Taxing the Wealthy More Will Cost 36,000 Oregon Jobs

Economic consultant William B. Conerly, Ph.D. issued the following statement today after the Oregon House yesterday passed HB 2649 and HB 3405 to raise personal and corporate income taxes:

I estimate that raising the maximum tax rates on personal income, including capital gains, to eleven percent will cost the Oregon economy 36,000 jobs by 2015. The job losses will continue to accumulate beyond that year. This analysis does not incorporate job losses due to higher corporate income taxes.

The estimate is based on a model of state employment growth that incorporates data for all 50 states for 26 years. It exploits tremendous variation in tax practices from one state to another, and within individual states across time. The model was developed for my 2005 analysis of Oregon’s capital gains tax. (See Generating Jobs and Income Through a Capital Gains Tax Reduction, Appendix 1, Equation 3, available at http://www.conerlyconsulting.com/pdf/Capital_Gains_Report.pdf.)

The higher tax rates on wage income and capital gains cause a small reduction in annual growth rates. Although the first-year job cost is relatively small, 5,570 jobs, the losses accumulate year after year because the economy’s growth rate””not just the number of jobs but the growth rate””is permanently reduced. My estimate begins with the official state economic forecast published by the Office of Economic Analysis (Oregon Economic and Revenue Forecast, May 15, 2009). The official forecast is then adjusted to reflect the lower employment growth indicated by my tax impact model.

A “common sense” explanation of the impact is simple. People in America choose where to live and where to invest. There is always a small number who are considering moving. There are also some people considering larger investments or smaller investments. Higher tax rates induce some of these people to live outside of Oregon or to invest less in Oregon.


Dr. Conerly is an economic consultant and Chairman of the Board of Cascade Policy Institute.

Conerly Consulting LLC
4500 Kruse Way, Suite 350
Lake Oswego, OR 97035

(503) 675-3138
(503) 675-3139 (fax)

[email protected]
www.ConerlyConsulting.com


For an analysis of the corporate income tax bill passed by the 2009 legislature see
Raising Oregon’s Corporate Income Tax Rate Will Cost 43,000 Oregon Jobs


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 11:00 | Posted in Measure 37 | 21 Comments |Email This Post Email This Post |Print This Post Print This Post
  • JimRay

    I can attest to several jobs going bye-bye the minute I see the increases. The blood will be on those who thought it cute to raise taxes when the unemployment rate is already soaring above 12%.

    Help unemploy those who voted to increase taxes on businesses that employ and make the economy go.

    • a small biz owner

      I am considering selling and moving to WA as a result of this. NONE of my customers are in OR. All are WA. Yet, I pay OR income tax. I try to employ here, but this is not a fair tax. It forces me to consider moving, to hire and be competitive where my customers are; and will decrease my personal and federal taxes to a more manageable basis.

  • valley person

    Why is it that generally high tax states, like Mass, Conn, and NY, have much stronger economies than generally low tax states like those in the south?

    I suspect because the model leaves out a crucial element, which is worker productivity, which is determined primarily by education levels, which are for the most part higher in higher tax states. If Oregon invests increased taxes well, particularly to maintain or improve education, then the economy will grow faster, not slower. If we spend the money on new prisons, different story.

    • Rupert in Springfield

      Wow – Where to start.

      >Why is it that generally high tax states, like Mass, Conn, and NY, have much stronger economies than generally low tax states like those in the south?

      Because its a false assumption. You are assuming their stronger economies are a result of high taxes rather than high taxes being the result of a strong economy.

      Your citing of CT is a prime example here. CT only has high taxes because a lot of people who work in NYC in the more high paying jobs live there. Fairfield county, which recently was the highest per capita income in the country, doesn’t have that because they have high taxes or because they have anything going on there. They have it because people moved there to escape the higher taxes of NYC, at least originally.

      In addition, you might also want to bear in mind that Oregon directly contradicts your assumption. We are a high tax state ( and no, don’t give me that study that showed us in the middle, it left out property taxes ) and our economy is in the toilet as rates have risen.

      >I suspect because the model leaves out a crucial element, which is worker productivity, which is determined primarily by education levels, which are for the most part higher in higher tax states.

      OK – Now this one is clearly putting the cart in front of the horse.

      To live in a high tax area, you have to make a lot of money. You need a lot of income to live in NYC for example. Their schools are incredibly expensive per student, and they are abysmal. If you think greater spending on schools equates to better education levels, that’s nuts. There is zero evidence of that and in fact direct contrary evidence to it.

      Private schools regularly educate people for fractions of what public schools charge. Anyone want to argue they do a worse job?

