Follow up: OPB doubles down on bad reporting; BS continues to be shoveled by anti-tax fairness peeps

Carla Axtman

My piece from yesterday on the poorly done OPB story about a business in Sisters which is falsely claimed to be selling out due to Measures 66 & 67 has elicited a number of key comments. Rather than have them buried under the piece, I'm putting them in a main post so that they can be viewed by a wider audience.

First, the Rev. Chuck Currie, who wrote to OPB inquiring about the story, posts the response from OPB News Managing Editor Eve Epstein:

Rev. Chuck Currie:

Thank you for taking time to write to me about the story we aired on Measures 66 and 67. Questions about how the new tax measures are affecting businesses in the state are complex, as our story pointed out. But they're serious enough to prompt state economists to look into the matter. Their research could take years. In the meantime, businesses are making decisions that we feel are worthy of exploration.

If you haven’t read the story, I hope you will:

http://news.opb.org/article/are-measures-66-67-driving-businesses-out-oregon/

In it you will see that we aired a variety of views, including those of a small business owner who said the measures had not hurt her, along with the views of the business owner discussed by Our Oregon. We stand by the story.

Best regards,

Eve Epstein Managing Editor OPB News

To see Epstein double-down on a story which such obvious problems is very disappointing, as Jeff Alworth notes in comments:

OPB generally does great reporting. As the Oregonian continues to drop local news, they are my go-to source. But this bears the hallmarks of the worst "objective balance" falacies: telling "both sides" of the story and giving them equal weight even if one is totally bogus. In a desire to be fair, they inadvertantly become partisan propaganda agencies spreading misinformation.

Sometimes reporters make mistakes, but as Chuck Currie notes above, OPB is standing behind this BS. News agencies are only as good as their credibility. It's okay for a reporter to get hoodwinked. It's not okay for OPB to stand behind the story. They should issue a correction, stat.

But the stand-out comment on the thread so far comes from Bob Wiggins, who ham-handedly tries to run interference on the story by ....wait for it....rushing headlong into more untruths:

First, if your facts are right, Mrs. O'Keefe pays Oregon income tax of $50,000 per year, not $4500, on the taxable income of her company. (The $4500 is the annual increase under M 66, but she was already paying a hefty 9% on the entire $500,000 before M 66, so the total is $50,000 per year.) Presumably she is taking a salary out of the business, so she has to pay additional Oregon income tax on that as well.

Second, the Bend article indicates that she reinvested most of the profit in her business. The profit wasn't cash that "she takes home" as you assert. It's money that was reinvested in the business. She never received that cash, but she had to pay income tax on it. You confuse taxable income with cash. She paid $50,000 per year of Oregon income tax on profits that she didn't "take home". She paid additional Oregon income tax on the salary that she did "take home."

Except that O'Keefe never claims that she's selling because of "taxes". She specifically, and often, blames Measures 66 & 67. So whatever taxes she was paying anyway clearly don't matter enough to her to even bother bringing them up to the reporters. What matters is how her business is affected by 66 & 67, and unless you are dishonest, you have to admit that her business simply isn't impacted by those Measures in any other than a relatively minor way.

(snip)

Mrs. O'Keefe said Oregon taxes were part of the reason she sold her business. (The article said she also wanted the see the business have a chance to grow bigger, with the greater financial resources of the buyer.) She probably had a lot of reasons to sell. She also said taxes were part of the reason the Ohio buyer didn't want to keep the operation here. They probably had other reasons as well, but it's just silly of you to assert that taxes couldn't have been an important consideration.

That's clearly not true, Bob. Here's exactly what the Bend Bulletin said: "O'Keeffe said the passage of Measure 67 had a financial impact on her operations, which she said produced about $2 million a year in revenue. She said the new taxes force employers to consider what they can cut in order to stay in business. Often the only things available are jobs, she said."

If that isn't a lie, it's so resembles a lie as to be indistinguishable.

