Oregon has lost 130,000 jobs over the past year. According to the latest federal statistics, over 20 percent of Oregonians:
o Can’t find a job,
o Are working fewer hours than they’d like, or
o Have simply given up looking.
When you count underemployment, Oregon’s jobless rate is second highest in the nation behind Michigan.
When the unemployment rate fell in November, the Governor called it “encouraging.” I don’t find it encouraging. Our unemployment rate didn’t fall because we were creating jobs-- or more Oregonians are working-- but because there are fewer jobs, people are working less than they’d like to, and people have given up looking for work.
What was the response of the Democratic-led Legislature to address Oregon’s poor economy and record unemployment? They passed $1.6 billion in new taxes and fees ($392 million in fees), including the $733 million in permanent, job-killing taxes that I’m going to discuss today. Taken together Measures 66 and 67 is the biggest tax increase in Oregon history. Even the president said the worst thing government can do during a recession is raise taxes.
Let’s talk taxes. Economists estimate just these two permanent tax increases would cost 70,000 Oregonians their jobs over the next few years. Independently, Measure 67 (corporate tax increase) imposes $261 million dollars in permanent tax increases on businesses, including:
o The corporations that pay Oregon’s current $10 corporate minimum tax are businesses that have not made a profit or have no taxable income. Businesses that make a profit pay the corporate income taxes on these profits.
o Measure 67 changes the $10 flat fee for businesses that have no taxable income to a sliding scale of between $150 to $100,000—based on a company’s gross sales, not net profits.
o This new gross sales tax disproportionately impacts high-volume sales, low margin businesses like grocery stores, restaurants and gas stations.
o In fact, most states have no minimum tax on businesses that aren’t making a profit.
o Among those states that do levy a minimum tax on corporations with no profits, 17 charge an average of $200.
o All but two of these states have a flat rate minimum, like Oregon’s.
§ Only New York and Minnesota, have graduated minimum taxes based on total sales, similar to Measure 67. Those two states levy a maximum of $5,000.
o Measure 67 would give Oregon the highest corporate minimum or “no profits” tax in the country.
Measure 66 is an income tax increase of $472 million. Income tax rates for individuals earning more than $125,000 would increase by 18 percent. Speaker Hunt describes that as folks “paying just a little bit more.” If I had an 18 percent revenue increase in my business, I would describe that as a huge increase. For tax years 2009-2011 tax rates for these taxpayers would increase to an 11 percent rate, giving Oregon the highest income tax rate in the nation.
From 2012 on the top tax rate would be 9.9 percent. This is a 10 percent increase over the current top rate. Over 66 percent of these filers are small business owners. These are small and family-owned business owners who report their business profits on their personal income tax statements.
BUSINESSES
These taxes are retroactive. If they are approved, families and small businesses will be forced to pay taxes on income dating back to the beginning of 2009. Many have had taxes withheld expecting the current lower rate.
If adopted, these tax increases could leave you with an unexpectedly large tax bill. Many businesses are going to have to borrow money to cover their tax bill. Because credit is already tight, many businesses will be forced to shed workers or close altogether.
These tax increases affect everyone. We’ll end up paying more for groceries, gas and other services, that will impact all Oregonians, especially the poor. These tax increases hurt the very people who create jobs in Oregon- small businesses. Forced with having to pay more in taxes (remember $1.6 billion) in addition to numerous fee increases ($392 million), many businesses would be forced to lay off their workers, reduce wages and benefits, or even close their doors if these measures aren’t rejected.
Tax proponents say the “corporate share” of Oregon taxes has declined over time. One reason is the number of S-corps has increased drastically. Ninety-nine percent of Oregon’s 55,000 S-corps pay no corporate income tax other than the corporate minimum, but that doesn’t mean the state is not collecting tax revenues from these enterprises.
More than half of all business income in Oregon is reported on personal income tax filings. In tax year 2006 Oregon taxable income for all corporate filers was $7.7 billion. In the same year, business income on personal income tax forms (by full year filers) was $8.3 billion.
Small business owners report their business profits on their personal income tax filings. The Legislative Revenue Office reports that 66 percent of the tax filers targeted for the legislature’s increase in personal income tax rates are small and family-owned businesses or farms.
INDIVIDUALS
The Oregonians whom the legislature singled out to pay higher taxes make up 2.27 percent of all taxpayers, but in 2007 they paid 32.4 percent of all income taxes collected, according to data from the Oregon Department of Revenue analyzed by ECONorthwest. That’s right: 1 in 3 teachers, 1 in 3 fire fighters and 1 in 3 state workers are all financed by 2.27 percent of our population.
Economists and public policy analysts look at a tax system’s “progressivity” to determine fairness. A progressive tax system is one in which the share of income paid in taxes rises with income. How does Oregon’s tax system measure up? ECONorthwest concluded, “The progressivity of the Oregon income tax is clear. The effective rate rises with income.” Even the liberal Urban Institute has determined that Oregon’s tax system is more progressive than most states.
You’ve heard the doom and gloom if these tax increases fail, don’t buy it. Oregon has other options besides permanent, job-killing tax increases. Neither tax increase is tied to particular expenditures (i.e. schools) so the defeat of the tax increases will not lead to specific cuts as proponents have described. Rather than raising taxes during a recession, the Legislature should focus on improving Oregon’s competitiveness and helping small businesses succeed and grow.
When the economy is healthy, businesses and employed Oregonians generate the tax revenue necessary for funding critical services. Measure 66 and 67 will cost 70,000 jobs; these economic effects will generate significant budget shortfalls in the future.
State government hasn’t tightened its belt like the rest of us. Despite the current economy, the Legislature still increased overall state spending by 9.3 percent or $4.8 billion. While the rest of us are cutting spending, the state funded pay raises and continues to fully subsidize benefits for state employees. According to the National Conference of State Legislators, benefits for state employees in Oregon are the most generous in the country.
Here are some budget facts that you should know. Despite claims of spending cuts, the Oregon 2009-11 Total Funds budget grew by 9.3 percent. Discretionary General Fund spending grew by 3.8 percent. The 2009-11 budget:
o Used $980 million in federal stimulus dollars.
o Used $394 million from the Education Stability Fund.
o Used $225 million from the Rainy Day Fund.
o Includes $1.6 billion in new taxes and fees ($392 million in fees).
o Includes $38 million in General Fund debt costs from the Democrat’s stimulus package, though it only created 542 jobs.
o Includes $1.258 billion in new overall debt costs.
o Funds $581 million of state employee benefit premiums.
o Funds $237 million in roll-up costs from pay raises for state employees.
Last session Senate and House Republicans proposed a new way to approach the state budget. To balance the budget, we pushed for real prioritization. Rather than just building in automatic budget increases our Back to Basics approach took the previous budget and asked agencies to justify any additional increases.
Our budget avoided cuts to schools and assured the state police would be there if you had a problem on the highway. We took a hard look at places like the State Risk Assessment Account in which more than $50 million sits unused. The state’s own Comprehensive Accounting Financial Report found that that the state had $4.9 billion in unreserved cash funds; 71.5 percent of which is available at the state’s discretion.
I urge you to vote “no” on Measures 66 and 67. Without these tax increases lawmakers will only need to fill a $318.1 million budget gap. That is 0.6% of the $55.9 billion state budget. If these tax increases fail, overall state spending would still grow by over 7 percent in 2009-11.