Time for a Stimulus Package


As we enter the new recession — and, trust me, we are entering a new recession — Oregon’s politicians will again be tested as to whether they are going to worry about the Oregon economy or worry about Oregon government. During the recession beginning in 2001, Oregon’s politicians, led by then-Gov. John Kitzhaber and thereafter succeeded by Gov. Ted Kulongoski, clearly ignored the collapsing economy and focused singularly on preserving inflated spending by government.

The results were a catastrophe. Oregon entered the recession prior to most other states and exited the recession more than a year later than the rest of the nation. In attempting to preserve government spending these governors twice proposed the largest tax increases in Oregon’s history — at a time when Oregon’s unemployment was hovering around eight percent. In both instances, voters rejected the tax increases.

Every signal available at this time forewarns Oregonians that Kulongoski and his Democrat colleagues in the legislature will repeat the same mistakes by focusing on preservation of government spending and ignoring Oregon’s drooping economy. The state revenue (tax) forecast, done a month early for the benefit of the legislature’s “special session” projected a shortfall of $180 million for the biennium. Most government experts predict that the next revenue estimate due out in May will show an even larger shortfall.

And what did the legislature do with the information that there were insufficient funds to pay for spending already authorized? Why it increased spending by a couple of million dollars more. And what did the governor do? Well, he asked for a report from his agency heads on ways to make budget cuts at various levels. A good idea but nothing has been done to implement those reports if they were ever produced in the first instance. (Kulongoski, like his predecessor Kitzhaber, knows the best way to avoid a problem is to ask for a study, stretch out the time line and then ignore it when the results come in.)

But this time, it appears that the Republicans will not be willing accomplices to the tax and spend policies of Kitzhaber and Kulongoski. House Republican Leader Bruce Hanna has repeatedly called on Gov. Kulongoski to repeal the recent director level pay raises and implement an across the board five percent budget reduction in all state agencies.

In contrast, Oregonians should anticipate that Kulongoski and his Democrat colleagues will once again propose tax increases in lieu of responsible budget management proving that government spending is more important than the state’s economy.

While Hanna should be applauded for responsible management, I would urge him to take the additional steps necessary to propose a plan to stimulate Oregon’s economy rather than watch another anemic performance akin to 2001-2004.

For the Democrats reading this column, in order to stimulate the economy you need to stimulate business growth. Business growth is economic growth; government growth is simply a business burden. I would suggest a three-prong attack to ensure that Oregon does not repeat the worst-in-the-nation performance of the last recession.

First, reduce the capital gains tax in order to encourage investment in Oregon. Investment represents growth, growth represents jobs, and jobs represent a sound economy. While I would prefer elimination of the capital gains tax, politics demands incrementalism and, therefore, I suggest reducing the capital gains tax to one-half its current level.

Second, recouple the depreciation schedules for Oregon income tax to those for federal income taxes. An ability to recover investment more rapidly through depreciation provides additional incentive for capital investment. Additionally, it removes the necessity to maintain two sets of books — one for federal tax purposes and one for state tax purposes. Finally, it removes a competitive disadvantage vis-à-vis other states when business looks at where to make and increase its capital investment.

And finally, increase the amount of income exempt from taxation to the level of the minimum wage and index that exemption to future increases in the minimum wage. Oregon’s minimum wage is currently at $7.95 which represents an annual income of approximately $15,900. Currently, Oregon’s actual income tax burden on low-income wage earners exceeds that of the federal government. The elimination of taxes on the lowest end of the economic scale will provide a needed economic boost to those most in need. In addition, the coupling of that income tax exemption to growth in the minimum wage will cause the government to consider the reduction in tax revenues each time it raises the minimum wage.

The only real economic stimulation occurs when business is encouraged to grow. A reduction in capital gains and an increase in depreciation rates will provide that encouragement. A reduction in the tax burden to those least able to afford it is simply a compassionate acknowledgement of the burden taxes place on all.

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Posted by at 06:00 | Posted in Measure 37 | 25 Comments |Email This Post Email This Post |Print This Post Print This Post
  • RinoWatch

    Your 3 prong plan is certainly wiser than the Feds “Stimulus Package” which is simply Stupid.

    Our $1200 will go into retirement plans which were deprived of their normal annual contributions because of OUR increased property taxes ($1100) here in Washington Co.

