Reduce the burden of the Business License Fee

Steve BucksteinTestimony before the Portland City Council
January 18, 2007

I’m Steve Buckstein, Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based think tank.

Whether Oregon is a high tax state or a low tax state for business, everyone understands that it’s more expensive to do business in Portland than it is in the rest of the state because of the Business License Fee.

I’m glad that this proposal is up for discussion, and I want to make three quick points for your consideration.

First, the rationale for the current $60,000 owners’ compensation deduction seems to be that income below that level is considered payment for the owner’s labor, while income above that level is considered a profit.

This proposal would raise the labor exemption to $80,000, and possibly higher in the future. Of course, all of you who are about to vote on this increase earn more than that yourselves, yet don’t pay a profits tax on that portion of your salaries above $80,000.

You might want to ask yourselves why your labor is worth more than the labor of business owners in the city. If you think this is unfair, I would ask you to consider raising the owners’ exemption to at least the level that you yourselves earn for your labor.

Second, any income tax punishes economic success. It raises the cost of working, saving, investing and risk-taking, thereby restraining economic growth.

In our mobile age of instant communication, people and their money are moving to locations where they can earn the best return on their investment of time and money. Reducing the impact of the BLF is good, but please understand that what’s left will still leave Portland a more expensive place to do business than the surrounding communities.

Finally, taxing business may be popular, but economists understand that business only collects taxes, it doesn’t pay them. Only people do. No business has a pot of money that doesn’t ultimately belong to specific individuals.

While you can see the impact that the BLF makes on business owners, other individuals will continue to bear the burden in ways you can’t see, including:

  • Customers, in the form of higher prices, and
  • Employees, in the form of lower salaries and benefits, or fewer job opportunities.

The solution is simple. Stop asking business to collect taxes. In my paper Prosperity or Portland?, published about a year ago, I set out three ways to do that without any net impact on the city budget.

I understand you’re not about to do that right now. While I agree that the step you are about to take is generally in the right direction, I’m afraid that the minimum tax increase calculation may simply add complexity to an already confusing tax.

Still, I congratulate you for seriously considering ways to make Portland more business friendly. Because ultimately, reducing the burden on business reduces the burden on all Portlanders, and makes this a better place to live and work.

Thank you.

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