      Even home schooling, which costs essentially zero compared to public schools seems to do a better job.

      Public schools are at the absolute bottom in terms of performance but in terms of price they are essentially at the top. Private schools and home schooling gives better results and with the exception of a relatively few very expensive private schools ( which aren’t all that more expensive than public schools in the area generally )all cost less.

      The absolute last thing our schools need is more money.

      >If Oregon invests increased taxes well, particularly to maintain or improve education, then the economy will grow faster, not slower.

      Why would you think this? We have increased per student spending and our economy has gone down.

      We now spend $10k per student, far more than private schools with far worse results.

      >If we spend the money on new prisons, different story.

      Why? Can you cite an example of a state or area spending on prisons and show as a direct result their economy went down?

      On what do you base this statement?

      • eagle eye

        “Can you cite an example of a state or area spending on prisons and show as a direct result their economy went down?”

        A good guess would be Oregon! We have tried the starve higher education/fund gold-plated prisons approach here. And look where we are.

        • Rupert in Springfield

          Oh good Lord – This is ridiculous. We are turning prisoners loose due to lack of prison space and some jails can’t even open due to lack of funds. Meanwhile, 57% of the budget goes to education and teachers make way more than the average Oregonian for 8 months of work.

          Please think about this stuff before you do the reflexive OEA kneejerk reaction. This is such silly union boiler plate its just absurd.

      • valley person

        Rupert wrote:
        “Because its a false assumption. You are assuming their stronger economies are a result of high taxes rather than high taxes being the result of a strong economy.”

        I wasn’t making any assumption. I was asking about a correlation. But if high taxes result in diminished economies then high tax states should be driving out business and higher income people (because they generally pay more in taxes), and that does not seem to be the case statistically.

        CT has the highest average income in the nation and ranks 3rd in combined local and state tax burden according to the Tax Foundation. Why isn’t the high tax burden driving out the wealthy?

        Oregon is not a high tax state. It ranks 26 in combined local (i.e. property) and state taxes. Facts are facts.

        Rupert wrote:
        “To live in a high tax area, you have to make a lot of money.”

        That is contradicted by reality. Plenty of poor people live in New York and CN and New Jersey. You may need a lot of money to afford Manhatten unless you are in Harlem or a rent controlled apartment. But there are not a lot of poor people in the South Bronx or Queens.

        Rupert wrote:
        “Public schools are at the absolute bottom in terms of performance but in terms of price they are essentially at the top.”

        Catlin Gable, Portland’s premier private school, costs $19-22K a year depending on what grade your kid is in. Yes, religious schools “cost” less in tuition, but are normally subsidized by their respective churches.Thus they actually don’t cost less in reality. And even if they did, and even if they educated better than public schools, it does not matter. We have separation between church and state and are not going to send all our kids to private religious based schools. That would be illegal and stupid if Iran and Pakistan are guides.

        A quick comparison of state and local tax burden rankings with education rankings reveals an interesting correlation. The bottom 10 schools in tax burden got 1 f, 1 d, 3 cs, and 5 bs in national education result rankings (comprehensive scores across a range of measurements). The top 10 states in tax burden got 3 cs, 3bs, and 4 As. Thus there is a clear correlation between high state and local spending and higher educational achievement.

        Oregon, middle of the pack in spending, is also middle of the pack in education. We got a gentleman’s C.

        • Rupert in Springfield

          >I wasn’t making any assumption. I was asking about a correlation.

          Sure you were, it was the whole thrust of your post.

          >But if high taxes result in diminished economies then high tax states should be driving out business and higher income people (because they generally pay more in taxes), and that does not seem to be the case statistically.

          Well, the answer is you don’t know. The answer could just as easily be that higher taxes make a region unaffordable to live in, and thus only the rich can afford to stay.

          >CT has the highest average income in the nation and ranks 3rd in combined local and state tax burden according to the Tax Foundation. Why isn’t the high tax burden driving out the wealthy?

          Because as I said, much of CT’s wealthy lives near NYC, Fairfield county being the example I gave. I hope you aren’t going to try and argue CT’s taxes are higher than NYC’s

          >Oregon is not a high tax state. It ranks 26 in combined local (i.e. property) and state taxes. Facts are facts.

          Oregon ranks as the fifth highest nationally ( https://www.taxfoundation.org/research/topic/52.html ) in personal income tax of those states that levy income tax.

          In addition, according to the census ( https://www.census.gov/statab/ranks/rank29.html ), Oregon ranks 30th in income, yet 26 in the combined tax rates you state, thus although our taxes might seem average in terms of per capita amounts, because our income is below average our taxes are actually more punishing to the tax payer.

