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Taxing The Other Guy In Oregon

Oregon residents don’t like taxes much. Except when someone else is paying.

On Tuesday, voters in the state approved two ballot measures increasing taxes on high-income individuals and businesses. Oregon residents in the top tax bracket will now face an 11 percent state income tax rate, the highest in the United States. The new increase will affect individuals earning at least $125,000 and couples earning at least $250,000.

The corporate tax rate will go up 1.3 percentage points to 7.9 percent on profits over $250,000. Combined, the state estimates that the two increases, known as Measures 66 and 67, will bring in $727 million that will be used for public education and other services.

Oregon needs the cash. Some school districts have cut back to a four-day week in order to save money. But that is not surprising when you look at the state’s other taxes, or lack thereof. Oregon has no sales tax and it caps property taxes. In 2003, when public schools faced a possible temporary shutdown because of lack of funds, voters rejected the across-the-board tax increases that were needed to keep the school doors open. The kids had an extra month of summer vacation.

Then, at the end of 2007, just as the country was heading into a recession, Oregon actually sent $1.1 billion back to residents. The state’s so-called kicker law dictates that, whenever revenue exceeds forecasts by state economists, the government must give the surplus back to residents. Checks to taxpayers averaged about $600 in 2007.

But, while most voters cling to their own money, they’re all for making their wealthier neighbors open their wallets. Tim Hibbitts, a longtime independent pollster in Oregon, commented that Measures 66 and 67 “were designed and have been sold with the idea that somebody else is going to pay, people who are high-income earners and businesses.”

Oregon residents who think the latest tax hikes will not affect them may be in for an unwelcome surprise. While most Oregonians will not see their tax bills go up, the indirect effects will likely hit everyone in the state. Already Oregon has an unemployment rate of 11 percent, higher than the national average. But, instead of encouraging businesses to expand, Oregon’s higher corporate taxes will induce businesses to limit their operations there, while the sky-high personal taxes may prompt many business owners to move out of state, taking jobs with them. Portland, the state’s largest city and home to many of the voters who supported the latest tax hike, sits just across the Columbia River from Washington, a state with no personal income tax at all.

As costs for businesses and business owners are increasing, the state’s minimum wage has also, in effect, gone up. The minimum pay rate, currently at $8.40 per hour, rises with the Consumer Price Index (CPI), meaning that minimum wage workers keep the same amount of buying power when the cost of living increases. But the minimum wage does not decrease when the Consumer Price Index does, so, when the CPI declined in September, minimum wage workers ended up with more buying power, and the cost of hiring entry-level employees in Oregon went up.

When you pile all the costs of running a state onto a small group, they’re apt to go elsewhere, and, when those people happen to be the ones who are capable of producing new jobs, that is not exactly conducive to economic recovery. Businesses and their owners might be more inclined to stick around and work toward solving Oregon’s budget crisis if the rest of the state’s residents, except those who truly have no resources, were willing to do their share as well. But it’s hard to feel the spirit of generosity when you are the only one giving.

I have never seen a state, or a country, achieve prosperity by taxing a small group of citizens, and I doubt that will happen in Oregon either. More likely, if Oregon sticks with its “tax the rich” strategy, pretty soon there won’t be any rich folks left there to tax.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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