Happy Friday extends to Monday: Updating the Norquist "pissed-off" quotient

Carla Axtman

Friday's post marking the apparent irritation of Grover Norquist toward Multnomah County included a nugget about contacting Americans For Tax Reform:

If we have questions, the letter tells us to contact "Kelly Cobb" and provides a DC area code phone #. Kelly Cobb appears to work for Americans for Tax Reform as their State Government Affairs Manager. Here's more on Cobb. I can't tell if the guy has ever even stepped foot in Oregon or cares one whit about our economic issues. I've left a message for him, however. Perhaps he'll call me back and we can find out.

Cobb (to his credit) indeed called me back and asked me to submit my questions via email. My questions, his answers and my responses are after the jump. Cobb requested that I post his answers at BlueO, incidentally.

Welcome to Fantasy Island......

My questions are in regular text. Cobb's answers are in italics. My responses are in parenthesis following the answers.

1. The letter sent by Mr. Norquist to the Multnomah County Commissioner cites a study on a localized tax rate led to "...a 9% reduction in car rentals and as much as an 86% reduction in the number of days cars were rented..." Which study is this, specifically? Can you provide a copy of this study as well, please?

The study referenced is titled “Taken for a Ride: Economic Effects of Rental Car Excise Taxes.” It was written by William Gale, Ph.D. (Brookings Institution) and Kim Rueben, Ph.D. (Urban Institute). Please note that both Brookings and Urban Institute are well-known left-leaning research groups. The study was published in 2006 and looked at the economic effects on demand, specifically after a rental car tax increase in Kansas City, MO.

(Carla's response: The study indicates that the taxed and untaxed car rental agencies are in a "relatively close proximity" to one another. It's not necessarily that same demographic in the Multnomah/Washington/Clackamas County parts of Oregon. If someone flies in to PDX from someplace else and needs to rent a car, taking a cab out to Washington or Clackamas County in order to pick up a lower taxed vehicle doesn't make much financial sense. If a Multnomah County resident or business needs to rent a car, unless they're fairly close to Washington or Clackamas County already (and probably would have rented from one of those county agencies anyway), they're going to rent from the place that's nearby. The time and expense to travel out to the adjacent counties makes no sense.

2.Have you or Mr. Norquist lived in Oregon for any period of time? If so, where? Have you (personally) visited our state? When and where?

I have not lived in Oregon and do not believe my boss, Grover Norquist, has either. However, our state affairs staff travels constantly around the country, including to Oregon, and works with taxpayer and research groups in the state. I do not believe you have to live in a state to understand good and bad tax policy.

(Carla's response: Except that you need to know and understand a state in order to wrap your brain around what is "good and bad" policy. What works in Washington D.C. or Charlotte or Boston or Los Angeles or Bozeman may not work here. Also, using a study to tout problems in Kansas City, Mo clearly doesn't translate well to Portland. In addition, it really looks like ATR is pretending to be concerned about Multnomah County while in reality is simply flogging an ideology)

3.What evidence can you provide that the higher tax will push consumers to rent cars from counties in Oregon outside Multnomah?

Taxes discourage consumption or push consumers to seek lower prices elsewhere. For proof of this, you can look to other left-leaning and progressive organizations that push for tobacco, alcohol, or “unhealthy” snack and food tax increases who argue strongly that it will reduce demand for products. Unfortunately, it also often sends consumers elsewhere for cheaper products too (tobacco is a good example of this). In the study mentioned above, there was a 41% to 50% drop in consumption from consumers in surrounding zip codes renting in the area the tax was raised.

Note that Multnomah County is already significantly higher than Washington County, which charges no rental car tax, and Clackamas County, which charges $1.44 per day, both of which are Multnomah’s two largest neighboring counties.

(I feel like this one has been answered already..but...unless there's a significant change in county-line geography or a lot more rental car outlets in the Portland metro region, this doesn't hold up well here)

4.As I search your website, I find very little in the way of information on what's happening in Oregon with our economy and why. Given that Oregon has some of the lowest tax burdens in the nation (yet some of the highest unemployment), how does Americans for Tax Reform suggest that Oregon revitalilze it's economy, besides cutting taxes?

Oregon’s 2008 state/local tax burden was 9.4% of income – the 26th highest in the country and just about in the middle of the pack – certainly not one of the lowest.

- Oregon’s top income tax rate is 9% – the 4th highest in the country – and begins at $7,600 of income, so basically everyone pays that rate.

- Two-thirds of small business owners pay under this 9% income tax rate – not the state’s corporate 6.6% rate. According to IRS data, 96% of businesses in Oregon are small businesses. The vast majority of employers having to pay the 4th highest tax rate in the U.S. might help explain your unusually high unemployment rate.

(I'm presuming that the ranking of 26 for Oregon comes from The Tax Foundation, which is a conservative organization. The Oregon page and information is here. I found a different ranking for Oregon at Statemaster.com, which puts Oregon at 40. The latest numbers they use are from 2004. But given that The Tax Foundation had Oregon ranked at 21 for 2004, I suspect using the Statemaster metric would put us even lower now. To my knowledge, Statemaster has no ideological ties or funding whatsoever.

Oregon has no sales tax, which is why our income tax is higher than other states.

I don't know enough about business rates in Oregon to speak authoritatively. I'll leave that to commenters).

Cobb then sent a follow-up email:

With regard to revitalizing the economy, there are some things the government can do to promote or hinder economic growth. For example, to promote economic growth in Chicago, Democrat Mayor Richard Daley undertook privatization projects that brought in literally billions of dollars to the city by privatizing the Chicago Skyway, parking garages, and likely Midway Airport in the coming year. The money can be used to cover overspending problems (like Multnomah’s $42 million overspending problem) or to reinvest in what Commissioner Jeff Cogen calls “vital” services – although I would ask him what services are “non-vital” and if he cut those before passing a distortionary tax increase. In short, Chicago brought in billions, created jobs, and invested in improving the city’s decaying infrastructure by contracting with private companies. This grows the economy.

However, the government itself cannot grow the economy. In other words, it cannot spend what it did not already remove from the economy. Three examples:

*
The Japanese call the 1990s “the lost decade.” Why? The government increased spending from 32% of GDP to 38% of GDP in 9 years, only to have per-capita income fall from 86 percent of the U.S. level in 1991 to only 74 percent in 2000.
*
In 1997, Argentina’s government increased spending from 23% of GDP to 25% of GDP after the economy growth began to contract. Despite this, average real GDP growth was a meager 0.7%.
*
Under failed Republican and Democrat presidents Herbert Hoover and FDR, the federal government increased spending from 3.4% of GDP to 10.3% of GDP. Despite this, the economy actually shrank by nearly 10% in 10 years. This failed policy of the past is now known, obviously, as the Great Depression.

If you want to help revitalize or grow Oregon’s economy, I recommend starting another small business. Though consider you may have to hire less staff, maintain lower wages and benefits, or forgo some investments in capital due to the 9% state tax rate, plus the federal income tax rate. In the meantime, I still would still like to know why taxes on rental cars are good economic policy – or better yet, how these taxes can help "revitalize the economy."

I'm out of blogging time for now, so I'll leave it to the capable commenters here to agree or disagree with Mr. Cobb. Clearly, he and I do not see eye-to-eye.

By Carla Axtman May 11, 2009