Businesses’ tax burden draws sharp arguments

Critics of Measure 30 say the $1.2 billion tax package on the Feb. 3 ballot may be the worst thing that could happen to Oregon’s sagging economy and business climate.

They blame Oregon’s taxes for a litany of ills: the state’s high jobless rate, the recent flight of corporate headquarters and the departure of manufacturers such as SUMCO Oregon.

Measure 30 will “throw sand in Oregon’s economic engine” and keep driving businesses away, said Russ Walker, who is leading the opposition campaign as Northwest director of Citizens for a Sound Economy.

“When we ask our members what’s the one issue that hinders your business in Oregon, they all say taxes,” said Joe Schweinhart, lobbyist for Salem-based Associated Oregon Industries.

But the reality is more complex, according to economists and national rankings of Oregon’s tax system and business climate.

Walker and Schweinhart point to the Small Business Survival Index as a sign that Oregon is hostile to business. That group’s 2003 report card graded the states on 21 factors and ranked Oregon the ninth “least friendly” state in the nation for business, based on its taxes and business climate. But Oregon scored relatively well in several of those 21 categories.

Other business surveys come to starkly different conclusions.

The Tax Foundation, a group that advocates for lower taxes, ranked Oregon the ninth-most-favorable state for business tax climate in its 2003 ratings.

A study released this month by Ernst & Young accounting firm ranked Oregon among the three lowest states in business taxes, using four different measurements.

Why such discrepancies? Each survey places a different emphasis on various factors.

Tax hit varies

The impact of Oregon’s tax structure varies widely among businesses, said Deanna Trail, a business tax specialist and interim executive director of Oregon Tax Research, a business-funded group.

“It kind of depends on what your product mix is, and where your money comes from,” Trail said.

Oregon’s high income and capital gains taxes pose a disadvantage for some companies. Some firms have moved from the Portland area to Washington so top executives can get away from Oregon’s high income taxes.

Oregon’s lack of a general sales tax poses an advantage for other companies. Many Washington residents flock to shopping centers in Oregon to buy goods.

Despite major differences in the tax structures of Oregon and Washington, “over 30 years, their economic performance looks almost identical,” said economist Jeff Thompson of the Oregon Center for Public Policy, a liberal Silverton think tank. “To the extent that taxes matter in the big picture, it’s tiny and at the margins.”

Any analysis of the impact of Measure 30 needs to look at what it will buy, Thompson said.

“Taxes purchase services, and services are just as important for business climate,” he said.

Oregon lawmakers passed the tax package that became Measure 30 to forestall major cuts to public schools, health insurance for low-income Oregonians and other state services and to avert more tuition increases at colleges.

Business taxes up

The bulk of the money would come from a three-year increase in income taxes. The measure also would ding businesses by lifting the minimum corporate income tax from $10 to a range between $250 to $5,000, depending on sales and the type of corporation. It also would end a tax break for exporters, cut in half a tax break for subsidiaries’ dividend income, and force corporations to defer some business tax breaks for three years.

Measure 30 critics are quick to point out areas where Oregon ranks poorly in some measures that are important to certain businesses.

Some companies bristle at the state’s high minimum wage and high unemployment tax, Schweinhart said. Oregon also scores low in attracting business investment capital, which many attribute to the high capital gains tax here.

“If we’re one of the least-taxed states, then how come we don’t have people clamoring to get in here?” Schweinhart wondered.

But indicators of Oregon’s business climate and the public policies associated with it vary wildly.

In 2002, the state had the ninth-highest rate of personal and business bankruptcies among the states. On the flip side, a year earlier, it had the 12th-highest rate of new companies being formed.

Past cycles different

Oregon’s economy fared better than many states’ during the early-1990s recession. In much of the late 1990s, Oregon ranked among the most booming states in the nation. Oregon also scores well for some measures of business cost, such as health care and worker compensation premiums.

Measure 30 critics depict Oregon as piling on more burdens on businesses.

However, the Legislature passed a string of business tax breaks since Republicans gained control of the House in 1991 and the Senate in 1995. Those include 2001 and 2003 laws that cut state taxes for companies with a strong stake in Oregon personnel and facilities, shifting some of that burden to companies with a minimal presence here.

John Mitchell, an economist for U.S. Bank in Portland, said people shouldn’t read too much into the flight of corporate headquarters from Oregon in the past several years. Each was due to factors unique to those companies or industries, he said.

“I don’t think it’s an Oregon-specific issue.”

Mitchell’s personal opinion is that Measure 30’s passage may be better for the economy than its defeat, much like a similar tax increase passed in the late-1980s in the administration of Republican Gov. Vic Atiyeh.

“Did that three-year surcharge back in the 1980s seriously hobble Oregon?” Mitchell said.

I don’t think it did, but it preserved a level of services.”

Another round of headlines about school closures and four-day weeks at courts may do more harm to Oregon’s economy than the business taxes in Measure 30, Mitchell predicted.

Steve Law can be reached at (503) 399-6615.