Sorry, Oregon Business Council and ECONorthwest, but the rich stay put despite tax increases

Chuck Sheketoff

This isn't a good week for the Oregon Business Council (OBC), their hired guns at ECONorthwest and others who fight tooth-and-nail to prevent even modest tax increases on the wealthy and, worse, seek special tax breaks for the rich.

Yesterday, Oregon State Treasurer Ted Wheeler brought to our attention the fact that Oregon's rank in a state entrepreneurship index improved dramatically from 2008 to 2010 (PDF). So much for the claim that Oregon needs to cut taxes on the rich to encourage entrepreneurship.

This morning's New York Times has a front page story about how retailers can't keep enough luxury items on the shelves despite boosting their prices. If a $1,400 price tag on a pair of shoes doesn’t scare away the rich, why would a modest tax increase? [Update: Friday's New York Times business section had another story titled Retail Sales Rise at Expensive Stores but Are Mixed Elsewhere.]

And in Washington, D.C., the non-partisan Center on Budget and Policy Priorities (CBPP) released a new analysis today that shows that the rich stay put after tax increases.

Using Oregon as one of their case studies, the CBPP report debunks an ECONorthwest study paid for by OBC to thwart what became Measures 66 and 67. The OBC/ECONorthwest study claimed that a marginal tax increase on wealthy Oregonians would cause a substantial number of the wealthy to leave. In support of that claim, ECONorthwest asserted that from 1992 to 2006, lots of wealthy Oregonians from the Portland metropolitan area moved to Clark County, Washington to avoid Oregon’s income tax. But as shown by CBPP, deep flaws plague ECONorthwest’s analysis.

For example, ECONorthwest failed to take into account the principal causes for why people move, particularly housing costs:

ECONorthwest failed to consider non-tax reasons for the migration — in this case, the fact that Portland was undergoing an economic boom during most of that period, driven by the start-up and growth of high-tech firms. Young tech workers moved into the city, pushing married couples into the suburbs, including Clark County, Washington, where developers were building subdivision after subdivision of large, relatively affordable houses. In 1990, average housing costs in Clark County were higher than for similar-sized homes in Multnomah County (Portland), but by 2000 they were lower, and the price differential was even greater in 2006.

ECONorthwest also failed to take into account the fact that many of those who moved would still be paying Oregon income taxes, meaning that the revenue cost to Oregon from the net migration — itself a relatively small amount — was “almost nothing.”

ECONorthwest also ignored the impact of the business cycle:

The study’s third assertion relates to a 1.25 percent income tax that Multnomah County imposed from 2003 to 2005 to help finance its schools. The share of the state’s wealthy residents that lived in Multnomah County fell from 24 percent in 2002 to 21 percent in 2003-05 before rebounding to 23 percent in 2006. ECONorthwest said the drop occurred because residents fled the county to avoid the tax and the rebound occurred because the tax expired. In fact, affluent families in the county simply became less affluent during that period relative to those in the rest of the state. Between 2003 and 2005, all of Oregon went through the last stages of a recession and the beginning of a recovery. But the recession was steeper and longer, and the recovery slower, in the county than in the rest of the state because the dot-com bust precipitated the downturn. (The county is home to more dot-com firms than almost any other Oregon county.) As a result, the average income of affluent Multnomah families grew erratically, while the average income of the affluent in other parts of the state grew steadily and faster. In 2006, these trends reversed sharply, as the county’s recovery finally took hold.

So there you have it. The ECONorthwest-OBC study — part of a ‘don’t-tax-the-rich, don’t tax corporations’ lobbying agenda — is not worth the paper it’s printed on.

Fortunately, the ECONorthwest-OBC study did not carry the day in the 2010 vote on Measures 66 and 67. Oregon lawmakers and voters sensibly decided to ask the wealthiest Oregonians to chip in a bit more to avert deeper cuts to schools, universities, health and human services and public safety.

Unfortunately, OBC's lobbyists continue to peddle the ECONorthwest-fed lie that modest tax increases on the wealthy will cause them to flee. And they continue to push for an unnecessary and irresponsible special tax break that by-and-large would benefit the wealthiest Oregonians — a cut in the income tax on capital gains.

So if you see or hear OBC or others peddling the flawed ECONorthwest study, be sure to tell them that the study has been thoroughly debunked. Taxes matter very little, if at all, on where people chose to live.

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.

By Chuck Sheketoff Aug. 04, 2011