Tax Certainty for Nike? “Just Do It” for All

Governor Kitzhaber has called a special session of the Oregon legislature to enact what he calls the Economic Impact Investment Act of 2012. It would give him the authority to directly negotiate with, and offer “tax certainty” to, any company promising to create at least 500 jobs and invest at least $150 million over five years in our state. Any future changes in Oregon’s business tax structure would not apply to such firms over the lifetime of their agreements.

 

The urgency of this proposal comes from the fact that Nike is looking to expand soon and is apparently being courted by other states. According to the Governor, if his proposal is rushed into law, Nike has agreed to expand here with a proposed $400 million investment and more than 2,000 jobs.

 

Unfortunately, the Governor made it clear that he would only approve such deals for companies that create a lot of relatively high wage jobs. He explicitly rejected the idea that a company offering 500 minimum wage jobs, for example, would be approved.

 

While it’s good to seek high wage jobs here, rejecting low wage jobs hurts those with little education and/or few skills. These are often the young and minorities. They have little reason to rejoice over the Governor’s new plan.

 

Granting Nike tax certainty is a good idea, but it would be an even better idea if all companies got the same certainty—big and small alike. That way, all Oregonians would stand to benefit.

Steve Buckstein is founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Raising Taxes Won’t Reduce the Deficit

With just weeks to go before America slides off the so-called Fiscal Cliff, many politicians and pundits argue that we must forge a “grand bargain” which includes tax increases and spending cuts. But now, two noted economists have crunched the numbers and conclude that Nobel-Prize-winning economist Milton Friedman was right when he said, “Politicians will always spend every penny of tax raised and whatever else they can get away with.”

 

Stephen Moore of the Wall Street Journal and Richard Vedder of Ohio University recently updated a study done for the congressional Joint Economic Committee in the late 1980s that found every dollar of new taxes led to more than a dollar of new spending by Congress.

 

Moore and Vedder “found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.”

 

They looked at different time periods, used different data, altered other variables, and never once found that higher tax collections resulted in less government spending. These results completely counter the argument that we can solve our nation’s fiscal problems by combining spending cuts with tax increases.

 

The “grand bargain” isn’t such a bargain after all. The only way to cut spending…is to cut spending.

Steve Buckstein is founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Three Oregon Tax Measures: What They Would Do

With less than a week to go in this election cycle, Oregonians are faced with nine statewide ballot measures.

 

Here are my thoughts on the three that are primarily tax measures.

 

Measure 79 bans future state or local real estate transfer taxes. Only Washington County imposes such a tax now, as anyone who has sold a home there knows. The realtors who put Measure 79 on the ballot don’t want to see such taxes spread to the rest of the state. Government always looks for ways to raise revenue, but taxing home sales isn’t a good idea now or later. I voted Yes.

 

Measure 84 phases out Oregon’s estate tax and forbids taxes on property transfers between family members. Working all your life to build up an estate valued over the $1 million estate tax exemption should not give government the right to tax what you or your family have paid taxes on all your lives. I voted Yes.

 

Measure 85 takes any future corporate kicker money from the companies that earned it and places it in the state General Fund. Nothing in the measure assures that the money will benefit public education as the public employee unions that put it on the ballot claim. Special interests will be in Salem lobbying for that money just as they do now. Measure 85 simply takes money from the private sector and grows government. I voted No.

 

Steve Buckstein is founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Portland’s Proposed “Arts Education Tax”― Why Creativity and Government Subsidies Are Fundamentally at Odds

By Shane Young

The “Arts Education and Access Income Tax” proposed by Portland Mayor Sam Adams aims to hire more elementary school art teachers and fund local arts organizations by implementing a $35-per-year income tax (maximum) on all residents 18 years old and older who live above the poverty line. The City of Portland is promoting the levy, expected to raise $12 million annually, on the grounds that art education in public schools is vulnerable to budget cuts relative to schools’ other academic priorities.

Numerous criticisms of the tax measure have been raised, including the likelihood that the tax as constructed would be unconstitutional under Oregon law. It also can be noted that it is not the proper function of city government to levy this kind of tax, since the Portland School Board has primary jurisdiction over funding public education in Portland and has its own tax base. Even the editorial board of The Oregonian opposed the ballot measure on the grounds that art education, while valuable, doesn’t merit a dedicated tax. According to the board, Portlanders have “plenty of opportunities and incentives to support” the arts and art education, including a state income tax credit.

The proposed tax measure can and should be opposed on any or all of these grounds, but there is another reason why levying a tax to benefit art fails on principle. Portlanders should recognize what makes art so important to begin with and why government involvement and taxpayer subsidies are at odds with its purpose.

