Facts (and Logic) Go Missing Again in a Wall Street Journal Editorial (Updated with Addendum)
Chuck Sheketoff
There they go again. Seven months ago I posted a comment about the The Unsubstantiated Tale of the Fleeing Maryland Millionaires by The Wall Street Journal and distributed by the Oregon Senate Republicans.
Well, now comes the Oregon House Republicans republishing (through email only; not on legislative website) yet another Wall Street Journal piece claiming that recent data presented by the Legislative Revenue Office (PDF) at a joint meeting of the House and Senate revenue committees (audio link) shows that 10,000 wealthy Oregonians have fled the state.
The claim is just baseless.
First, although Measure 66 applied to 2009 income, voters didn’t approve them until January 2010. For The Wall Street Journal’s claim to be true, 10,000 wealthy Oregonians would have had to master time travel and leave the state retroactively to avoid the 2009 tax.
Second, the total number of tax returns filed in 2009 is greater — not less — than what the state had predicted in May of 2009. That doesn’t suggest out migration.
The explanation for why in 2009 there were actually 10,000 fewer tax returns subject to the new rates than had been projected in mid-2009 is obvious: the Great Recession was worse than the state economists had thought in mid-2009. The recession caused income for all income groups to fall further than they anticipated. Those at the top and subject to the new tax rates — those who derive a greater portion of their income from capital gains — saw a particularly sharp decline. The Legislative Revenue Office noted last week that the May 2009 forecast for total income was off by 7 percent. The primary reason that tax dollars coming from Measure 66 were down 28 percent from the forecast is that the capital gains component of total revenue was down 43 percent from the projected level.
Yes, there were “fewer filers affected” by the measure than originally expected, but that just means that the income decline caused by the Great Recession took some people below the new tax thresholds. It says nothing about migration of taxpayers out of state.
The Wall Street Journal’s suggestion that there’s a causal link between the new tax and Oregon’s revenues being below projections or fewer filers in the relevant income brackets is tantamount to saying that “increased global temperatures during a time when the number of pirates declined shows that the decline of pirates caused global warming.” My ten year-old (who has had his own fantasies with pirates) knows better.
The Wall Street Journal doesn’t know a thing about what’s really been happening in Oregon. They demonstrate this by their claim that “Successful entrepreneurs like Nike owner Phil Knight don't get rich by being fools with their money. They don't sell tens of millions of dollars of assets when capital gains taxes go up.”
Really? Phil Knight did just that. While Measure 66 (and its companion Measure 67) was pending before the voters, Knight sold tens of millions of dollars in stock. Was he a fool as implied by Journal? No. Like an ordinary guy, he made his decision to take in more income irrespective of the tax code. Heck, if the tax code was really important, Knight would have waited until after the January 2010 vote, confident that his campaign contributions would result in a defeat of the measure. Or he’d have waited until after January 1, 2012, when he'll get an automatic cut in the income tax on capital gains as Oregon’s new top two brackets (10.8 percent and 11 percent) merge into one bracket at a lower rate (9.9 percent).
That fewer taxpayers than expected in mid-2009 ended up actually being subject to the new tax rates reflects the fact that the Great Recession pushed many people below the new tax brackets' thresholds. There’s no data to suggest that the taxpayers formerly in the new brackets are not likely still in Oregon and paying taxes. Unless, of course, you think the decline of pirates has caused global warming.
Addendum:
See Dear Wall Street Journal: No Need to File a Missing Persons Report Oregon’s High-Income Taxpayers Have Not “Vanished” (PDF) by the Institute on Taxation and Economic Policy.
See Many Wealthy Moving Down, Not Out by the Center on Budget and Policy Priorities at the Off the Charts blog.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.
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8:01 p.m.
Dec 21, '10
Chuck, Just so. It makes you wonder why the WSJ would publish this nonsense. It just reminds us why we always always check the assumptions WSJ makes on its editorial page. When the conclusion sounds wrong it usually is because WSJ has made obviously wrong inferences, just as it did here. The editors write nonsense either because they do not know any better or because they think their readers do not.
