Fantasy numbers or inconvenient truth?

Chuck Sheketoff

Several weeks ago the Oregon legislature’s economists in the Legislative Revenue Office (LRO) came out with an estimate of how the proposal to raise taxes on large, mainly out-of-state corporations would impact the Oregon economy. While Oregon media ran with LRO’s estimated impact on jobs, they failed to recognize that the jobs estimate was fantastic, in the truest sense of the word — the jobs estimate is essentially a fantasy prediction.

The LRO report said that while jobs will continue to grow under the tax measure, there will be fewer jobs created over the next five years than without the tax measure. How many fewer? The LRO report estimated less than 1 percent – or 20,000 – fewer. The media repeated this jobs number as fact and opponents took it as gospel.

But that jobs figure is not fact. It’s fantasy.

These jobs are numbers are spit out by LRO’s “black box” — a statistical computer modeling program otherwise known as the Oregon Tax Incidence Model, or OTIM. The head of LRO, Paul Warner, has been known to admit that when attempting to model the economic impacts of a tax measure in this way, “you have to accept that you’re always wrong.”

One way of knowing that you’re dealing with fantasy numbers is that LRO’s 20,000 job loss estimate is likely well within the margin of error in predicting five years out from one policy change. In other words, the difference in the jobs projection with or without the tax measure is insignificant, no matter how big the number sounds.

Proof that 20,000 is an insignificant number came in the Oregon state economist’s June forecast released just a few days later. The June forecast for the number of people who will be employed a year from now with no changes in policy went up by 21,000 from what was estimated just three months earlier in the March forecast.

That a similar variation in the number of jobs can occur over three months — with no intervening policy change — shows just how mercurial economic forecasting can be. And it makes clear why a five-year forecast of the impact of a major a policy change is in the realm of fantasy.

But some Oregonians like to cling to fantasies and won’t let go of the LRO jobs estimate. If that’s the case, then I have an inconvenient truth for them.

The LRO report projects that jobs will rise 6.1 percent from 2017 to 2022 if the measure is approved. Meanwhile, the official forecast for the Oregon economy pegs job growth without the measure during that period at 5.4 percent.

In other words, the legislature’s economists predict greater job growth with the tax measure than the state’s economists predict we will have without the measure.

While in my book both of those predictions are equally unreal, the conclusion that the tax measure results in faster job growth must be an inconvenient truth for those in the media and elsewhere quoting the job loss number as gospel. They can’t have it both ways.

I don’t mean to suggest that the entire LRO report is fantasy — not at all. Part of the LRO report analyzed real numbers from real corporate tax returns. The LRO’s estimates based on real data showed that most of the revenue from the proposed corporate tax measure will come from a relatively small handful of very large, multi-state and multi-national corporations. And those real estimates showed that the measure will raise the game-changing revenue Oregon needs to make economy-boosting investments in education, healthcare and senior services.

While the report fanaticizes that a little bit of the costs will be passed along to consumers (another number well within the margin of error in a five year projection), its authors acknowledge the report did not consider the impact of internet sales and other factors that would limit the ability of affected corporations to stick consumers with the bill.

What’s the bottom line?

The measure will be good for the economy and good for Oregonians.

The decision whether to raise taxes on large, mainly out-of-state corporations is too important to be based on fantastic estimates. Oregonians need facts they can rely on — such as the fact that Oregon corporate taxes have declined dramatically over the decades.

Let’s leave the fantasy out of it.

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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 July 07, 2016