Raising Oregon taxes will be good for our state

A couple of new polls suggest that Oregonians are about to raise state taxes on high income citizens and some corporations by passing Measures 66 and 67. Support for the measures may be slipping, though.

I hope they pass.

Oregon is a low tax state, as I noted several years ago. This recent cartoon from the Eugene Register-Guard demolishes the ridiculous anti-tax argument that people and businesses will shun Oregon if state taxes are hiked slightly.
William Yaeger, an Oregon State University economist, did a fine job of pointing out the benefits to the state's economy of passing Measures 66 and 67 in a Register-Guard opinion piece. 

Although some might have you believe otherwise, the economics behind Measures 66 and 67 — the tax referenda that Oregonians will be deciding over the next two weeks — actually are not that complicated. The main issues can be framed as a benefit-cost analysis, where public services are the benefits and taxes are the costs.

The economic question is equally simple, and perhaps more to the point: Do the measures’ benefits outweigh their costs?

...In this [short-run] situation, most research clearly shows that raising taxes on high-income families will be less harmful to a state’s economy than reduced public services. So in a world of two bad choices, raising taxes on high-income households is “less bad” than further cuts to public services. It also is more equitable, since many of these public services support the less fortunate in our communities.

Right-wing talk show hosts like Portland's Lars Larson are fond of decrying the "waste" of taking money from the private sector and putting it into the public sector. Yaeger points out that this isn't true.

There is a wealth of economics literature on this topic — dozens of national studies that have looked at state and local taxes, scouring the data for evidence of how to maximize benefits at the minimum cost. One recent summary of those studies concludes that “there is little evidence that state and local tax cuts — when paid for by reducing public services — stimulate economic activity and create jobs,” and that “increases in taxes, when used to expand the quantity and quality of public services, can promote economic development and employment growth.”

Who wants to live or do business in a state where the roads are crumbling, school classrooms are over-crowded, parks are poorly maintained, and universities aren't able to educate a quality work force?

Today I got into a chat with a woman about people who don't like to pay dues to their neighborhood association. She lives in a manufactured home park where the assessment is a whopping $50 a year.

Even so, some residents refuse to pay. She couldn't understand this. "If they'd prefer to live in a messy, run-down area, they should leave," she told me. Exactly.

Anti-tax zealots are the first to complain when government services don't meet expectations. Yet they're unwilling to fund them at an appropriate level. In my previous post I said: (Ron Saxton was a 2006 Republican candidate for governor)

In the same fashion, tax-cut anorexics (otherwise known as right-wing Republicans) have the delusion that government spending can go on a limitless spending diet without ever incurring any ill effects.

I’d like to ask Saxton, “Could you ever see yourself spending more of your household income on health care?” I assume he’d say “Yes.”

If not, I’d follow up with: “What if your wife or child fell ill and needed expensive medical treatment that wasn’t covered by insurance? Would you be willing to spend more money to save the life of a loved one?” Almost all of us would. All of us who have more than an ounce of human compassion.

So Ron, what if it was your beloved state of Oregon that had fallen on hard times and needed more money to cure health, education, environmental, transportation, or other serious problems?

No one should vote for a candidate who says that he’ll never raise taxes. Especially when he lives in a state that already has a below-average state and local tax burden. Fall another ten places in the rankings, from 36 to 46, and Oregon will enjoy the company of Alabama.

Whoopee.

Economist Yaeger's opinion piece has an accompanying figure that tells the tale of Oregon taxes and public services. This copy is a bit fuzzy, so head over to the Register-Guard web site for a possibly clearer "original." 

The top left chart shows the impact of Measures 66 and 67 on Oregon income groups. Only the top 1% are affected materially, and even there, not to a great extent.

The top right chart shows Oregon's student-teacher ratio ranking. It's been sinking steadily. We're now 49 out of the 50 states.

And the lower left chart shows how Oregon state taxes as a percentage of personal income compare to the national average. We've always been below average. Even if the tax measures pass, we still will be -- quite a bit below (note the slight uptick on the right side of the bottom graph line).

So hopefully Oregonians will recognize that raising taxes often is good for a state's economy. Also, a nation's.

Comments

[Rain]

Just out of curiosity, do you favor raising taxes when you will be paying more out of pocket or just when it's someone else? It seems to me this tax increase is mostly popular because most people don't expect to pay it. Now they might if the corporation raises the prices of the product they sell, but they won't see that immediately to know it. If corporations move out of the state because of the taxes, it won't happen soon enough to make the connection.

Unlike what you have said, I don't find myself that fond of taxes, but I do often vote to spend more when I think it's the right thing. On this one I voted yes on one of these measures and no on the other. The yes was because it adjusted more fairly the rates on the lowest income people. I try to vote for what I think will actually help and is fair. I don't necessarily feel it's fair to tax people a higher percentage of their wages just because they make more. I also am not sure it will prove to be cost effective as many states are doing all they can to urge corporations to move there. Washington, who has a sales tax, doesn't have an income tax and same with Nevada. I don't know if this tax increase will help Oregon or not. I will hope for the best. There is a lot though that our state has done to spend money which I haven't liked. It's not like just because it's government that it automatically is wise in its spending or what it promises. Since I already mailed in my ballot (my kids disagreed with me on it also), it's not like you or I will change each other's minds on it.