Art allows us to develop and foster creativity. It allows us to take chances and risks. It allows us to make sure that the diverse realm of ideas remains constantly expanding. Because of these benefits that art gives us, Portland should be cautious about putting creativity and diversity, the heart and soul of art, into jeopardy through dedicated, taxpayer funding of government-selected arts institutions.

Unlike the sciences, music, painting, sculpting, photography, poetry, and the many other constantly growing categories of art, have no black-and-white criteria with which to determine their success. In fact, many times art is admired, and established into history, because of its willingness to stray from the standard. It is this very deviation from the norm that allows creativity and diversity, the things art should be praised for in the first place, to flourish.

By allowing the city to take over more responsibility for the artistic growth of children, and to fund organizations solely of its choosing, taxpayers give city bureaucrats complete control over defining what exactly “art” is―and, furthermore, what “good” art is―for the purposes of public funding. Taxes thus will go to promoting one art form over another―and one standard of “good” art over another.

This isn’t to say that artistic development and success do not require discipline and some kind of formal guidance in an art class―it almost always does. Yet, because of the diverse nature of art, and the wide range of criteria used to judge its quality, this discipline and guidance must happen at a much more specialized and intimate level than what the city can or should provide. Therefore, if people are not satisfied with the art education available in Portland’s public schools, they should take The Oregonian’s advice and support the arts on an individual level.

Instead of increasing dedicated spending on the arts through taxation for the benefit of public schools and selected nonprofits, Portlanders should supplement the current art activities in schools, as they choose, with a willingness to allow and encourage children to individually explore the arts for themselves. Financially contributing directly to the areas in which children are interested, rather than simply allowing the city to mass-regulate artistic creativity and diversity, honors and respects the nature of creative expression. This November, Portlanders should allow future generations to answer the age-old question of “What is art?” for themselves, rather than hand city government more taxpayer money to answer it for them.

Shane Young is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization. He is a student at Whitman College.

Taxmageddon Would Wreak Havoc on Oregon Taxpayers

By Sven R. Larson, Ph.D.

By now, I am sure you have heard of Taxmageddon – the $494 billion tax increase set to hit America’s already overburdened taxpayers in January 2013. If you haven’t, check out this informative website provided by the Heritage Foundation. Taxmageddon is a combination of expiring Bush-era tax cuts, expiring payroll tax cuts, and new incoming ObamaCare taxes. Together they will create the largest single-year tax increase in American history and very likely the largest tax increase ever created in the entire world.

Taxmageddon will, of course, wreak havoc on our already fragile economy. The only comparable tax increase is the one Sweden went through in 1995-98, when the government took away three percent of GDP per year, three years in a row. This sent the Swedish economy into a lasting depression, brought standard of living to a standstill for a good decade, and caused the permanent loss of hundreds of thousands of jobs.

If Taxmageddon were to happen here in America, we most certainly would experience something similar, only on a much grander scale. To put some perspective on what this massive tax increase would mean, let us break it down to Oregon size. According to the Heritage Foundation, Oregon taxpayers would face a $5.8 billion tax increase, distributed as follows:

  • Expiring Bush-era tax cuts: $2 billion;
  • Expiring payroll tax cuts: $1.5 billion;
  • New ObamaCare taxes: $2.3 billion.

President Obama has indicated that he might want to see the Bush-era tax cuts extended for most taxpayers, but don’t hold your breath on that until there is a bill with his signature on it. And even if Congress and the President reached a deal on that part of Taxmageddon, the remaining parts are bad enough.

To begin with, the cost of the payroll tax hike alone is big enough to place a looming threat of job losses over the Oregon labor market. It remains to be seen how resilient private employers are in the face of this kind of tax hike and just how many private-sector jobs would be on the line. What is absolutely clear, though, is that Oregon cannot afford to lose any private sector jobs: As we reported recently, there has been no real increase in private employment in Oregon over the past decade.

We need more jobs, not fewer.

On top of that, consider the effect of the new ObamaCare taxes. Designed to hit “wealthy” Americans earning more than $250,000 per year, these taxes are eerily reminiscent of the Alternative Minimum Tax (AMT). When first introduced, the AMT was designed to make sure a very small group of very wealthy people could not reduce their tax burden to zero. Today, the AMT is a middle-class problem.

It is more than likely that the ObamaCare taxes will go the same way. For Oregon’s hard-working taxpayers, the $2.3 billion looming to fund the Affordable Care Act are equal to a 23 percent increase in the taxes that Oregonians pay on their personal income each year. That would be a bad-enough tax increase to hit all taxpayers; but since the tax is supposed to be limited to the top two percent of the Beaver State’s earners, the effect will be much more dramatic.

