Teaching Blue Oregon about Taxes


Posted by Kelly William Cobb on Monday, May 11th, 2009, 8:06 AM PERMALINK

Oregon's progressive-liberal blog BlueOregon.com took aim at Americans for Tax Reform last Friday after ATR submitted a letter opposing a distortionary rental car tax increase in Multnomah County, the home of Portland.  Eager to attack those with who provide data contrary to their progressive, high tax agenda, BlueOregon posted a copy of the letter on their site along with some unrelated commentary on ATR (worth a read).  The blog likely got wind of ATR's position through Commissioner Jeff Cogen (one of five letter recipients), who proposed the tax increase and commented on their blog post.

BlueOregon contacted ATR with some questions about our opposition to the tax hike and Oregon's broader economic perils.  Below is an email exchange with questions from BlueOregon blogger Carla Axtman and responses from ATR state affairs manager Kelly Cobb.

BlueOregon: 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?

ATR: 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.  A copy is attached.

BlueOregon: 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?

ATR: 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.

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

ATR: 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.

BlueOregon: 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?

ATR: Since you insist that Oregon has such a low tax burden, here is a very brief overview of Oregon’s tax code:

  • 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.

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."

(photo by Ben Amstutz)

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