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  • What Do Hungry Children in Oregon Have to do with Tax Policy?

    Posted by Carl from Chicago on November 29th, 2011 (All posts by )

    The recent edition of “Parade” magazine when I saw a list of things that you can do to help others in need. I was struck by their plea to “Feed Hungry Children in Oregon” where they said that

    Oregon has the nation’s highest rate of “child food insecurity.” About 252,000 kids – or nearly 30% of the state’s youth – aren’t sure where their next meal is coming from.

    This surprised me because I never thought of Oregon as a state that had this sort of poverty. The example they gave in the article was as follows:

    My husband and I both work full-time, but we make minimum wage, and some months it’s either pay our bills or buy food, says his mom, Nichole (her child is featured in the photo, above).

    While this is a sad and heart rending story, there is another connection as to why their parents are having a hard time finding higher wage work. Per the Tax Foundation:

    Oregon’s personal income tax system consists of five separate brackets with a top rate of 11% kicking in at an income level of $250,000. That rate ranks the highest among all states levying an individual income tax.

    While tax policy may seem arcane to individuals worrying about food security, it is important to realize the CRUCIAL impact that state income tax rates play in state competitiveness. Of all the components of a tax burden, the ONE element that can be most easily modified or avoided is the personal income tax levied by a particular state. For instance, if you earn $1M a year, you’d be paying about $75,000 more in tax in Oregon than you would in Texas, Florida, Nevada, or other states that don’t levy a personal income tax (it isn’t $1M times 11% because of the graduated nature of the tax up to $250,000 and the fact that state taxes are deductible on Federal returns, so the $75,000 is a rough estimate).

    A high marginal personal income tax rate falls DIRECTLY on those most likely to invest in a business that would hire someone like the family in this photo. A high marginal tax is analogous to seeking out the very individuals that could bring a state jobs and economic prosperity and telling them to invest elsewhere. You could go door-to-door and punch them in the face, or just set the nation’s highest personal income tax rate, the net effect is exactly the same.

    The biggest fallacy the high marginal tax crowd falls into is the “fixed pie” thinking – since businesses and high income earners are unlikely to move, if you tax them more they will just sit like sheep and take it and pay into the state to fund their myriad social programs. That may be true in the short run and for individuals that are tied to their community, but I guarantee that every wealthy person has an accountant who carefully tells them the negative impact of residing in such a high tax state and the benefits of moving elsewhere on their take-home pay. If they have a choice to invest more in Oregon or go elsewhere, other states look much more inviting. Over time, investment slows, and then there are more and more articles with the sad faced children just like this one, and pleas for the rich to pay their “fair share”.

    The problem is, the rich aren’t stupid, and a high state income tax is basically pushing them to invest and live elsewhere, particularly somewhere warm with a tax friendly climate like Nevada, Florida or Texas.

    Cross posted at LITGM

     

    11 Responses to “What Do Hungry Children in Oregon Have to do with Tax Policy?”

    1. JeffC Says:

      its called food stamps … on top of the $2,234 of take home pay they bring in … Portland Craigslist shows 229 apts/houses for rent for under $600 … their kids don’t eat because the parents are either lazy or stupid …

    2. lukas Says:

      I’m sure Feeding America’s 2011 Meal Gap study is completely scientific and unbiased in defining and measuring its objects. By all means do feed hungry children in Oregon, but don’t believe every study put out by the PR department of an attention-hungry charity.

    3. Jonathan Says:

      Portland, in addition to Oregon’s high tax rates on incomes, is notoriously burdened by extensive eco-progressive land-use restrictions that function as a hidden tax by driving up costs of housing and commercial real estate. These higher costs may affect the family mentioned in the article even if they do not live in Portland.

    4. Shannon Love Says:

      This surprised me because I never thought of Oregon as a state that had this sort of poverty.

      That’s because it isn’t. You’re being taken in by the implication designed into the term “food insecure.” You naturally assume it means they often go hungry. However, when you look at the way the term is defined in the actual “studies” it means no such thing. In fact, children can eat every day and be morbidly obese and still defined as “food insecure.”

      “Food insecure” boils down to their parents having to closely follow a budget. If the parents have to scramble at some point to pay bills during an arbitrary time range, usually a year, then the child is defined as “food insecure” because hypothetically, the child might actually experience a few hours of hunger at some point during the entire year. Note that the child doesn’t actually have to miss a single meal ever, the child is just “insecure” because if the planets align properly, the child might miss a single meal.

      Given that usually only 25% of children live below the poverty line, saying that 30% of children in the state are “food insecure” is just nonsense. That is doubly true in a state like Oregon which has a history of very little severe poverty.

      Of course, there are children who go hungry in every American community but their hunger results from parental dysfunction and not the cruel injustices of America’s social system.