The two percent of Oregonians who earn more than $250,000 pay 38 percent of all personal income taxes in the state. According to the IRS, in 2011 this amounted to a total tax liability of $3.7 billion. If these income earners were hit with the $2.3 billion in ObamaCare taxes, their total tax liability would increase by 61 percent.

Imagine that: For every $100 you pay in taxes this year, you will pay $161 next year.

Added together, the rise in the payroll tax and the new ObamaCare taxes equal the average earnings of 66,139 taxpayers in Oregon. This does not mean that so many people will lose their jobs in 2013 if the payroll and ObamaCare taxes come down on us. But it does raise the question how many more people will have to file for unemployment when Uncle Sam takes $3.8 billion more out of the Oregon economy.

Sven R. Larson, Ph.D., is Senior Fellow in Economics at the Wyoming Liberty Group and a guest contributor for Cascade Policy Institute. He holds a Ph.D. in social sciences with major in economics and has taught economics at colleges in three countries. His research on health policy, taxes, and government budgeting and entitlement reform has been published by free market think tanks across the country.

 

Lower the Capital Gains Tax, Ignite Oregon’s Recovery

By Eric Revell

As the state of Oregon struggles to ignite an economic recovery, barriers to economic growth must be removed. Oregon’s overall tax burden is among the highest in the country, both in terms of the 9.9% personal income rate, but also more importantly when it comes to attracting investment, in capital gains, which are also taxed at a 9.9% rate. A commonly held misperception about the capital gains tax is that it only affects the rich. In truth, the chilling effect it has on investment has a much broader reach.

For businesses to make sound choices regarding new projects and hiring that lead to growth, they require a tax code that doesn’t discourage private individuals from risking their assets in the marketplace. When people view a given state as hostile to investment, they simply relocate to a friendlier environment, taking jobs and tax revenue with them.

Such an onerous business climate has become the norm in Oregon, which is vying with Massachusetts for the highest capital gains rate in America. Washington, our neighbor to the north, has no state tax on capital gains, so its investors are only subject to the federal capital gains tax―which is currently 15%―a far more palatable total tax burden than what Oregonians face.

For Oregon to spur the economic growth necessary to put its fiscal house in order, its lawmakers would do well to significantly reduce―if not eliminate―the capital gains tax in the Beaver State.

Eric Revell is a research associate at Cascade Policy Institute, Oregon’s free market public policy think tank.

Oregon Lawmakers: Get Proactive on the Economy

Who wouldn’t want to live in the Pacific Northwest?

According to the 2010 Census, Oregon has enjoyed a relatively large population growth. There were 12 percent more people in the Beaver State in 2010 than in 2000. This is good compared to the national growth rate of 9.7 percent.

Oregon is attractive. But other than a pleasant climate, a breathtaking coastline, and beautiful mountains, what makes Oregon stand out?

From an economic viewpoint the answer is “not much.” Over the past decade Oregon had a few years of strong growth, but that was driven entirely by computer and electronics manufacturing. While production of computer components and other electronic products surged from ten percent of the state’s economy in 2001 to 30 percent in 2010, the rest of the private sector stood still or declined. And even though recent media headlines noted that Oregon saw the second highest economic growth rate in the country at 4.7 percent in 2011, you would have to read down the page to realize that this was a 42 percent decline from our 8.1 percent growth rate the year before.*

It is a bit frightening to see the numbers from the Bureau of Labor Statistics. Comparing the recession year of 2001 to the recession year of 2010, there is absolutely no private-sector job growth. There are as many people working private jobs in Oregon today as there were a decade ago.

Again, it is nice that electronics manufacturing has become big in Oregon, and 16,000 Intel employees should be proud of their jobs. But it is problematic that this particular branch of manufacturing is the only driver of the state’s economy. Jobs in the electronics industry are among the easiest to move, both nationally and globally.

The problem is that the Beaver State lacks consistent growth-promoting policies. Instead of being economic visionaries, the lawmakers in Salem come across as run-of-the-mill ho-hummers.

Oregon’s ranking with the Tax Foundation has not changed much over the past ten years. Taxes are relatively high – currently 17th highest in the nation. Oregon is not in the tax dungeon like New York or California; but on the other hand, there is no concerted effort in Salem to make Oregon attractive relative to its peers in the West.