    Where’s the “Stimulus” to the American economy —- It’s headed right to China. Borrow from ’em & then buy their goods…..

  • Steve Plunk

    Release of oil from the strategic reserve would not only generate income for the federal government but would likely run the speculators out of the oil market resulting in lower prices and an improved economic outlook by consumers.

    People keep blaming housing for our troubles and to some degree that is true but oil has been weighing heavily on the economy for years. That’s pure disposable income being shifted away from discretionary spending. It also adds cost to every product we are able to buy with what’s left.

    Long term we must explore, exploit and refine more oil.

  • Rupert in Springfield

    Ohhhh, I like it. Exempt all income below the minimum wage. That is shear brilliance.

    First, it seems really hard to make the argument that we need a higher and inflation indexed minimum wage because it needs to be a “living wage” but business should pay all the burden of increasing this livability, yet government should share none.

    Second, it would make government think long and hard about laws like indexing the minimum wage. It would no longer be a nice little cost free guilt assuager for the I’m so concerned class but would actually be something that requires thought.

  • eagle eye

    Oh, great, eliminate taxes on everyone below the minimum wage. Guarantee that they will forever be hankering after bigger state spending, with no thought of the cost to themselves, because there will be none.

    And where is the rest of the program? You want to cut taxes, fine. Give us the plan to cut spending and how it will be carried out. Don’t try to do another Sizemore. It doesn’t work anymore. Run for Governor perhaps and spell out the plan?

    • CRAWDUDE

      I’m fairly certain that minimum wage earners make less than the bench mark for being low income. I know those people don’t pay Federal taxes due to Bush’s income tax cut ( from 15% to 0%). I’d be very surprised to hear that they pay any state income tax at all after they factor in their personal exemption.

      • Rupert in Springfield

        Oregon has a regressive income tax system. The highest tax rate, 9%, kicks in at something like $6k. Since minimum wage is around $16k a year, minimum wage earners are very likely paying state income taxes.

        The other aspect is, exempting wages below minimum wage affects everyone, not just minimum wage earners. This would be indexed, so as the minimum wage went up, so would your first $16k of income. This would make the legislature think long and hard before playing with the minimum wage as a guilt assuager.

    • dmf

      too late, minimum wage people do not pay much if any in taxes and to keep them happy the government gives them money

  • Bob

    And yet Kevin Mannix wants to spend $200 million or more every year locking up first-time catburglars and shoplifters.

    I guess that’s the prison-construction stimulus package.

  • Bob Clark

    I favor raising the threshold at which the state income tax begins to apply. It would sure help part-time working college students who are investing in their skills but lose the opportunity to invest more in themselves because part of their skimpy wages goes to the state. It would also help some people on the cusp afford to rent more fitting shelter.

    I would make up for any state revenue loss, resulting from raising the threshold, by cutting back on some redundant state services such as the Oregon Department of Energy (ODOE). As the price of electricity and natural gas continue escalating homeowners and landlords already have significant incentive to invest in conservation measures, and most are already replacing windows and putting in other efficiency measures. Utilities are already made revenue neutral with respect to conservation measures as their investments in conservation go into the rate base on which regulated rates are determined. In addition, there is already a 3% public purpose tax in most everyone’s electricity and natural gas bills which is administered by another quazi public organization for energy conservation and renewables. The Northwest Power and Conservation Council located in Portland, Oregon, already does much of the strategic electricity work done also by the ODOE. Washington state doesn’t even have a department of energy. There is the Washington Utilities and Transportation Commission. It’s primary role is rate setting similar to the Oregon Public Utilities Commission.

    Besides ODOE, there are probably other redundant state services available for pruning in Oregon. I suggest climate change is not a state issue but rather a national and international issue. But good luck turning that train around. In fact, good luck even keeping state and local government taxation from sharply escalating in this loony deep blue state. At this stage, the best you can do is to trade one tax for another, even still losing some skin in the action.

    • CRAWDUDE

      Apparently ( from what I’m reading from other posters) the minimun wage tax payers portion is too much of the state budget for the state to cut loose…………….that doesn’t say much about the state, sadly.

