers the point made by the guy I below.)

Did M66/67 have an effect that quickly? Perhaps, but I’m skeptical. Perhaps Oregon’s deteriorating economy is due entirely (or in part) to the deteriorating national economy.

More impressive, perhaps, would be an analysis of whether Oregon is deteriorating FASTER than the rest of the country. This should not be so difficult to do. Why don’t you do that?

I remember back when the anti-tax people claimed that Clinton’s tax hikes would derail the economy. Instead, the Reagan-era boom, which had been interrupted by the small Bush recession, resumed as strongly as ever (before the internet boom collapsed).

The point is, I don’t remember the anti-tax types writing articles admitting they were wrong, that they’re predictions were lousy, that they blew it.

Just so you’ll know, I voted against those measures, because I thought they would do long-term damage. I suppose I could crow among my friends, most of whom voted for those measures, tell them “I told you so”. But I refrain, in part because I wouldn’t believe myself.

Rupert in Springfield

>Without even an attempt at this, it’s hard to take the “success” of their prediction very seriously.

Im not sure why you say there was not even an attempt at this.

Can you explain what gives you that impression?

The study quite clearly states in the methodology that comparisons were made with the 48 continental states as well as using IRS statistics going back 30 years.

It also states pretty clearly that regression analysis was used to compare with the other states.

How do you construe what is a clear attempt to take the national economy as a whole into the equation as making no attempt at all?

Can you please explain what lead you to your conclusion no attempt was made, when the methodology quite clearly states the contrary?

Jan

The state will really feel the effects of M 66 & 67 in April 2011. They will then realize many wealthy people have left the state and taken their money. They did not post on blogs or write letters to the editor, they settled their affairs in the state and quietly moved.
John Fairplay

One of the delaying factors is that it takes time to establish residency in another state for tax purposes. One could not just move upon the passage of the Measures and then avoid owing them – not only because they were retroactive to January 1 of 2009, but because any 2010 presence in Oregon is going to generate a tax liability to the state. It’s not a complete accident that every time the State Economist produces a revenue forecast for future biennia, the shortfall numbers look worse and worse the farther out you go. And he’s being all sunshine and pretty flowers compared to what’s really going to happen.
John Fairplay

Here’s what’s important about this: Speaker Hunt, President Courtney, the Governor, the OEA, the SEIU, etc lied to Oregon voters both about the impact on their lives of these Measures and about all the wonderful things that would happen if only voters would pass them. I made a point of saving the literature and recording the TV and radio ads by the union’s umbrella campaign organization promising that Oregon schools would avoid any cuts if only the Measures would be passed. They knew is was a lie when they said it. Speaker Hunt was just on the radio claiming all the people dropping off the unemployment roles because they’ve given up hope of finding a job is one positive outcome of Measures 66 & 67.

More importantly, perhaps, Hunt and Courtney _knew_ passage of the Measures would kill the state’s economy in the long run, and create huge shortfalls from what they want to spend to keep paying tribute to their Union masters. Their belief is that they will be able to pass additional tax increases – including keeping the currently non-existent Kicker – because the Unions believe voters are so stupid and would swallow the lies about schools once, why wouldn’t they again? And again? And again?

It’s going to be interesting to see what voters do with all this in November. Deep in their hearts, Oregonians of all political persuasions know that something is wrong. Will they punish the liars or keep electing the same people who have been doing their damnedest to ruin this state for a quarter of a century? Time will tell.
Jack

It’s THE FALL OF REPEAL & REPLACE ————–DEMOCRATS
skippy

The facts speak for themselves in Oregon. In the 2Q of 2010:
~Columbia reports record sales
~Elemental Tech raises $7.1M
~Home Dialysis raises $50M
~Cabelas’s plans new Oregon store in Springfield
~Electro Scientific posted sales of $59.6M and hit a 52 week high
~Wilsonville-based Zxoes raises $4M
~LaCrosse builds new factory in Oregon, employs 450
~Schrodinger drug company makes $10M in investments in Oregon
~Online Calendar targets $50M in sales
~Bank of Oswego adopts plan to doulbe it’s size
~BioScience raised $20M for new venture capital
~Lucua Inc plans new plant in Roseburg employing 100+
~ClearEdge signs $40M deal

Trashing our own state is not smart economic development and it certainly isn’t consistent with the actual facts.