          >That is contradicted by reality. Plenty of poor people live in New York and CN and New Jersey.

          No they don’t. I’m from NYC, I can tell you categorically there are no poor people living in NYC who are paying market rent or not sharing an apartment. It simply is impossible.

          Now, if you are talking about the state as a whole, big deal, NEW York has plenty of poor areas.

          If you define as poor a family or individual living below the poverty line, it is simply impossible to live in NYC and pay market rent unless you are living with roommate.

          >Catlin Gable, Portland’s premier private school, costs $19-22K a year depending on what grade your kid is in.

          that’s why I said “essentially”. Sure, there are some private schools that are way above what public schools cost. However as a whole private schools spend less per student.

          >Yes, religious schools “cost” less in tuition, but are normally subsidized by their respective churches.

          Not true. There was a famous challenge issued by the arch diocese of NYC to open their books and show they could educate kids for about $3,000 per year. This was even letting the city pick the kids! Obviously the teachers unions in NYC would never allow such a challenge to take place so it never happened.

          One reason for the low expense is private schools have way less overhead. There aren’t hundreds of fat cat union administrators that have to have their pockets lined. The total staff to administer the parochial school in NYC is in the dozens.

          > The bottom 10 schools in tax burden got 1 f, 1 d, 3 cs, and 5 bs in national education result rankings (comprehensive scores across a range of measurements).

          God knows what this means. Where do these figures come from?

          >Oregon, middle of the pack in spending, is also middle of the pack in education. We got a gentleman’s C.

          You have a source on this? Without it it doesn’t mean a whole lot.

          • valley person

            The data on education grading by state is from the National Center for Educationi Statistics. I don’t vouch for their methodology. it is what it is.

            ” I’m from NYC, I can tell you categorically there are no poor people living in NYC ….”
            The poverty rate in the Bronx, which is part of New York the City, is 30%. For Brooklyn it is 25%. NYC as a whole has a poverty rate of 21.2%. This is nearly double the national poverty rate, which was 12.5% in 2007. Lets assume these folks all live in subsidized apartments and double up. They still live there.

            “Well, the answer is you don’t know. The answer could just as easily be that higher taxes make a region unaffordable to live in, and thus only the rich can afford to stay.”

            That can’t be the answer given the data I just showed you on the number of poverty level people living in high tax New York City.

            I don’t know if CTs taxes are higher than NYC. I know CTs are among the highest taxes in the nation. And I imagine if one factored in commuting costs and time, it might be more expensive to live in Fairfield CT and commute than to live in NYC.

            Fairfield CT by the way, has a population of 57,000, CT has a population of 3.5 million. Are you seriously going to contend that there are enough rich people amongst that 57,000 to skew the entire state average income up enough so that it ranks highest in the US?

            When the NYC diocese made their challenge, did they account for the number of low or non paid nuns used as teachers? Did they include busing, special ed, reduced price lunches, vocational ed, accomodating kids with severe disabilities, and kids who have English as a 2nd language? Did they factor out direct subsidies by the church? And again, even if they did all this, why would our nation want non Catholic kids forced to go to Catholic schools?

          • Rupert in Springfield

            >That can’t be the answer given the data I just showed you on the number of poverty level people living in high tax New York City.

            Ok – This has reached the absurd level. You really need to go to NYC. It is impossible to be poor there and pay market rent. Not only was I born, grew up and lived there for 30 years, my parents were landlords there. Please, if you are going to try and argue that the cost of living hasn’t made NYC impossible to afford for all but the well off, you are simply wrong. If you are going to try and use subsidized housing ( which incidentally is often subsidized directly by the rich, NYC has an extreme form of rent control ) as a counter to that, that’s a little ridiculous.

            >Are you seriously going to contend that there are enough rich people amongst that 57,000 to skew the entire state average income up enough so that it ranks highest in the US?

            You obviously haven’t been to Fairfield. Its a very wealthy county with no real obvious industry to account for the high incomes of the people there.

            But yes, I would contend that my assumption probably makes more sense. It just simply seems more probable and frankly I think you argument, that high tax rates increase incomes seems fanciful by comparison.

            >Did they factor out direct subsidies by the church?

            It was a fair challenge. The diocese offered to open their books and make complete accounting available. They even offered to let the city pick the kids.

            >When the NYC diocese made their challenge, did they account for the number of low or non paid nuns used as teachers?

            Well, that’s the whole point. One doesn’t have to pay custodians ridiculous wages under prevailing wage law nor does one have to pay an army of do nothing administrators ( the dioceses has a handful of administrators to run a very substantial school system in NYC ).

