The State of Oregon is in a financial crisis. Like most states, Oregon’s revenues are down and its costs are up. Although individuals, families and businesses have cut back to deal with these hard times, in the current 2009-11 Budget, Oregon State has expanded programs, added 1540 additional employees, increased spending by $4.7 Billion (9.3%), and increased long-term debt by $4 Billion. All of this spending in 2009 was on top of a 21% General Fund spending increase in 2007. In short, Government spending compounds and Oregon’s spending is unsustainable.
Oregon’s problem is not the need for more revenue, but the need for more discipline in spending. The total State Budget for 2005-07 was $40.8 Billion, and for 2009-11 it is $56 Billion—a jaw-dropping $15 Billion, 37% spending increase in only four years. (Click here.)
The consequence of the State’s insatiable appetite for additional revenue through tax increases will be a slower economic recovery and the loss of thousands of jobs for Oregon workers. In sum, Measures 66 and 67 send the following message to high-earning Oregonians and their businesses: If you live in Oregon, move away, and if you are considering business investment, take your money and jobs elsewhere. If you think this is mere hyperbole, read what the economists have learned from other states that raised such taxes. (Click here.)
It might be helpful to review what occurred in the crafting of our current 2009-11 State Budget. Even though Oregon’s economy was in recession and State revenues were down, the All Funds Budget rose by $4.7 Billion--a 9.3% increase in spending." (Click here.) To compensate for inadequate revenues, the solution of the House and Senate Democrat Majority and the Governor was to create new revenue streams. These new revenue sources included increasing our gas tax, vehicle registration fees and multiple other tax and fee increases. (Click here to see the entire list of new taxes and fees passed by the 2009 Legislature.) In addition, the Democrats increased the state’s debt load by borrowing an additional $4 Billion of long-term debt. (Click here.)
The increased gas tax, the substantial increase in vehicle registration and title fees, the new sales tax on health insurance policies and hospital bills, as well as the other new taxes and fees are now in force, and we have no choice but to pay them. These new taxes and fees will generate an additional $916 Million of revenue this biennium to the State (without even mentioning the $4 Billion in new State debt).
Unfortunately, $916 Million in new revenue was not enough. The Democrat leaders and Governor wanted $1.650 Billion to pay for expanding programs and government expenses.
To get the additional $733 million to cover the additional spending, the Democrats passed additional tax and fee increases on high-earning Oregon individuals and businesses. Many believed these additional taxes went too far, and 120,000 Oregon voters signed petitions to give Oregon’s voters the final vote on these tax increases.
This brings us to the January 26th vote on Measures 66 and 67.
The voter’s pamphlet, the news media, and our mailboxes are full of information and misinformation--Pro and Con--seeking to influence our votes.
The proponents of these Measures would have us think life as we know it will end without these two tax increases. We heard such fear-mongering in the campaigns for tax increase Measure 28 and Measure 30 (both of which the voters defeated). We are hearing it again. Proponents of Measures 66 and 67 are wringing their hands and pleading that K-12 education will be decimated, senior citizens will lose their access to basic care, criminals will be set free, etc., etc. We have heard this propaganda before.
Such scare tactics cloud the fact, there will be no automatic cuts in programs if the tax increases in Measures 66 and 67 fail.
The Legislature is already scheduled to meet in February. If these two tax measures fail, I believe there will be a vote to raise the corporate minimum tax from $10 to $150, without imposing a permanent tax based on business sales—a tax that would have to be paid, even when the business is losing money—like the tax increase contained in Measure 67.
Next, the Legislature will look at existing pools of money sitting in various accounts, and decide how much would be prudent to use. Finally, the Legislative leaders and Governor will calculate what amount, if any, will need to be cut from the State Budget.
Any actual cuts will be made where Legislative leadership and the Governor choose to make them. Such cuts should start in places that will have the least affect on our children and actual programs benefiting our citizens.
Nevertheless, it may be tempting for Oregon voters to pass these Measures. After all, don’t they just affect rich people and big corporations?
Since Oregon’s unemployment rate continues to hover around 11%, let’s consider the consequences of these Measures on Oregon’s families and their economic survival. In other words, how will Measures 66 and 67 affect the Oregon economy and our desperate need for more jobs?
As stated above, knowledgeable economists have demonstrated that Oregon will lose thousands of jobs, over time, if the voters pass these permanent tax increases on Oregon’s high-income-earners (business owners), and Oregon’s successful corporations (job creating employers). The analysts have reviewed other states that have increased such taxation, to learn from their experiences. They found that when income taxes are increased, wealthy people leave high taxation jurisdictions and move to lower taxation jurisdictions. Recently, a Medford C.P.A. told me that Reno, Nevada is actually recruiting Oregon residents and businesses to “come to Nevada, where there is no income or inheritance taxes.”
This is common sense. If you were an employer and were looking for the best state to move or build your business in, would you go to a state with the highest income taxes in the nation?
If Measure 66 passes, Oregon will have a top personal income tax bracket of 11%, and will tie with Hawaii’s new tax rate and share the distinction of having the highest tax rate in the nation. Washington and Nevada collect zero personal income taxes and Oregon will be at 11%. (Let’s see, which sounds more attractive…the lowest tax in the nation or the highest?) I know that Oregon could point to the fact that we have zero sales tax, but that does not change the national income tax rankings, and the adverse publicity high-taxing states receive. (Click here.)
Like most of you, the Measure 66 tax increases will not affect my wife, Cathy, and me. Nevertheless, our votes should not be based on class envy. With the Measure 66 rate fixed at $125,000, and with income creep and inflation, those who do not earn $125,000 now may well be subject to the higher tax rate in the future. When I was a boy, my father, a contractor, earned a good wage, $7,000 per year. Today, that same job would pay more than $70,000 per year. Those of us who have been around for awhile have felt the affects of “bracket creep” during our careers.
High Income Earning taxpayers already pay most of Oregon’s taxes (Click here.) They should be rewarded for their success and thanked for the jobs they create for Oregon workers. Instead, we punish them. If the proponents of Measure 66 want to increase Oregon’s revenues, they are free to increase the taxes they pay on their own State Income Tax returns. To me, it makes little sense to drive those who create Oregon jobs and pay most of Oregon’s taxes across the Columbia River to Washington State or other low-tax states.
Regarding Measure 67, I have already pointed out that an increase in the minimum filing fee is not the issue. The problem is that Measure 67 will tax Oregon corporations on their sales and not profits. Here in southern Oregon is located Town and Country Chevrolet. Yesterday, I talked to its owner. Alan Deboer. He confirmed that their profit margin on new car sales is so low that the dealership lost $250,000 in 2009, even though it did $14 million dollars in business. For Town and Country, $15 million is the break-even point. If Measure 67 passes, Town and Country Chevrolet will have to add $15,000 in additional taxes to a balance sheet already dripping in red ink. Such will be the case with all high-volume, low-margin Oregon corporate businesses.
The Measure 67 tax increase is 1/10 of 1% of sales, and when the profit margins are only 1-3%, it can represent a 10% tax increase on profits. It is unwise to burden Oregon’s highest income earning taxpayers and high volume businesses with additional, permanent tax increases such as those contained in Measures 66 and 67. We cannot tax our way out of this recession. It is time for a change in spending habits in Salem. Oregon’s economic problems will not be solved by raising taxes on those who own Oregon’s businesses and hire Oregon’s work force. Although Measure 66 and Measure 67 were passed by the Legislature, by Referendum their future will be determined by the voters. Will these Measures pass or fail? It is up to you, me and the other Oregon voters to decide.