[Blogger Brian]

Rain, since I usually am more centered on myself than anyone else, naturally I prefer it when taxes are raised on other people -- not me. A few days ago we were discussing Measures 66 and 67 in my Tai Chi class and I made that exact observation as a reason I voted "yes" on both: I won't be paying more taxes if they pass.

But this self-centeredness points to a reason why my wife and I genuinely enjoy paying taxes. As I've noted before, this is our biggest "charitable" contribution each year. Our taxes help feed the poor, provide health care to the elderly and indigent, protect the environment, educate inner city (and other) children, plus so much more.

Sure, there's waste in government. However, Blue Cross spends 20 to 30 percent of my premium on administrative costs, including high executive salaries. All private companies are similarly inefficient to some degree or another. I've read about high tech companies that give free lunches to their employees and other perks.

We all pay for those inefficiencies when we buy one of their products. So I don't expect government programs to be perfectly managed, just like I don't expect private sector companies to be perfectly managed.

Yes, like you said government isn't always wise in its spending. But because government programs ultimately are managed by elected officials, it is we, the people, the voters, who ultimately direct government spending. This is a democracy, not a dictatorship. Government policies aren't going to be pleasing to everybody, all the time.

But on the whole, government represents the best in us, not the worst. Taxes are our way of contributing to the general welfare, not our personal selfish interests.

[Rain]

Well my concern about these two is more whether they will accomplish what they promise or not. Having a husband involved in many meetings on start-up businesses, hearing the corporate side of 67, I know that it may end up causing businesses to form or move elsewhere. Oregon already has higher unemployment than many places. We have already lost corporations to Washington and their having no income tax might be a factor as the ones who own businesses pay two places-- personal income tax and business. Anyway I read the material and made my decision accordingly but neither tax will directly impact me right now either.

One thing that I didn't like about the ads promoting both was how they emphasized where the money would go. That is a very unfair way to indicate it given you can put that money there and take it from somewhere else for your 'pork' projects then. I would have preferred a full budget diagram showing the spending now and the spending after the taxes. When you see it that way, you can evaluate whether it helps things you believe in. Their little pie charts showed it all going to the elderly, schools, etc. which naturally everybody is concerned to see do well but doesn't really tell us the difference it will make in the budget. I realize it's all advertising and whichever side you get, it will be slanted.

Out where I live all the farmers, had signs no on them and all the people who have concerns for schools, etc. had signs yes on it. So basically the producers didn't want it and the receivers did. Not too surprising. I just think we have to concern ourselves with where money really goes, whether tax levies will actually end up raising more money (you can kill the golden goose) and whether the taxes are fair.

You might think farmers don't have the choice of moving to another state, but if they end up with too little profit left after expenses and taxes, they can go out of business. That doesn't benefit us as citizens.

[Blogger Brian]

Rain, I'm not sure what you mean by "producers" and "receivers." I assume you aren't saying that the majority of Oregonians who say they support the measures are unproductive citizens who survive by sucking the teat of government welfare programs. Or that everyone who opposes higher taxes is a hard-working business person. Of course, that isn't true.

Also, the job-killing effects of the measures has been highly exaggerated. Most businesses affected by the taxes would only pay a few hundred to a few thousand dollars more. This is nowhere near the cost of an employee.

And as I noted in a previous post on this subject, Oregon still would rank #14 among the 50 states in business tax climate even after passage of the tax hikes. So it's difficult to imagine that many businesses would go through the expense and trouble of moving to a different state when they already reside in one of the most favorable places to do business in the country.

[Rain]

Have you been reading the information showing how much of the country is currently working for the government already? The way it's going, it would be easy to visualize 50% of the people either working for the government or getting a pension from it. I did not suggest that those people are not doing anything for that money and some government jobs might be producing a product but in general what I am saying is if you get a government paycheck or depend on a government pension or have programs you depend on for services, you will be far more likely to favor higher taxes on somebody else.

As for companies moving out of Oregon. It already has happened. If we have such a good business environment, why is that happening. I can think of several that I know about personally. There may be many reasons but no income tax can be a factor in where you start up a business. Even in big tax states, companies look for help to get their starts.

I suspect both will pass and time will tell if they do what they claimed. Phil Knight of Nike seemed to think they won't be good for the state but what does he know... I don't have insight into corporations that big but I know about the little ones. And some of them are already going elsewhere. I also know how it works for farmers who often have very little margin for profit and yet a lot of money goes through their businesses.

If this tax increase was going to cost the businesses so little money, why would the state find it profitable enough to do it? A lot also don't like it being retroactive as if you are operating on a shoestring, that can be a big deal. The point is it's easy to favor things if you don't have to pay them and maybe even profit from the increase. The question will be whether it ends up a long term benefit for the state as a whole. As I said before, I will hope it does.

I am a fan of Kitzhaber, who I know supports it. But i have a right to think as I do and I voted how I felt was best. I won't argue it further here as we have both voted and there is no gain to keep going over it. I am sure we want the best for the state and have to hope this will be it.