  • David from Eugene

    Interesting proposal, but as a counter I offer the following:

    Capital Gains— With one exception, no tax at all on the profits from the sale of assets held for 5 years or more. Less then 5 years treat it as normal income. Long term investment is good for the economy and should be rewarded; short term speculation is bad and should be discouraged. To encourage long term investment, I would be open to going one step further, an amount equal to 10% of the profit from the sale of an asset held over 10 years could be deducted from the individuals normal income for the year of sale. The exception is stocks; only profits from the sale of stock purchased directly from the issuing company could be treated as a Capital Gain. Stock purchased directly from the issuing company is an investment in that company; stocks purchased on an exchange are not an investment but rather a speculative exercise.

    State Personal Income Taxes— To start with government benefits such as social security, unemployment, government pension and disability pensions should not be subject to taxes, it is nonsensical to give money with one hand and take it back with another. However, this lack of taxation would be considered during the next cost of living adjustment for each. The bottom tax rate should be 1% and should apply to all income above $200.00 (below that the money received would be less then the processing costs). The revenues from this rate would be minor, but everyone needs to have some skin in the game. But as it costs money to collect money from people in taxes and then turning around and giving it back to the same people in the form of direct government benefits (i.e. Earned Income Tax Credit) any rate higher then a symbolic 1% is a waste. Besides most of the income received by individuals in this income stratum is spent, cutting their taxes would in addition to reducing the amount of benefits; it will give them more to spend. The next tax rate should be around 6% with the lower end of the tax rate indexed to the current annual minimum wage ( about $15,900) and the upper end indexed to 5 times the current annual minimum wage (about $79,500). The third tax rate should be around 9% and have the upper end set at 15 times the annual minimum wage (about $238,500). The final tax rate of around 10% would apply to income above 15 times the annual minimum wage. These rates would be adjusted so that the first year’s revenues under this system would not be less the 95% of the revenues or more then 105% of the revenues from personal income taxes under the old rate structure. The goal is revenue neutrality.

    Corporate Profit Taxes— Same rate basic structure as Personal Income taxes, except that the rates would be adjusted annually to insure that revenues from Corporate Taxes are never less then 50% of those from personal income taxes or more then 100%.

    As much as possible Personal State Income Taxes should be linked to federal tax regulations so that ideally State Income Tax calculation would just consist of looking at a tax table based on your Federal taxable income figure with minor state specific income adjustments and the subtracting any applicable state tax credits.

  • dean

    Economists will tell you that economic growth depends for the most part on two things: 1) productivity (each worker able to make more widgets or words in less time) and population growth (more people = more business, especially in a 70% consumer driven world).

    Tax cuts that improve the productivity can work, but also GOVERNMENT SPENDING that improves productivity can work. Better educated people are more productive. a better transportation infrastructure makes people more productive. Better health makes people more productive. But all of this costs money.

    So simply cutting taxes (and building more prisons,) which conservatives usually recommend, may not in fact increase productivity and may not stimulate any growth. To the extent it results in less education, faster deteriorating infrastructure, and poorer health we go backwards, not forwards.

    Also, raising taxes (which we on the left often support,) if doing so inhibits investment in better productivity, may result in slower growth.

    What is needed? More pragmatic political leadership and less ideology. And to get there, we all need to reflect on our own ideologies and how that results in us pushing politicians to make short0sighted, feel good policies.

    • Joey Link

      Faster deteriorating infrastructure? I’m pretty sure the liberals are responsible for that, having spent most of their budgets on pet projects and toy trains.

    • Rupert in Springfield

      >Also, raising taxes (which we on the left often support,) if doing so inhibits investment in better productivity, may result in slower growth.

      Oh my God, Dean…… You have reached the first plateau!

      (cue tapiers, early man, the monolith appears)

      Taxes inhibiting growth? I am shocked… shocked I say.

      I’m not even sure you are allowed to say this. Are you allowed to say this?

      (cue bone swinging – first use of tools, banging small pile of bones, prehistoric man in thought)

      Quick, Dean, run man run, check your weedy organic garden, is it still there?

      Dean, what’s next? The realization that increasing the capitol gains tax results in lower revenues every time its tried?

      (close up, prehistoric mans realization of tools, smashing bones, bones flying, thought, power. Early man in triumph)

      I’m….I’m…. just… stunned, I cant believe it

      …taxes may result in

      LOWER GROWTH!

      Mien Fuehrer…… I …..I

      I CAN WALK!!!!!!!!!