In the last recession, 2001-3, the same mechanisms were in place without M66&67. Wages and withholding held up well in the face of increased unemployment. Taxes connected to capital gains tanked and were responsible for much of the shortfall. The current recession is no different. I expected the receipts to be even worse, but many wealthy people showed capital gains on their tax returns even in the teeth of the recession. They paid the new, temporary, tax rate on a part of their income.
10:51 a.m.
Dec 23, '10
"It makes you wonder why the WSJ would publish this nonsense."
The Journal is owned by Rupert Murdoch. What more do we need to know?
6:27 a.m.
Dec 22, '10
It goes without saying I suppose, don't confuse me with the facts, I'll believe what I read in the WSJ.
I really thought that WSJ had higher journalist standards than that. One would think the editorial staff would do some fact checking before being royally exposed as Chuck has done.
Don't expect anybody at OR GOP blog to agree with Chuck though, like I said, don't confuse us with the facts....
7:31 a.m.
Dec 22, '10
Mark,
The news section of the WSJ used to be outstanding. But it's part of News Corp. now.
11:15 a.m.
Dec 22, '10
The news section is still outstanding. I cannot imagine a time, ownership notwithstanding, when anyone somewhere along the lines of BlueOregon would have ever liked any of the WSJ's editorials.
2:09 p.m.
Dec 23, '10
You just do not go back far enough.
8:16 a.m.
Dec 28, '10
You'd have to go back past 1971 when Robert Bartley took over the pages...though admittedly the WSJ editorial pages threw integrity to the winds and got significantly worse when Paul Gigot took over almost a decade ago.
7:32 a.m.
Dec 22, '10
Everyone's entitled to their own opinion. But, everyone's not entitled to their own set of facts...
8:35 a.m.
Dec 22, '10
Like every other right-thinking person, I of course deplore the decline in pirates. And you are probably correct about this overly-quick editorial. What concerns me more, however, is Oregon's greater decline relative to the "Great Recession." It seems not in question that our state's per-capita income is markedly below the national average (way below outside the Willamette Valley metropolitan area), our private-sector job losses have been enormous, our government job sector is above the national average (according to the Oregon Dept. of Labor), our state budget has increased enormously in the last two budget cycles kept out of total disaster from (unpaid for) federal infusions that won't continue. All this and the last I read on Blue Oregon was excitement over new proposals to tax the poor (cigarette taxes) instead of the rich (M. 66).
Something is so wrong with these pictures. And my home state. With all due respect I do not think the Oregon Democratic Party has either the ideas or the wherewithal to wrench the ship in another direction, global warming and decline of pirates notwithstanding.
Apparently Kitzhaber is going to try to give it a go. I wish him well and heartily.
9:46 a.m.
Dec 22, '10
State per capita personal income is one of many, many economic criteria, and how it ranks relative to the national average is being used in a misleading way by the business community. How it ranks compared to other states has virtually nothing to do with how well we can afford public services. Moreover, as noted by the economists at the state Employment Department in a recent report, there is little Oregon can do to improve its rank relative to the national average. On a host of other factors, Oregon's economy does very well during good times nationally.
Don't be fooled by that biz community spin.
Our state budget was helped tremendously by voter approval of Measures 66 and 67, no matter what trash the Wall Street Journal chooses to print.
11:09 a.m.
Dec 22, '10
That state Employment Department report treats this like a problem, and it noted that even in the last boom decade Oregon lagged. It's facile to argue that when times are bad, people need more government, not less. That government has to be paid for. I do not accept that report's blithe contention that cost of living in Oregon is cheap.
No matter what the WSJ chooses to print, I'm not convinced the M. 66 & 67 were a boon for the state and any jury is certainly still out. The forecasts were almost wildly off. I also have a problem with retroactive taxation (or other laws) and a number of Democrats I know take serious issue with a tax on gross business receipts.
1:49 p.m.
Dec 22, '10
I disagree with the premise that more government is necessary during a recession. Why can't people rely on family, friends, and non-governmental not-for-profits?