            >Did they include busing, special ed, reduced price lunches, vocational ed, accomodating kids with severe disabilities, and kids who have English as a 2nd language?

            Yes, and I told you this at the outset. They offered to let the city pick the kids that would attend for this experiment. They did this precisely to eliminate the “cherry picking” contention.

            >Did they factor out direct subsidies by the church?

            I’m not sure what you mean by this. However I hope you aren’t going to try and argue the Church has more direct subsidy than public education.

            >And again, even if they did all this, why would our nation want non Catholic kids forced to go to Catholic schools?

            Well, to get a better education at a lower cost. I don’t really understand your use of the term “forcing”. Are you arguing “forcing” kids to lower performing far more expensive public schools is a better situation?

  • Rupert in Springfield

    For businesses in Oregon that are struggling to survive, the message from Salem was loud and clear. They felt it more important to impoverish you further so as to enrich public employees with raises and grow the budget.

    With the second highest unemployment rate in the country, the Oregon legislature rather than throw a lifeline to people, instead sped by their sinking life boat and filled it with prop wash.

    The actions of the legislature were hardly unpredictable. Indeed the only mystery in any of this is how any of this clan can look at themselves in the mirror in the morning.

    • valley person

      “Are you arguing “forcing” kids to lower performing far more expensive public schools is a better situation?”

      Yes. it is better than delegating public education to a church. Any church. No matter how well they might educate.

      “However I hope you aren’t going to try and argue the Church has more direct subsidy than public education.”

      I’m suggesting that comparing public schools, staffed by professional teachers and administrators paid living wages, with parochial schools staffed by people who have taken vows of poverty to serve God, is misleading at best, deliberately deceptive at worst.

      “They offered to let the city pick the kids that would attend for this experiment.”

      Were they going to provide transportation to those kids? Reduced price meals? Vocational education?

      “You obviously haven’t been to Fairfield”

      Yes, that is of course “obvious.” But whether I have been there or not, I can do rudimentary math. 67,000 is 1.6% of 3.5 million. Not high enough to skew the entire average wealth of the state to the point where it would be the highest in the nation.

      Also, if you look at median income instead of average income, CT ranks 3rd at $66K per household, meaning 1/2 above and 1/2 below. Fairfield can’t possibly skew that figure. Why are so many above average income people remaining in a state with the 3rd highest tax burden in the nation? Why aren’t they all moving to Mississippi? Or Utah? Or Kentucky?

      Could it be they stay in CT so their kids will attend great public schools? Maybe so, and maybe not. But they are apparently staying, and not only in CT but also in a lot of other states with much higher taxes than we have in Oregon.

      • Rupert in Springfield

        >Yes. it is better than delegating public education to a church. Any church. No matter how well they might educate.

        Hmm, ok, I guess we just differed there. Id rather kids be educated.

        Somehow some kid seeing a crucifix on the wall seems far less of a burden than being poorly uneducated.

        >I’m suggesting that comparing public schools, staffed by professional teachers and administrators paid living wages, with parochial schools staffed by people who have taken vows of poverty to serve God, is misleading at best, deliberately deceptive at worst.

        Hmmm, I wonder what it says about the professionalism of these teachers and living wage administrators that they can be beaten by a bunch of impoverished amateurs?

        That would be the conclusion if one accepts your characterization.

        >Why are so many above average income people remaining in a state with the 3rd highest tax burden in the nation? Why aren’t they all moving to Mississippi? Or Utah? Or Kentucky?

        Who knows. Why do so many poor people stay in towns where the steel mill shuts down and then complain that they can’t get work? Why does anyone live in Appalachia?

        Why do people live in deserts? Or Detroit?

        I know one thing though, raising taxes didn’t all of a sudden make everyone rich, that’s for sure.

        >Could it be they stay in CT so their kids will attend great public schools? Maybe so, and maybe not.

        Or could it be that only the rich can afford to pay all these high taxes? Again, you are putting the cart before the horse. I mean, it seems sort of ludicrous to me to think high taxes generate rich people.

        By the way, if you think the rich send their kids to public school, you is crazy. Most would be going to Choate, Exeter, Andover or similar schools in NYC.

        >But they are apparently staying, and not only in CT but also in a lot of other states with much higher taxes than we have in Oregon.

        Well, first of all, few states have as high a tax burden as we do in Oregon given our average income. So that’s a little bit deceptive on your part.

        Anyway, your conclusions are different than mine. I grew up in one of the areas you are talking about, NYC. I never heard a single rich person ever say they were staying in NYC because of the great public schools.

        Hmm, as a matter of fact I don’t know any rich people who sent their kids to public school in the first place.

        Most rich people in NYC send their kids to private school. At least that was my experience.