On 66, her claim is that the extra $4500 (if it's even that much) is the burden...which would be lowered in subsequent years. If she's reinvesting all her profits into her company and still paying income taxes on it, she needs a better accountant. Even still, why would she give up an enormously profitable company over less than $5,000? Of course, if her take of the profit is $250K or less, then M66 isn't a factor at all.

Her story that taxes were part of the reason the Ohio business didn't relocate to Oregon is ridiculous, Bob. As I've shown, the numbers simply don't add up. There may be some really good reasons they chose to stay in Ohio, but it costs them more to actually move the company than it does to pay the M66/67 taxes in Oregon.

And yes, every time the anti-tax-responsibility folks pitch a lying sack story like this--and the media bites--I will absolutely whack at it. If that keeps me busy with fodder for blogging, so be it. But it's an embarrassment to the media who continually allow themselves to be snookered.

And it's turning into a serious credibility problem for those journalists who who don't do the work to fact check.

(I think this addresses the meat of Bob's points--but he had more to say, so feel free to jump over there and read the rest at your leisure)

Comments

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    Carla, thanks for quoting me. Given my lame blogging output lately, this is as close as I'm making it to the front page.

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    This is another example of lazy journalism - not having any hard data they pick and chose anecdotes to fit a preconceived view. Where are the examples of businesses moving away (or not locating here) because our higher ed research component is not world class in their business field? Or because talented workers do not want to bring their children to a state with increasingly mediocre, irrelevant, cost inefficient, and underfunded public education? Such anecdotes would tell a different story.

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    "Stand out comment"? I'm flattered. "Ham-handed"? Less flattered. "Rushing headlong into more untruths"? Irritated.

    I'll respond.

    First, you assert: "If she's reinvesting all her profits into her company and still paying income taxes on it, she needs a better accountant." This suggests to me you don't understand how income taxation of Subchapter S corporations works. All the taxable income of the business--all of it--is taxed on the return of the owners, whether or not the company distributes any cash to them.

    Second, the Ohio purchaser in Mrs. O'Keefe's case is likely a C corporation. Assuming they had no presense in Oregon before the purchase, they aren't going to care about the changes caused by M 66/67; all they will care about is how current Oregon tax law affects them (and, obviously a lot of other things as well). As a profitable C corporation, they almost certainly considered Oregon's tax climate and other issues and concluded that it was worth the expense to move the operation to Ohio.

    I really think the debate over taxes in Oregon is almost like an argument between people who don't even speak the same language. You see an article like this and assume everyone is lying if they say Oregon's taxes are hurting their businesses. Speaker Hunt says every business person he talks to thinks taxes in Oregon aren't a problem. Meanwhile, 20% of the investors in my fund who were Oregon residents 10 years ago no longer are, and the biggest reason is Oregon's high personal income tax rate. You can continue to parse the sentences of people who are bailing to "prove" that it isn't Measure 66 and 67, but what those measures did was take a bad situation (one of the highest personal income tax rates in the country) and make it worse (the highest rate in the country on capital gains) and, whether or not you like it, that does have an impact on people's behavior.

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      Well Bob..your comment suggests to me that you know what you're saying is false. Pat Ryan capably took down a good portion of your comments here, so I'll leave that alone.

      But to add: the idea that Gorilla Glue didn't relocate to Oregon because of taxes is either fantasy or they're the victim of terribly poor financial management.

      According to the Tax Foundation: Gorilla kept the business in a HIGHER tax state.

      Ohio's Commercial Activity Tax (their gross receipts tax) is .26%. Our corporate minimum tax rate under M67 is about .1%.

      http://www.taxfoundation.org/research/topic/50.html

      By the way, I don't assume "everyone" is lying. I'm merely going out of my way to call out those who are.