1:58 p.m.
Dec 22, '10
When DO you think more government is necessary?
6:11 p.m.
Dec 22, '10
Since Mr. Crosby has not been available to respond, I will say that more government is "necessary" when the people who want it are willing to pay for it -- and not, by one justification or another, tax some richer or poorer fellow behind a tree.
10:23 p.m.
Dec 23, '10
Of course, what Michael doesn't know is that many of the "non-governmental not-for-profits" that provide assistance to low-income people suffering through a recession are doing so with taxpayer dollars.
In order to be efficient with those dollars, government agencies often contract with nonprofits to provide critical services.
1:26 p.m.
Dec 22, '10
Forgive me for this, but we all have our "pet" issues. When you refer to the "business community" is such broad strokes, it reminds me of those who say Muslims are terrorists. Sure, some are but most are not.
As a result of using such broad strokes to define a group, we are creating a negative image of people who do contribute so much to our communities.
I would appreciate it greatly if the writers at BO could find a more focused term to describe those in the business community who rightly deserve your criticism.
Thank you and Happy Holidays!
11:19 a.m.
Dec 22, '10
Sally,
Two important points. Oregon's "government employment" is above the national average for two reasons. Colleges and universities in the western states tend to be public, making their substantial faculties public employees. About half the land in Oregon is owned by the federal government, so the people who manage that land are public employees. Eastern and Southern states have a lot less public land, so it is managed by private employees, farmers, etc. Our Libertarian friends conveniently ignore this accident of history when they bandy these statistics about.
The striking loss of private employment can be summed up in two words "corporate consolidation."
Oregon's economic development strategy for more than 30 years has been to grow locally owned or regionally owned businesses.
Once grown, they were simply bought out. Corporate headquarters were moved and corporate interest in the local or regional subsidiaries went with it.
The list of consolidations is too long to list here, but it includes wood products, manufacturing, some electronics and banking.
There is little choice but to start over from scratch with some new growth strategy for this generation.
11:29 a.m.
Dec 22, '10
I'll ponder that "corporate consolidation" notion, Mr. Sadler. Thanks for the comment. I loved your years of afternoon radio commentary here.
As a native Southern Oregonian, I well know how much of our lands are federally owned and how little anymore are logged. BLM employees alone could probably fill up Delaware. :)
10:27 p.m.
Dec 23, '10
As you're pondering, ponder something that I've long pondered.
Why is it that successful Oregon companies get bought out - rather than doing the buying out?
Why did Fred Meyer get bought out by Kroger's? Why did US Bank get bought out by whatever-they-were-called in Minnesota (who then appropriated the name)? Why did Willamette Industries get bought out by Weyerhaeuser? Why Tektronix get bought out by Danaher? And so on, and on...
There's surely a specific reason in each case. But the trend is so dramatic as to raise the question.
And it's an honest question. I've been pondering it for more than 10 years now - ever since Patricia McCaig noted the phenomenon at an X-PAC meeting.
11:52 a.m.
Dec 22, '10
The Wall Street Journal editorial is both silly and predictable. Revenue from the Measure 66 & 67 tax hikes is lower than expected for the same reason overall revenue collections here and across the country were lower than projected; namely, the economic recovery has been much slower than we expected.
And the fact that this recession has largely been an asset-value recession has had a much greater impact on capital gains revenue than tax rates.
That doesn't mean that Russell Sadlers interpretation of Oregon economic history isn't equally silly or that Chuck's post about per capita income, while technically correct, doesn't understate the economic performance of the state. But it is simplistic to attribute our problems to anyone's political obsession, including the Wall Street Journal's.
11:54 a.m.
Dec 22, '10
One of the better and well detailed debunking of talking points that I've seen on The Blue in the past few months. Thanks Chuck. Please do more of these. They provide valuable research for arguments to those of us less informed on the particular topic.
2:16 p.m.
