The following column ran in the Portland Observer newspaper on December 8, 1999. It is reprinted with permission from the author.

That fellow behind the tree

A spate of new tax measures are headed for the November 2000 ballot. It's not too soon to review some basics, or else during the tax shuffle you might get dealt a bad hand.

The art of modern taxation is best understood by examining the words of U.S. Sen. Russell Long, D-La. who served from 1948-86, and for 16 years as powerful chairman of the Senate Finance Committee: "Tax reform means, 'Don't tax you, don't tax me. Tax that fellow behind the tree.'"

Sen. Long was a 38-year incumbent accustomed to cutting deals with lobbyists. He expected everyone to leap into the political influence feeding frenzy. If not, then like "that fellow behind the tree", unobservant of what's going on at the legislature, you could get hit with a tax increase.

Sen. Long also revealed the most important rule of modern taxation - concealment. Thus, we have different types of taxes on earnings, investment, savings and purchases; myriad licensing and permitting fees; we even have taxes on taxes. And, of course, we have death taxes and non-reciprocal interest and penalties on tax errors.

Perhaps the most insidious form of taxation is through arbitrary business taxation. Instead of being collected directly, the cost of government gets built into prices individuals pay for products and services consumed in ordinary private transactions.

We surrender a record share of our money to taxation as a result of a century of tax proliferation. A dubious milestone was reached last year. Targeted tax credits, exemptions and preferences for the politically influential now amount to more than the total taxes we all pay - another legacy of Sen. Long's artistry.

In this regime no single tax is so great that non-compliance is worth the risk. A tax system in the U.S. that fully disclosed its costs, however, would have to admit that government consumes more than 50% of average incomes - and that might trigger civil disobedience. After all, the Boston Tea Party, a response to the Townshend Acts of 1767, protested a duty of just "three pence a pound on tea."

Across America, public coffers are flush from the growth of the information-age economy. Many state and local governments have not only met public needs without increasing taxes, but have also enacted tax rate cuts.

To deal with the dual problem of education spending and performance, most states have opened the public education monopoly to choice and competition. The states - America's laboratories of democracy - are vying to set new standards in "mixed" systems with thriving private schools and increasingly competitive public schools.

In Oregon, however, we risk falling behind because our leaders reflexively oppose adjusting the public school monopoly. While the rest of the country is using school choice to improve results, Oregonians have seen only a modest charter school law, which is yet to have a meaningful effect. We continue to bear the burden of double-digit biennial budget increases for state government, a rate nearly three times faster than inflation. The system, it seems, has an insatiable appetite for our limited resources.

Enter two tax measures slated for the November ballot to increase the cost of government: a tri-county business income tax to "help the schools" and a measure sponsored by the AFL-CIO that would raise the state corporate income tax rate.

There is a simple truth behind these "business tax" proposals. Businesses do not pay taxes, only individuals do. Any cost imposed on a business is either passed on to others in its community - customers, suppliers, employees, shareholders and neighbors - or the firm "goes out of business."

Opinion leaders clamoring for business tax hikes find it easier to hide a tax from the public by conscribing companies to act as tax collector. They must think it's a good idea for people to pay higher prices for the goods and services we consume, as long as it's not in the form of a tax paid directly by people to the government.

Thank Sen. Russell Long for telling it like it is, so that appearances need not deceive. To Oregon tax advocates, every citizen looks just like "that fellow behind the tree."