Friday, June 26, 2009

Fuzzy Conservative Numbers

Economist Randall J. Podenza from the conservative Cascade Policy Institute makes some interesting (although totally predictable) predictions about the effects of HB 3405, which raises

Posted By on Fri, Jun 26, 2009 at 11:09 AM

Economist Randall J. Podenza from the conservative Cascade Policy Institute makes some interesting (although totally predictable) predictions about the effects of HB 3405, which raises corporate tax rates in Oregon.


"Raising tax rates of any kind risks impairing the private sector's motivation to invest in activities that support job and income growth," Podenza writes. "However, the taxation of corporate income is particularly injurious to growth."

Based on "comparisons of the effects of differential tax rates across countries," Podenza comes up with the following dire forecast:

"Oregon's growth rate will slip by 0.1 to 0.2 percentage points per year for as long as the tax increase is in place," and "over a ten-year period, Oregon will lose between 22,000 and 43,000 jobs, and $1.6 and $3.2 billion in personal income."

It's not clear from this whether Podenza is saying Oregon will experience an ACTUAL loss of jobs and growth, or a loss of jobs and growth relative to the gains that conservatives think Oregon WOULD see if the tax increases didn't happen. That's a bit of sleight of hand right-wing economists have been known to employ before.

The whole thing reminds us of how conservatives back in 1993 loudly and unanimously predicted that President Bill Clinton's tax increase would lead to economic disaster. To hear them tell it, breadlines would appear in our cities and grass would grow in the streets.

Of course, what happened instead was the biggest and longest economic expansion since World War II. (And what happened after the George W. Bush tax cuts, in case anybody needs reminding, was the worst economic collapse since 1929.) But in the election campaign of 1996, Republican Bob Dole tried to argue that the boom would have been EVEN BIGGER without the tax increase.

It didn't work.

The truth is the story isn't as simple as "higher taxes = less jobs." A corporation's decision to locate, or stay, in a state depends on many factors besides the tax rate: natural resources, energy costs, the availability of the kind of workforce it needs, the quality of transportation and other infrastructure elements, the quality of the education system - even, yes, the "quality of life." That helps explain why many states with a heavier corporate tax burden than Oregon - Washington, for instance - are in better economic shape than we are.

If you look at the big picture, in fact, Oregon's tax policies are not really unfriendly to business. The Tax Foundation - a non-partisan but definitely pro-business outfit - ranks Oregon ninth in the nation in its "State Business Tax Climate Index," which "compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property." Washington ranks 12th.

And can anybody doubt that the economy of Michigan (ranked 20th) would be in the crapper even if its corporate tax rate was zero?

As The Oregonian's David Sarasohn once wrote (paraphrasing here): "If low taxes were the engine of prosperity, Mississippi would be the economic powerhouse of America." Or maybe Wyoming (Number One in the Tax Foundation index) would be.

Here's our own prediction: If the Oregon economy does continue to slow down (as it's likely to do for another year or more) the conservatives will blame it on the tax increase. If it bounces back, they'll say the bounce would have been higher without the tax increase. You just can't win against that kind of "logic."

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