        • valley person

          “Hmm, ok, I guess we just differed there. Id rather kids be educated.”

          I’d rather they be educated in a secular, public institution, and that we should manage and fund that instutution to get the results we desire. If we feel it should be improved, then let’s do that, not send kids to Church-based schools unless that is what their parents prefer.

          “Hmmm, I wonder what it says about the professionalism of these teachers and living wage administrators that they can be beaten by a bunch of impoverished amateurs?”

          It doesn’t say anything at all. Those “impoverished amateurs” are well educated. Their housing and food is provided by their Church. They made a decision to do without most material goods. If you are suggesting that secular teachers and administrators should do the same, well good luck with that.

          “I know one thing though, raising taxes didn’t all of a sudden make everyone rich, that’s for sure.”

          We agree. Raising taxes does not make everyone rich. But if the money raised is well spent, it can make nearly everyone better off. Read THe Affluent Society by JK Galbraith for an explanation.

          “By the way, if you think the rich send their kids to public school, you is crazy.”

          Me is not crazy. Me know many, if not most rich people send kids to private schools like Catlin Gable (as opposed to Our Lady of Perpetual Responsibility).

          But even though the median income in CT is very high compared with the rest of the nation, those within 50 or 100% of that median may not be wealthy enough to send their kids to good private schools. Like with Lake Oswego, most still choose the public school option.

          “Well, first of all, few states have as high a tax burden as we do in Oregon given our average income”

          Statistically we are about average in income and about average in tax burden. If we raise taxes on those making over $250K, how does that raise the tax burden for those who are at the “average?”

          • Rupert in Springfield

            >I’d rather they be educated in a secular, public institution, and that we should manage and fund that instutution to get the results we desire.

            We have the most expensive public school system in the world and get the worst results. In fact we have done nothing but increase funding per student in constant dollars for quite a while now. We still have the worst education system in the industrialized world.

            The one thing we absolutely know for a fact is more money is not the solution to the problems with our government education system.

            You are simply proving the *Rupert Uncertainty Principle* with this one.

          • valley person

            “We have the most expensive public school system in the world and get the worst results.”

            And your source for this misinformation is?

            According to the CIA World Factbook, the United States ranks 37th in public education spending as a % of GDP. Cuba is numero uno. Also ahead of us are Yemen, Mongolia, Barbados, and Swaziland among others.

            We rank first in average years of schooling by adults. 14h in 12th grade science. 9th in adult literacy. 5th in primary grade teacher salaries. 6th-15th in class size (depending on grade).

            So apparently we do not spend the most, nor are we the worst.

  • John

    Is there 36.000 jobs left in Tax Hell Oregon left to lose?

    • By the Sea

      Ouch!

  • Bob Clark

    Valleyperson left out high-tax-state California where some million higher income/productive citizens have left for lower-tax-states over the past decade. Also, Georgia has probably just as strong economy as the those Northeastern states. And, Texas one of the lowest tax states has a stronger economy than those in the Northeast. Wyoming and Utah also low tax states have booming economies relative the Northeastern states when measured over a decade.

    I don’t think Oregon can tax its way to prosperity, either. In fact, one of the main reasons people are still moving here is because our taxes are lower than those in California. Raising taxes reduces Oregon’s attractiveness for new business. It doesn’t help that our politicians have decided to blow new tax revenues on failed ventures like ethanol plants and the Oregon health plan, instead of helping support a diverse system of education. For current slate of elected officials: Renewables are sacrosanct but cutting school days that’s acceptable.

    • valley person

      Business Week ranked the best states to start a new business based on 21 factors (2007). Their top 10?
      1: Mass
      2: NJ
      3: Maryland
      4: Washington
      5: California
      6: Connecticut
      7: Delaware
      8: Virginia
      9: Colorado
      10: New York

      Nearly all of the top 10 are known as high tax states. What connects them are great research universities. The 2008 rankings changed a bit, with Washington moving to numero uno. The other previous top 10 were still in the top 10. Oregon ranked 15th, Texas 18th, Utah 12th, Georgia 21st, and Wyoming 41st. The rest of the southern, low tax, red states were all in the bottom tier, most in the bottom 10.

      https://www.kauffman.org/uploadedfiles/2008_state_new_economy_index_120908.pdf

      Maybe 1 million high income people left California, I don’t know. The state ranked 11th in the nation in per capita personal income in 2006, and 6th in total tax burden.

      My point, there is a lot more than tax levels that influence business climate. Going by the data, high tax, high service, high education focused states tend to do better economically than low tax, low service, low education states. Its not universal. There are exceptions at both ends. But generally it holds true if one accepts the data.

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