A very careful study just released last week demonstrates that all other states in our region are worse off than Oregon. The title of the study is – “The Grass is Not Greener on the Other side of the Fence.”

John Fairplay and Rupert need to read the report.

valley p

“John Fairplay and Rupert need to read the report. ”

And why would they want to do that. So their heads would explode? Ignorance is bliss.
Anonymous

Their will always be exceptions and how many of these businesses do business with government?

Cecil

Oregon is Blue, Oregon is Broke. I rest my case.
Jack

Get these *************** socialists outta there
Steve Buckstein

In case anyone missed it in today’s (Tuesday’s) Oregonian:

“The latest numbers show Measure 66, which set higher tax rates on households making more than $250,000 a year, and on individual filers making half that, has brought in about $70 million in additional collections to date. The measure also lowered the amount that could be deducted for paying federal taxes.

“‘We’re thinking we’re right around half of what we expected about this time,’ said Paul Warner, head of the Legislative Revenue Office.

“At that pace, Oregon government would bring in less than $300 million for tax years 2009 and 2010 from the retroactive higher tax rates, instead of the $472 million that had been estimated before the election.”

source:
http://www.oregonlive.com/news/index.ssf/2010/08/measure_66_tax_revenue_coming.html

valley p

I guess since the tax revenues are on 1/2 of predictions, the impact on businesses must also be 1/2 of what you guys predicted right? I mean, how would your prediction be exactly right if revenues are only half?

Steve Buckstein

v person, our report suggested that the measures were likely to generate less revenue than projected by the state because they would deter economic activity. Using your flawed logic, if they generated no revenue then they must not have any negative effect at all.

eagle eye

I think you are both wrong! Under his cockeyed logic, if they produced all the revenue predicted, there would be no negative effect on business. If they produced no revenue, the negative effect would be 100%.

But you are right about the basic point, his “logic” is totally cockeyed.

I voted against these measures, and I’m not surprised at the disappointing revenue.

Still, I haven’t heard any way of sorting out how much of the revenue shortfall is due to effects of the measures, and how much is due to the unexpectedly miserable economy, the national economy.

I won’t say “I told you so”, I will only say “I’m not too surprised.”

More generally, I don’t see any politically feasible way out of the situation that produces things like M66-67 and Oregon’s laggard economy.

To wit, overreliance on the income tax, plus the refusal to build a decent reserve fund for times like these. But Oregon won’t go for a sales tax, to replace the income tax in whole or in part.

And, Oregon refuses to build a reserve fund. The Democrats want to spend all the money, the Republicans want to hang on to the idiotic kicker.

I guess stupidity must have its rewards, there’s sure a good supply.
valley p

Steve, with due respect, the flaw is in thinking those tax measures could deter economic activity by 50% in a few months time. As a start, 80% of Oregon’s businesses are not traded sector, meaning the business has to be here in Oregon. A shoe repair shop could theoretically pick up and move to South Dakota to improve their tax climate, but there are only around 1/5 as many shoes to repair in S. Dakota. And if they leave another shop will simply take the business they left behind. Same is true for every retail and service business, as well as most agricultural and timber and fishing business, which may be traded sector but have to be here because this is where the resource they turn into money is located.

So how can a small tax raise cut business so substantially as to reduce projected revenues by half? In short…its not possible. Business gross income is down because consumer spending is down because house values that propped up spending have collapsed because a private sector n investment bubble predictably burst. Its about all you really need to know to understand our present situation.