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        Your efforts to shout down anyone who suggests that the tax measures are having a bad impact on our state will definitely appeal to your base of true believers. In a year or two (unless we have a significant change in tax policy after the November elections), we'll have more than anecdotal evidence of what a mess this legislature caused. As to Pat's comments below, I do not understand the point he is tring to make in his first bullet, and as to the rest, I'm neither a lobbyist nor even a member of the business organizations he dislikes so much. I'm just a guy who actually knows something about this subject and I happen to have an opinion quite a bit different from yours.

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          I'm asking for people to be honest, Bob. When they are demonstrably dishonest, as in the case of O'Keefe with the Bulletin, Nugget and OPB..and yourself here, I will expose it and discuss it.

          I understand that this causes you discomfort--that's part of the reason to do it. When light is shown on those who make the kind of choices you and Ms. OKeefe make, it burns.

          You are welcome to state your opinion and in fact I'm glad to see it. The world is full of opinions that differ. But not all opinions are created equal based on facts (and lies). I very much appreciate the opportunity you've provided to demonstrate this.

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            You assert in the prior comment that something I have written in this and the prior thread is "demonstrably dishonest." I have re-read my comments and see no statement of fact that is not true. Please identify specifically the statement of fact that I made that you assert is demonstrably dishonest and indicate in detail why you believe the statement is dishonest, or apologize for calling me a liar.

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              I already have, Bob. And so did Bill. And so have several others in comments off the other post on this topic.

              The apology owed here is from you.

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      I love this phrase "reinvesting all her profits into her company". By definition, those aren't profits - they're expenses. If you spend 1.5m and get $500k in profits, but then decide to spend that $500k, then you've just spent $2m and made $0 in profits.

      Operational profits do one of three things, they're re-invested (i.e. spent), or they're distributed to the owners, or they're sitting in a bank account waiting to be either spent or distributed.

      If the money is spent by the company, then it's now an expense. If the money is distributed in cash, then it makes perfect sense that's is taxed.

      Now, at the precise moment when taxes are calculated (the end of the year), there might be cash sitting in a bank account - but eventually it gets spent (deduction!) or distributed.

      This whole idea that taxes make it hard to invest in your own company is utter nonsense. Money that is spent on legit business expenses is tax-deductible. It doesn't count against your taxable income.

      • (Show?)

        Like Carla (and I suspect a sizable share of the legislature), you also don't understand how Subchapter S corporations are taxed Kari. A corporation can have a number of expenditures that do not result in an immediate tax deduction. For example, a purchase of inventory only results in a tax benefit once the inventory is sold (as cost of goods sold). If your business is growing and you can't get bank financing (or the bank reduces or calls your line), you need to invest more and more cash in your inventory to keep growing your business. That cash may have come from prior taxable income, been subject to tax on the owner's return, but not give rise to any deduction until the inventory is sold. If you buy equipment, these also take cash, but only give rise to a tax deduction as the items are depreciated. If you are an accrual method taxpayer and have customer receivables, but the customer is a slow pay (as is becoming more common), you may have even had taxable income but not received the cash yet.

        So take Carla's example, an S corporation with $2 million of revenue and $500,000 of taxable income. The owners would be subject to about $50,000 or Oregon income tax and say $175,000 of federal income tax, for a total of $225,000. The company distributes that to the owners to pay their taxes, leaving $275,000 in the company. If the company is growing and needs to use that money to buy $275,000 of equipment and additional inventory, those purchases do not result in any immediate tax benefit, but the owners haven't taken a nickel "out of the business".

        This is an example. Certainly there are businesses that don't require inventory or equipment, where they throw off cash. (I suspect Pat Ryan's wife's business is such a business.) But bank financing of businesses has not been easy over the last few years, and if you can't finance inventory or receivables or equipment purchases from the bank, then they have to be financed out of after-tax cash generated from the business or new investment by the owners.

        And Carla, before you call me a liar again, I suggest you run this comment by someone who knows something about the subject to confirm that what I have written is correct.

