Tax measure impact overstated?

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Ben Jacklet
Thursday, January 27, 2011

By Ben Jacklet

A year has passed since the passage of Measures 66 and 67, the controversial tax increases targeted at wealthy individuals and businesses in Oregon. These measures were extremely unpopular with many within the business community, and after the vote the predictions of abandonment and downsizing were dire. Have those predictions come to pass?

A new website launched by supporters of the measures argues that they haven’t.  The site features a rolling list of headlines linking to stories about businesses moving to or expanding in Oregon. It’s a challenge to read through them all because there are so many examples of recovery to plough through.

There’s Facebook in Prineville, completing a new data center and hinting it may soon need another one nearby. And Vestas choosing Portland for its $66 million U.S. headquarters building. And young companies such as Elemental Technologies in Portland and Floragenex in Eugene, raising millions of dollars and hiring like crazy. Plus Oregon icons like Nike and Kettle Foods, expanding and hiring.

Red-hot retailer H&M set up three stores in the Portland area. New Seasons Market opened its 10th local store in 12 years. Venture capitalists poured twice as much money into Oregon as in 2009. And the kicker: Intel, the state’s largest employer, is investing billions in a new Hillsboro fab while enjoying its most prosperous year ever.

It’s quite a list, but it doesn’t tell the whole story. Many businesses, especially the small businesses that make up the backbone of the Oregon economy, continued to struggle in 2010. The state’s jobless rate has remained largely stuck at around ten and a half percent, a percentage point higher than the national rate.

And I’ve certainly heard from plenty of business owners and executives over the past year who felt that the last thing they needed after a devastating recession and widespread financial chaos was a pair of new taxes to worry about.

But I haven’t heard of many businesses, if any, leaving Oregon specifically because of the tax increases. A persistent rumor involving the impending departure of a deeply involved Portland entrepreneur and investor thankfully has not come to pass. There is the case of Bruce Hough of Comnet Marketing Group in Medford, who said he would expand his company outside of Oregon due to the tax burden. But according to the company’s website, Comnet is still based in Medford.

I also recently heard a compelling story about an investment firm from California choosing Clark County over Oregon for tax reasons. But there can’t be that big of a wave of businesses washing into Vancouver USA over Portland, because the unemployment rate in Clark County is even worse than Oregon’s.

I took a lot of abuse in the comments section last March when I suggested in admittedly blunt fashion that tax measure opponents were overstating their case with references to a phantom exodus out of Oregon. I put a request out for examples of companies actually exiting, but heard mostly vitriol in response rather than actual examples.

I’m eager to hear specifics. If you know of companies exiting Oregon for tax reasons, tell us about them. In the meantime, I have contacted the folks behind Exit Oregon and oregontaxresponse.com to see what findings they have to offer in rebuttal. I’ll post their findings as soon as I hear from them, and link to their reports once they are available.

Ben Jacklet is managing editor of Oregon Business.

 

Comments   

 
James Miller
0 #1 Measures 667/67James Miller 2011-01-27 11:54:58
It is inappropriate to draw too many conclusions about the impact of measures 66 and 67 after only one year.

The real impact will be several years down the line when it becomes apparent that new investment in Oregon has been harmed by these new taxes.
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Lisa
0 #2 The Point of Increasing TaxesLisa 2011-01-27 11:57:07
Mr Jacklet does not address the point of raising taxes, to increase revenue. While the loss of businesses or the lack of appeal to potential new businesses are both extremely important, why were taxes raised? To increase revenue to allow the state to spend more money---despite the reality that throwing money into government programs has not budged our high unemployment rate.

Have the increases in tax revenues occurred? I saw a report that the results were quite disappointing.

I hope Gov Kitz realizes that increasing taxes does not improve an already sluggish economy. We have a spending problem....
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Aly S
0 #3 business ownerAly S 2011-01-27 12:01:45
we looking for land in other states that are more business friendly, it just takes a while to make a significant transition. Our customers are all over the US and not many are here locally. Long term we will see the impact. How many large companies choose to headquarter here? Not many that I see. In Oregon we have a culture of job-takers and not of job-makers, especially amongst younger folks.
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Charles D
0 #4 No more hiringCharles D 2011-01-27 12:42:59
For the first time in 36 years of being in business we showed a loss or our business tax return. GUESS WHAT, WE OWE TAXES TO THE STATE OF OREGON. That money will take away from our expansion or hiring of new employee's. Those that wanted to increase said that business owners are greedy and make to much. I took a huge pay cut, just so I would not have to lay off anyone, because I do care about my employee's. If I could I would relocate my business somewhere else.
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melinnewberg
0 #5 What about just givingupmelinnewberg 2011-01-27 13:31:25
I know of one large grocery store in Lake Oswego, not a chain, that gave up and closed it's doors after these measures passed.

My husband has started two high tech companies in Oregon and is looking elsewhere to start his third. These are the kind of statistics that you do not read about. Oregon has too many problems and one of them is the tax structure.
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Brian
0 #6 You really mistake the signs for a business editorBrian 2011-01-27 13:34:49
Ben,
What about the steel company that just announced they are moving to Chicago? This is just one of many companies your research should have turned up. Their comment of "getting sales closer to the market", you believe that? Why do Nike, Microsoft, Intel all head their WW sales in the northwest? All their markets are bigger in California, the northeast or the world. Don't you remember the mayor of Chicago publicly stating his Oregon recruiting efforts, just after the passing of the measures? Do you realize how many executive/staff jobs and supporting vendor executive/staff jobs just one firm like that eliminates when they move? Then there is a large three stripe athletic company that is selling their NA headquarters in Portland. Local real estate proffessionals openly question that only a 5 year lease didn't maximize the CAP rate the business would get for the building. I question the business IQ you and this publication has with your one sided/bias approach in this article. Seems like you have a different view than any of the business individuals I have been around in this state. For the thirty years I have run and owned medium sized businesses in this state, the business people I work with would see through this. It's really a shame that Oregon Business Magazine does not champion a business climate more friendly to their namesake.
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Dick Schweiger
0 #7 Run the numbersDick Schweiger 2011-01-27 14:54:22
If you spend all that you make --it does not matter to much where you live, but if you are saving to start or grow a business or for retirement, the differneces are huge.

