Hoodwinking Our Way Out of Recession

Hoodwinking our way out of recession:
Oregon DHS uses economic sleight of hand
to sell a billion dollars of new taxes

by Eric Fruits, Ph.D.

Over the next four years, Oregonians will face $2.6 billion in new taxes. That’s an average of $1,750 in additional state taxes per household.

In January 2010, Oregonians will vote on ballot measures that will raise personal income taxes by $847 million and raise corporate income taxes by $530 million over the next four years. The campaigns for and against these new taxes ensure that nearly every Oregonian will know about them by Christmas.

$1.2 Billion in Taxes on Health Insurance and Hospital Care

Less well known are the massive tax increases””$1.2 billion””affecting health insurance and hospital care provided in Oregon. These new taxes are set in stone. There will be no vote and they go into effect soon.

Oregon HB 2116 (PDF) raises taxes through a tax on hospitals and a tax on health insurance providers. The figure above shows that the hospital tax is projected to raise $307 million in 2009-11 and the health insurer tax will raise $107 million in 2009-11. In 2011-13, the increased hospital taxes will amount to $550 million and the health insurance tax will amount to $345 million.

State Agency Fudges Employment Impacts””Again

Such huge tax increases in the middle of one of the worst recessions in memory will slow Oregon’s recovery from the current recession and damage employment growth in the state.

That is why it is so surprising that Oregon’s Department of Human Services (DHS) has reported to Oregon Business magazine that the tax increases will boost employment in the state by 3,600 jobs.

In response to a public records request, DHS has provided documents describing how the agency came up with results that are contrary to fundamental economic analysis.

As it turns out, the agency employed the Broken Window Fallacy to its benefit. The agency counted only the estimated additional money that would flow into the state from Federal sources, such as matching funds. The agency did not account for the tax money that will be extracted from taxpayers by the State of Oregon. Thus, the agency considered only the benefits of the program, but did not consider the costs.

This is not the first time that state agencies have cooked to books to fudge the economic and fiscal impacts of its tax policies.

“¢ Oregon officials get caught fudging the costs of energy tax credits Reports that agency officials low-balled the fiscal impacts of the state’s energy tax credit programs. The actual costs are 40 times higher than the agency’s projections.

“¢ BETC: Do Oregon’s energy tax credits help or hurt the economy? Highlights a consultant’s offer to hide the fact that some of spending on Oregon’s energy tax credits actually lowered employment in the state.

The Bend Bulletin (registration required) has picked up these stories and provides a summary of the recent rounds of economic sleight of hand.

Eric Fruits is an economist, adjunct professor in the Pacific Northwest, adjunct scholar with Cascade Policy Institute and the President of Economics International Corp. This post is republished with permission from Dr. Fruits’ Econ International Blog.

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