      On the issue of taxes, I think it important for people to understand that taxes don’t just change the incentives of economic-creatives but also materially impairs their ability to generate wealth for the community by removing capital. There seems to be a presumption by many that the taxable income of most wealthy people is entirely separate from the pool of money they use to open new businesses, expand existing ones and/or hire more workers. That is not true. If an economic-creative owns an S-corporation, then their taxable income and their business profits are one in the same. Taxing the owner’s income directly taxes the business. A big chunk if not the majority of “income” taxes come from the investment pool of small and medium sized businesses.

    5. Percy Dovetonsils Says:

      Eons ago, I used to work for Second Harvest, which is what morphed into Feeding America. The concept of “food insecurity” probably has its roots in discussions we had during my tenure there, in which we discussed what would happen to us if, say, a massive liberal takeover of Congress occured (Bush I was president then) and the food stamp and other welfare programs vastly expanded; ergo, less of a pressing need for private charity.

      (And oh, did we play up the need for private charities, during and after the “heartless Reagan cutbacks” days. This is back in my mispent, glib Democratic youth, BTW. My outlook has… evolved to a great extent.)

      There was also the issue of trying to raise money for a domestic hunger-fighting agency in a vastly wealthy nation with a solid safety net (yes, it’s pretty solid, IF you are motivated/functional). As Shannon noted, children go hungry because of parental neglect, not government failure. Believe me, I saw the response cards on direct mail fundraising letters – we received many skeptical responses about the need for our organization.

      And thus the likely seeds for the concept of “food insecurity,” although at the time, our marketing focused more on how food provided from Second Harvest (Feeding America) enabled a variety of other social service agencies to expand their primary operations. (At least back then, food was not only distributed through soup kitchens, but also day care and senior centers, womens’ shelters, drug rehab and other agencies catering to a low-income clientele. Second Harvest did ultimately provide budgetary relief to a lot of organizations.)

      Also, from what I understand from following the organization from afar, Feeding America has moved far more into “public advocacy” over the years, especially under its most recent CEO. Thus, such “food insecurity” studies, which we never did during my time there, as we focused solely on the mission of getting the food donated and distributed.

      Whether such “mission creep” is a good thing or a bad thing, I’ll leave up to you.

    6. Percy Dovetonsils Says:

      (I apologize if I hijacked the thread with my lengthy comment. Just wanted to provide some insight on how organizational thinking many years ago can lead to studies such as the one cited in “Parade,” which roused Lukas’ suspicions.)

    7. Shannon Love Says:

      Percy Dovetonsils,

      You should write up everything you know about those discussions and post them somewhere. They might be historically useful. Not a lot of people document the workings of charities/advocacy-organizations.

      It would be interesting to get the tax papers for Feeding America. I will be willing to bet as their charity mission shrank and their advocacy mission grew that the executive compensation grew in pace. The organization in now probably just a cash cow for individuals and political groups. That’s what happened to the Southern Poverty Law Center. In 2007, they had 5 million in executive (fiduciary officers) compensation from $30 in revenue.

    8. Jim Miller Says:

      Here’s a fact that may interest you: Oregon has an income tax, but no sales tax. Washington state, just next door, has a sales tax, but no income tax. (Recently, Oregon voters, in an initiative, raised taxes on higher-income families. Recently, Washington voters, rejected an initiative that would have created an income tax for higher income families.)

      There are, as you would expect, edge effects. Many people live and work in Clark County, Washington, just across the Columbia from Oregon, but do some of their shopping in Portland and its suburbs.

      I don’t know of any formal studies of the effects of this tax difference, though I suppose there must be some, but I have to admit that I can’t see large differences, though I would like to.

      Both states lean Democratic, Washington more so than Oregon. (Bush lost Oregon in 200 by fewer than 7,000 votes, but Washington by almost 140,000.)

    9. Carl from Chicago Says:

      I didn’t realize that there wasn’t a sales tax in Oregon.

      Sales taxes are regressive and hit the poor harder than others because the poor spend virtually all of their money and they spend it on items generally subject to sales tax (goods not services). And unlike most other tax there is no concept of “refund” for the poor on their sales tax payments.

      But putting all the eggs in the income tax bracket will cause odd effects as you mention. The wealthy are going to put their investments (and protect their income) while the poor will cross the border to shop.

      I don’t know if there are formal studies but I’d bet that having a very high income tax (particularly where the state next door has none) will have a bad impact that more than makes up for the lack of a sales tax “net” on the state as far as growth in job creation and net wealth.

      Damn we make things complicated in the USA as far as incentives.

    10. Jim Miller Says:

      Washington state exempts unprepared food and medications from sales tax, which probably makes our tax system less regressive. (Again, I assume there are formal studies on the question; again, I haven’t read any.)

      The most regressive state tax is, I suspect, our tobacco tax — which was increased by a Democratic governor and legislature, a few years ago.

      (I wish no one smoked, but I think our tobacco taxes have been high enough to discourage smoking for some time.)

      If you are interested in the details, you can look at the Wikipedia article on US sales taxes.

    11. Woody Says:

      FWIW, I believe Oregon also has a minimum wage higher than the federal minimum wage.