Dec 22, '10
Some very good counterpoints to the WSJ article, particularly the "time travel" point about 2009 behavior not being affected retroactively. Although many high-income taxpayers make tax decisions after the end of a tax year (how to characterize income or losses, for example.
My complaint about this post and many of the comments here is what I take to be a dismissive posture with respect to the notion that high-income taxpayers may leave the state or alter their economic behavior in response to this latest tax scheme. If anyone thinks that is not going on, you are mistaken.
One way "the rich" (otherwise known as employers) alter their behavior is by not hiring people, not giving raises and bonuses, and when unavoidable, laying people off. Lost tax revenues from those sources will show up in other income brackets, but will result in part from more taxes on the higher brackets.
Members of the "evil rich" class, even those who may only be such a member for one tax year because of the sale of something they spent a lifetime building, get to pay higher taxes AND be vilified as evil parasites. Voters not in that class get to vote themselves into someone else's pocketbook, avoid higher taxes on themselves to pay for goverment they want AND get to feel virtuous in taking someone else's money. Such a deal!
I can tell you that people affected by this tax scheme certainly are altering and planning their behavior accordingly. Maybe Phil Knight isn't. But more modestly successful, yet equally demonized, members of the business community are.
The high-tax, big-government states all over the country are losing businesses, losing population and facing declining service quality and quantity. A quick look at California, New York, Illinois, New Jersey, Rhode Island, Connecticut and other such states make a marked contrast to states that have more business-friendly cultures, which on average do not have governments that are bankrupt and are gaining population and jobs. Oregon's government has expanded for many years at a rate well ahead of the expansion of its population and economy, and that is as irrespopnsible and unsustainable as was the subprime mortgage bubble. By some counts, the state budget increased by 30% in the two years of the Great Recession! Trying to prop up this profligate, unsustainable behavior with a "temporary" tax on the hapless "evil rich" is an act of childish denial. The government bubble is going to pop sooner or later. The question is whether the state wants emploment and a healthy private sector or not. If so, it needs to be valued and nurtured, not vilified, excessively milked and punished. When you tax something, you get less of it, a lesson Oregon seems never to learn. But it will---or at least it will see the results of that kind of policy.
2:30 p.m.
Dec 22, '10
Strong economic growth in low- or no-income tax states: http://washingtonexaminer.com/politics/2010/12/census-fast-growth-states-no-income-tax.
Texas's public schools perform a lot better tha Califonrnia's (I don't know abour Oregon's.) Again, tax policy affects economic behavior. It is economically illiterate to suggest otherwise.
5:24 p.m.
Dec 22, '10
Actually the piece you reference referred to population growth, not economic growth. In fact, two of the states, Arizona and Nevada, are amongst the worst performing states in the past two years, because they were at the extreme end of the housing bubble when it burst.
For all those who use Texas as the example to follow, I say follow it yourself all the way to Texas.
10:30 p.m.
Dec 23, '10
The population growth in Texas is largely due to immigration.
So, David, unless you think that undocumented are immigrants are moving to Texas because of the low income tax, I'd suggest finding another theory.
8:23 a.m.
Dec 23, '10
There's some question as to the veracity of Texas school ratings, so I wouldn't go so far as to trust what's coming out of the Texas school system as far as rating go....
http://groups.yahoo.com/group/nyceducationnews/message/21627
3:16 p.m.
Dec 22, '10
I like the Oregon tradition of supporting local companies with our business. But David Bell's version of "rich" reminds me of the bosses of my lost youth in the Midwest. They owned productive companies that they personally understood and managed. Heck, some of them were even seen to walk out on a shop floor once in a while. Today, under monopoly capitalism, many of the rich know as much about productive economic activity as, say, Paris Hilton, the typical beneficiary of the renewed Bush tax cuts for the rich. And at at the very top are the big rich who simply gamble with other peoples' money, as the Wall Street blowout just reminded us. Why do I have trouble agreeing that the rich have suffered enough by being "demonized" by nobodies like me when all the big bucks continue to go to the top, no matter how much working people are suffering?
10:29 p.m.