Oregon’s tax rates continue to make the state uncompetitive compared with others. The high individual income tax is a good example. Since two thirds of the state’s tax revenues come from the individual income tax, state legislators are more interested in a tax code that maximizes revenue than one that promotes growth. As a result, Oregon has a nine-percent state income tax bracket that covers the vast majority of income tax filers. Even California is more lenient toward individual incomes.

And let’s not forget that Washington and Nevada have no state income tax at all.

In terms of business taxes, Oregon ranks about the same as for individual income taxes: better than California and Idaho, but worse than Washington and Nevada. This is yet more evidence that state lawmakers are taking a passive, go-with-the-flow attitude to economic policy.

Government employment is another area where state legislators could be proactive. While there is no steady, long-term growth in private employment in Oregon, government employment is doing well. In 2001, at the bottom of the Millennium recession, there were 181 state and local government employees per 1,000 private-sector employees. In 2010, at the bottom of the Great Recession, that ratio had risen to 191. This means, in plain English, that while the private sector was essentially standing still, job-wise, over the long term, Oregon’s governments kept adding to their payrolls.

Since the summer of 2010 there have been some reductions in local government employment, but available Bureau of Labor Statistics data shows no break in the trend of swelling state payrolls. In other words, the prevailing spending-as-usual attitude continues in Salem.

Instead of complacency, the state legislature needs to take a proactive approach to the economy. Their duty is not first and foremost to maintain government and the status quo, but to facilitate the growth of prosperity and economic freedom in the state. To do this, they could start with something as simple as capping tax-funded payrolls to what the private sector can afford. If there are no new jobs being created in the private sector, then at the very least there should be no expansion in tax-funded payrolls, either.

Another step is a more competitive tax code. Interstate migration data from the Census Bureau shows that while Oregon has gained population over the past decade, Washington is a much stronger magnet. It is fair to assume that Washington’s lack of income tax is a major reason for this.

There is a lot more to do, of course, but these two measures would be a good way to start.

 

*http://www.oregonlive.com/business/index.ssf/2012/06/oregon_economy_growing_at_nati.html

 

Sven Larson is Senior Fellow in Economics at the Wyoming Liberty Group and a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research center. He holds a Ph.D. in social sciences with major in economics and has taught economics at colleges in three countries. His research on health policy, taxes, and government budgeting and entitlement reform has been published by think tanks including Cascade Policy Institute and the Wyoming Liberty Group.

Divorcing Lady Liberty

Numerous recent news stories have reported on high-net-worth Americans renouncing their U.S. citizenship to protect assets from high tax rates. Last Friday, a Wall Street Journal editorial suggested the U.S. government should not seek to “punish” ex-citizens through high “exit taxes.” Instead, Congress should work “to make the U.S. so appealing and dynamic again” that people will be “sorry [they] ever left.”

 

It seems unreal that citizens should find it in their interest to leave the United States of America. Our country and its material success were built by millions of the world’s “huddled masses, yearning to breathe free.” Men, women, and children have come to America for centuries in search of freedom, justice, and an upwardly mobile future that results from both. When the tax code is so punitive that Americans would relinquish willingly the rights and privileges of U.S. citizens, we know we have a problem.

 

Our tax policies should encourage entrepreneurs, investors, and individuals of financial means not only to come here but to stay. Yet, it bears remembering that our identity as Americans and our relationship with our country should have value to us beyond whether they are financially “worthwhile.” Americans have grown used to acquiring whatever we desire, but our American heritage can’t be purchased―and you can’t put a price on freedom. That’s why it’s a sorrow to see Americans choosing to go.

Working to Live―or for Runaway Government Spending?

Tax Freedom Day arrived this year on April 17, coincidentally the same day tax returns were due. Tax Freedom Day is a calendar-based measure of Americans’ cumulative tax bill. It is calculated as the day on which Americans have worked long enough to pay all their taxes. Americans worked 107 days to earn enough money to pay this year’s combined federal, state, and local taxes. These taxes include personal income taxes, payroll taxes, corporate income taxes, and property and sales taxes.

 

However, this is only what Americans actually pay, not what government spends. According to the nonpartisan Tax Foundation, “if the federal government raised taxes enough to close the budget deficit—an additional $1.014 trillion—Tax Freedom Day would come on May 14 instead of April 17. That’s an additional 27 days of government spending paid for by borrowing.”

 

Americans currently pay more in taxes ($4.04 trillion) than they do on food, clothing, and housing combined ($3.89 trillion). The saying goes, you should “work to live, not live to work.” But the more government grows, the more Americans are working less to live and more to pay for runaway government spending. That leaves fewer resources to invest in the real engines of economic growth: private sector businesses that create jobs and produce goods and services for a market fueled by Americans’ hard-earned purchasing power.

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