If high business taxes were the deterrent to economic activity you and your economists think they are, then how do you explain a place like New Jersey, which has both the highest taxes AND the highest incomes in America? The fact of the matter is that there is no statistical correlation between a state’s business tax structure and its economic performance. You can validate this by a simple side by side comparison of business tax rates and state per capita incomes.

Steve Buckstein

valley p, I don’t have time to respond to all your statements right now, so I’ll just respond to the first one.

No one is saying that these measures have or could “deter economic activity by 50% in a few months time.” Revenue from M66 may be only half of what the state projected for 2009 and 2010. Since you seem to think that these are “small tax raises” then the 50% drop isn’t such a big deal, right?

I find it interesting that M66 & 67 suporters are so anxious to claim that business taxes and taxes on the “rich” don’t harm the economy, even a little bit. Everything else equal, it would be astounding if they didn’t.
valley p

The 50% below estimate, about $300 million this biennium, is certainly a big deal with respect to funding schools and other services. I just don’t think it means squat with respect to the present amount of business being conducted in the state.

Do tax raises on the rich harm the economy, even a little bit? It depends. If the taxes raised are used to educate the populace better than they would be otherwise, and that better education leads to higher productivity (as it usually does,) then the economy as a whole would be improved, not harmed. So in effect the tax raise would HELP the economy. On the other hand if the money were squandered, then it could do more harm than good. Taxation and spending is not a zero sum game.

IF….and this is the core issue that divides left and right on this topic…IF raising taxes on wealthier people were to cause them to disinvest in the economy, then yeah, the sort of harm your side always insists on is reality would occur. (Take money from a productive person and burn it on some useless project and you would have a net loss. But take it from Paris Hilton and build a new university lab and I think we would make out pretty well). The problem is you have no evidence to prove your point. Nor can I prove the reverse. Every rich person is not Thomas Edison, nor are they Paris Hilton. But we do have New Jersey, with very high taxes and way high productivity. We do have the Clinton tax raise and subsequent boom. We do have Germany and Denmark, with very high taxes combined with very high productivity and new wealth being generated. We have the Silicon Valley, which sprung up in a high tax state that also had the best universities on the planet.

In sum, my take is that economies are very complex and it is hard to isolate a single variable and then attribute all sorts of events to it, much as we would like to. M66 & 67 represent a single variable. They have and will continue to generate more revenue to the state than would be collected otherwise. They may result in a few mobile businesses moving out or choosing to not locate here. Beyond that lies nothing but speculation.
Steve Buckstein

v person, Paul Warner’s analysis for the Legislature agreed with you that M66 &67 might lead to “better education which would lead to more productivity.” But, he also said that even with this presumed productive use of the money, the two measures would result in somewhat negative effects on the economy for the first seven years, and only after that might the results be positive. Paul could only get to this conclusion by abandoning his long-time assumption that the “productivity effect” of new taxes would be set to zero in the Oregon Tax Incidence Model. It’s not clear why he made this change when analyzing M66 and 67. But even when he did, he couldn’t find positive effects of the measures in the first seven years. Not too comforting in this economic climate.
valley p

OK…that makes sense since investments in education take time to produce anything. I wonder if he also accounted for reduced state costs with respect to law enforcement, health care, and services to the poor? If we did end up with a better educated populace, those costs would all be less than otherwise according to the data.
Steve Buckstein

v person, I don’t recall that the analysis drew those second order conclusions but it might have. I believe it did include assumed productivity in capital projects such as highway construction in addition to education productivity.

Bennie

All of this makes me laugh. The extra money from 66 & 67 gets dumped in to the general fund and given out in raises, retirement, health care and new employees for the state expanding PERS system. You can’t throw money fast enough at the people down in Salem. If money were pouring out a fire hose to them, they would be asking to increase the pressure every other day.

We Told You So…about Measures 66 and 67

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