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          While I do not agree with Bob on the negative impact of the taxes on businesses in Oregon, I have to say that he is right on this specific issue Kari. In your business you may have to finance receivables, but you do not have to finance inventory or purchase a lot of manufacturing equipment. I also suspect that retail distribution is much slower pay than consulting, except for the on-line credit card business.

          My business sucks up cash just for receivables and so far the partners have to pay the taxes out of their own pockets because we need the cash in the business even though we are nicely profitable.

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            Fair enough. It's certainly true that my knowledge is firmly rooted in my own S Corp, which doesn't buy inventory or substantial machinery.

            That said, I'll stand by my point: money is either spent as an expense or distributed as profit. Timing may be an issue, but ultimately money becomes an expense or profit.

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        Gosh Kari, really? You mean business expenses do not count against your income at the end of the year? Who woulda thunk it?

        :-)

        To Bob Wiggins, this is what Pat Ryan meant in his first bullet, and this is why Carla made the (admittedly snarky) comment about an accountant.

        I'll take the owner at her word that she was telling the truth when she said this:

        O’Keeffe’s company was not affected under Measure 67. But it was set up as what’s called an S-Corp and the company’s profits were reported each year as personal income for O’Keeffe.

        O’Keeffe says in the last few years, she did draw a salary for herself, but she contends most of those profits were re-invested in the business.

        But then the reporter has to be held accountable for writing a business story when he doesn't even know one of the most basic matters of business taxation.

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      Why is Oregon's income tax rate "a bad situation," particularly when it comes to income tax on profits passed through from a business? 10% on income is high, but the lack of any sales tax and a miniscule GRT make Oregon's "situation" one of the very best in the country, overall.

      It can't be denied that things were made "worse," taking us from 49th to 45th-lowest. But considering the free ride business and the wealthy have gotten in Oregon for the last 20+ years, those are some serious crocodile tears being cried.

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    What I often suspect in cases like this is that the face being put on the story may actually believe what she is saying, but that doesn't make it any less bullsh*t

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    "O'Keeffe said the passage of Measure 67 had a financial impact on her operations, which she said produced about $2 million a year in revenue. She said the new taxes force employers to consider what they can cut in order to stay in business. Often the only things available are jobs, she said."

    As I understand this, she's saying that if she had kept her company in Oregon she might have had to lay off SOME of her employees, so she sold it to an Ohio company and ALL the employees lost their jobs.

    Yes, that's very logical.

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      Based on $150? The idea of laying off even ONE employee based on that premise is an insult to everyone's intelligent.

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    Bob is right about the nondeductibility of funds "reinvested in the business" but wrong about oh so much else.

    The thing to remember is that if my S-corporation makes a million dollars in (taxable) profits, that's a million dollars more than I had at the beginning of the year. I'll pay taxes on it, spend some of it on living expenses, some on luxuries, reinvest some in the business, and diversify some into other investments (if I'm getting any decent investment advice). If I think by investing an extra $50,000 into the business would generate even higher profits next year, then I might think about cutting back on the luxury purchases or other investments -- or getting a bank loan, which wouldn't be a problem for such a profitable company. Why should anybody feel sorry for millionaire me? Why should the legislature hesitate to ask me to pony up a (very small) added tax check to help out when the needs are so great?

    I'm certainly not going to lay off an employee in order to generate the $50,000 I need, if that employee is making me money.

    The evidence is in on "trickle down." It doesn't work, even though Bob and doctrinaire Republicans are still espousing it. Objecting to M66/67 on the basis of "killing jobs" is just classic trickle-down ideology.

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      Tax accounting and Financial accounting have many differences. Just b/c you have $1M in taxable income doesn't mean you have $1M in cash sitting in the bank.

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    Course not, but just change "a million dollars" to "a whole lotta money" and the point remains valid. If you earn a lotta money, you have many choices, and in our society, how much you earn is one major yardstick for how much you should contribute to maintaining public institutions.

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