Dec 23, '10
*One way "the rich" (otherwise known as employers) *
Not all rich are employers. Paris Hilton, for example.
2:41 p.m.
Dec 28, '10
I have a bit of a problem with the whole "Un-business friendly" label. We are one of two states in the union w/o a sales tax. How does that figure into business decisions?
Additionally, the idea that those who benefit the most from society, fairly, should contribute the most isn't "soak the rich" as much as be fair to all. As a single example take UPS, a company with, what, say 10,000 trucks on Oregon's roads at any given time? If they pay a minimum corp. tax of $150, and you as a single car owner pay more than that in state taxes, is that fair? Who gets more out of the services provided like road care, state police, snow removal, regulation, infrastructure development the taxpaying entity with 10,000 units using the resources or the entity with one unit using them? If we go to lunch and order a pizza and I eat seven pieces and you eat one, would it be fair if I then say "Let's split it"? Not all "rich" are evil, but honestly, doesn't it strike you as a little bit immoral to take no personal responsibility for paying for the resources you use in proportion to your use of them? Hmmm......
5:33 p.m.
Dec 22, '10
David, your comment unfortunately just parrots many of the anti-government talking points we're so used to seeing.
Eleven months on now, we have still yet to see any business owner show how they were adversely affected by the tax measures to the point of laying off a single worker. The math just doesn't work. If an owner is making enough money to pay the M66 tax, he or she will make hiring decisions as usual, based on customer demand and opportunity to make more profits in the future.
The "evil rich" reference is just code, echoing the Class Warfare terror tactic deployed by the right wing whenever threatened with accountability for their misdeeds. The term is only used by the right wing to make the left look overly aggressive. Same with "demonized" -- nobody is demonizing businesses, just wanting them to pay their fair share, which they haven't for a generation now.
"High-tax, big-government" state? Not Oregon! As has been amply documented here, Oregon is a low-tax state that has had a declining public employee sector, as a share of population, for many years, and a fairly steady percentage of personal income going to taxes. "Losing businesses [and] population"? Not Oregon! We're growing faster than the national average, which is one big reason our per capita personal income isn't growing as fast (as mentioned by the Employment Dept study).
Maybe a few wealthy folks will move to a no-income-tax state like WA or TX every year, but the tiny sliver of extra M66 taxes wouldn't be a significant extra motivator. We'll always face that reality because the voters in Oregon are too smart to ever pass a general sales tax, which is just a way to fund government services on the backs of low-income earners instead of the more-progressive income tax.
As the now-famous saying goes, you're not entitled to your own facts. Or can you cite an example, or even generate a hypothetical situation, where the tax measures have dinged people or companies badly enough for them to leave.
6:09 p.m.
Dec 22, '10
Oregon has a declining public employee sector? Since when? Citation, please.
2:56 p.m.
Dec 27, '10
Teacher layoffs alone constitute a big drop in public employees:
http://www.oregonlive.com/portland/index.ssf/2010/07/portland_schools_to_see_widesp.html
6:45 p.m.
Dec 22, '10
If you look at the state economist's quarterly report, you can see the number of jobs in each sector including government. The percentage in government is declining.
7:58 p.m.
Dec 22, '10
I checked the source you cited and the % of government jobs is not shrinking, but not increasing either. It is incredibly stable over 20 years. It did go up slightly in the past two years, mostly because the private sector shrank, but is expected to revert back to the norm of 18% of the workforce next year.
10:38 p.m.
Dec 23, '10
Steve and/or John --
Could one of you post the link to the report that's cited? I can't find it Googling.
9:26 a.m.
Dec 24, '10
Which report?
8:11 p.m.
Dec 22, '10
"Although Oregon's private work force has contracted by 10 percent since 2007, the state government and university system head count has grown by 7 percent, state Employment Department figures show."
http://www.oregonlive.com/politics/index.ssf/2010/10/hard_choices_oregon_state_work.html
10:33 p.m.
Dec 23, '10
Yes, by all means, let's treat a 2007-2010 trend as a long-term historical trend.