On Tax Refugees and the Oregonian

One of the most familiar boogymen of anti-tax activists is the tax refugee.  All of those rich people who are flooding out of Oregon to escape our taxes. Unfortunately for them the evidence is not on their side.    Yet, despite this the scare tactic never seems to go away.  And so it was with considerable dismay that I see that The Oregonian editorial board has decided to use the scare tactic and cite a totally meaningless statistic to back it up.

This is exceptionally poor. It is intellectually dishonest or lazy or both and does not befit a board that wishes to be taken seriously.

Don't get me wrong, I am perfectly happy to engage in a discussion about the appropriate way to deal with capital gains in the tax code and the disincentive of the high rate of taxation relative to the benefits the revenues provide.  And I am even willing to identify it as one thing that a comprehensive reform should potentially address.  But let's not get silly about it.

Here is the big table and the related passage from the editorial:

The rates imposed by individual states matter because people may move freely, and taxpayers can time their capital gains. Don't want to pay the tax? Don't sell your asset until you've established residency in a more hospitable state -- like Washington, which, like eight other states, does not tax capital gains.

Numbers provided by the Oregon Department of Revenue illustrate the phenomenon (please see graphic). In tax year 2007, for example, 297 Oregonians with capital gains income moved to Clark County, Wash. Their average capital gain that year was $166,455, or four and a half times the size of the average capital gain reported by the roughly 264,000 capital gains payers who remained in Oregon. And the year before packing up for tax-friendly Washington, the tax emigrants reported, on average, $32,468 in capital gains.

First, the only statistic that makes any sense to use here is the net movement of people with capital gains income (not to mention knowing the real reason these folks moved rather than inferring it is all about capital gains taxes).  Second, what evidence is there that this is hurting Oregon business? If I know a promising start up in Portland, the fact that I live in Vancouver will prevent me from investing?  This seems patently absurd.  Third, once again remember that this capital gains is taxed when the asset is cashed out and is turned into income - to be, presumably, spent.  Living in Washington is expensive in terms of consumption taxes and when that capital gains income is spent it is taxed in Vancouver at a rate of 8.4%.

What bothers me most is that anyone who is serious about making tax reform a reality should know better than to resort to bogus and inflammatory rhetoric - we get too much of that from politicians as it is.  I expect the O to be a place of sober thought and judgement - to rise above the rhetoric.

So by all means let's talk about tax reform in Oregon, but let's do it honestly and without all of the scare tactics that will derail the very process we hope to achieve.