Lets say your living expenses are $10,000 a month and you are working your butt off and make $500,000. In Washington you pay $10,000 xs .08 = $800 per month or $9600 per year in taxes no matter what you make --there are other taxes on car license and some others but lets keep it simple as if you really want to save $10K per month is living pretty darn well.

In Oregon if you make $500,000 the feds take the first 35% -- $175,000 leaving you with
$325,000 and Oregon takes at least 10% of that or $32,500. So just on the face of it, if you live in Washington you save $22,900 or 7% of what is left after the feds take their piece.

If you are starting a business, that $22,900 is a $9 per hour employee. Or if you are saving for retirement, your nest egg grows that much faster.

The big question is --what do you get for that extra $22,900 that you would not get in Washington?
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PJ
0 #8 Revenue vs. Job LossPJ 2011-01-27 15:00:34
I personally am aware of moves made by small business owners immediately after Measures 66/67 passed. They did not shift jobs out of Oregon, yet did reduce taxable income. Lisa's comments above are on point - let's evaluate the revenue impact. I have $1 that says it's no where close to projections that were being presented by the proponents.
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Oh, sure.
0 #9 Buh-bye!Oh, sure. 2011-01-28 08:27:43
Ah... another opportunity to whine.


what do you get for that extra $22,900 that you would not get in Washington?

Who says it's extra? The equivalent of Measure 67 exists in Washington.

If you all think it's so much better across the river - well - have at it. Unemployment across the river is a good four points higher than on this side, so you should have no trouble finding eager, cheap employees.


As to Ben Jacklet's research failing to turn up Evraz' pending move... well, stories have deadlines. It's not like the internet where you can just state whatever you want as fact.

Let me guess... Evraz saw those low Chicago taxes - including that new 67% increase in Illinois income taxes - and it looked like a screaming deal.
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Brandon Sawyer
0 #10 Re: Run the NumbersBrandon Sawyer 2011-01-28 11:23:03
Please explain why you are deducting federal income taxes from the hypothetical $500K income in Oregon but not in Washington. Living in Washington should not change the rules for federal taxes.

For a good comparison of states' business tax climates see the Tax Foundation's list: http://www.taxfoundation.org/taxdata/show/22661.html

Oregon is ranked 14 for FY 2011, well ahead of Illinois at 23 and not far behind Washington at 11.
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Brian
0 #11 Buh-Bye!Brian 2011-01-28 14:18:39
Why would it be an opportunity to whine? I have paid my taxes for decades, no whining. I paid for my children to attend public schools through local universities in Oregon. It's the individuals money not the other way around, that's why they call it a tax. My youngest, working in Seattle, says the A players college grads are baristas or in clerical retail and the B players are living at home. She and her boyfriend, Oregon raised and schooled, both in Seattle. They both have had multiple job offers. It's not about Clark county, that's a suburb of Portland. There are more jobs and opportunities in tax balanced areas. We don't have to give up our wonderful environment to have a healthy growing economy.
Evraz was attracted away by the marginal cost difference of doing business in another location, just like we offer tax incentives to companies to move here. Once our cost of doing business tips a scale the company will consider another economic location. It is VERY expensive to move a company and employees, so it has to be attractive financially. Company headquarters provide not only jobs and tax revenue, but contributions to the arts and environment as well.
As mentioned above, we have a spending problem and it is causing us to kill the goose that lays the egg. That will become a self defeating policy and will need to be corrected.
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Rick Beasley
0 #12 POSTER BOY FOR MSR. 66/67Rick Beasley 2011-03-09 00:56:51
My name is Rick Beasley, editor and CEO of Beacon Media. You wanted examples: I am the poster boy for Msr. 66/67, which literally leaves small businesses like mine penniless, or close to it.

For the last 14 years I've published a small newspaper and operated the local cable TV station in one of the smallest markets in the state. Physically isolated, Lincoln County, Oregon is an economic petri dish where every dollar taken in — or out — is felt by almost every operator sooner or later. This tax, shamefully misrepresented by the politicians who endorsed it, has sucked tens of thousands out of our market, money that would have been used for salaries, equipment, payments, fuel and advertising. Talking to 40 or 50 CEOs a month, I am left with the anecdotal impression that this miserable tax costs struggling companies $500-$1,200 per year, which happens to coincide almost exactly with their annual ad budgets.

Things may look good from the glass towers in Portland but out here in the sticks where every penny ripples the pond, Msr. 66/67 was a stone laid upon on our backs. Do the math: the $60-70 million shifted from the private sector into bottomless state coffers translates to 2,300 jobs a year in rural Oregon, including two at the Beacon.

You mentioned a web site that is trying to put lipstick on this pig, which is great. I support free speech. But good luck finding my web site, which takes the opposite view — I laid off my IT guy, thanks to Msr. 66/67.
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