      (cue fetal Star Child and Strauss music, track to close up – Star Child’s eye, partial face)

      • Anonymous

        Rupert, you are a man after my own heart. Pay attention dean

  • Terry Parker

    On the capital gains issue, I think there needs to be some middle ground compromise between the two parties by eliminating capital gains taxes when person’s income is less than $100.000.00, but raise it slightly for people above that amount, and then index the amount with inflation like has been done with the minimum wage. This concept will be a stimulus to create more small investors while giving people on fixed incomes who subsidize their incomes with stocks and bonds tax relief and also giving tax relief to the people who need it the most. Additionally, it just does not make sense to give more tax breaks to the wealthy and millionaires just because they own stocks and securities.

  • crawdude

    Get rid of the income tax and go to a sales tax, everyone pays for the most part.

  • Jerry

    There is no middle ground. Middle ground is for the weak and indecisive.
    Bad idea.

    • dean

      Jerry…well said. Let’s meet on the field at dawn. Your choice of pistols or swords. En guarde!

      Rupert…..your usual snarkiness aside…note the word “may” in my carefully hedged statement on taxes. We have historic experience of national economic growth accelerating AFTER a tax rise (Second World War, Clinton) and we have evidence of economic growth accelerating after a tax cut (Kennedy, Reagan). We also had our longest period of sustained growth during our period of highest marginal tax rates (1945-1975). Meaningless correlations or causes and effects? I admit that I don’t know. Do you?

      Capital gains taxes are in part an economic issue, and in part a justice issue, which is why the 2 parties tend to talk past each other. For those on the right, its a no brainer. Cut or eliminate capital gains taxes and increase investment, thus increasing productivity, thus economic growth. Never mind that a large chunk of capital gains has nothing to do with investment in increased productivity. Never mind that 75-90% of capital gains tax cuts go to the already wealthy, some of whom may pay little or nothing in income and payroll taxes (if they are living off of their investments alone). Its all about freedom to do with our money what we want right?

      For the left, it is hard to accept low or zero taxes on rich people while working people pay on their hard earned incomes (including payroll tax). And in a time of record deficits and very record national debt, cutting ANY taxes is a suspect proposition. Though McCain appears to have drunk the tax cut cool aid at long last. 2 unfunded wars to continue indefinitely, a 3rd on the way, and he proposes cutting more taxes. You guys should be proud.

      Is there a middle ground on taxes? Yes…if both sides put ideology aside, are willing to talk in pragmatic terms, and are willing to include both economic growth and fairness in the discussion.

      And back to public spending. What about our transportation infrastructure? What about education? What about health? Are we going to have economic growth while these deteriorate? I don’t think so.

      • Rupert in Springfield

        >Capital gains taxes are in part an economic issue, and in part a justice issue, which is why the 2 parties tend to talk past each other.

        You might be on to something here. Basically I view all taxes, not just capitol gains, as a justice/moral issue. I have a big problem with trying to use the tax code for anything other than revenue. Using the tax code for social architecture is essentially shoving someone else’s morals down my throat. Its especially egregious in the capitol gains instance because of the lowering of revenues to pay for this absurd enforcement of someone’s weird morality that achievement should be punished and sloth rewarded.

        Suggested tangents you can use to avoid addressing the point – Falwell, Pat Robertson, Iraq, Halliburton, gay marriage. yadda yadda.

        >What about our transportation infrastructure?

        No funding problem there. There is a federal gasoline tax to pay for roads and upkeep. A lot of states have them as well.

        Oh, wait, you mean all that money goes into the general till and got spent on really expensive choo choo’s and the like?

        $200 million dollars a mile, and these are the clowns that are going to make health care less expensive, if only we let them run it.

        Next!

        >What about education?

        Well, we spend about ten grand per student in this state. Id say that’s more than enough. 30 kids in a class times $10k, $300k per classroom, pay the teacher $100k a year with so many benefits that they wind up costing you $200k for what is essentially a part time job, hey $100k left over for maintenance and upkeep of one classroom. Sure seems like we are spending more than enough there.

        Total k-12 taxpayer spending in the US $536 billion.

        Total taxpayer spending for higher ed in the US $373 billion

        That’s almost a trillion dollars annually

        You know how much a trillion is? Its just about infinity. Really, its that close. You put a gun to the average persons head and ask them how many zeros in a trillion and they couldn’t do it.

        A trillion dollars. That’s way more than the defense budget. You know, defense is the only program that I can ever get a liberal to admit is fully funded? Funny huh?

        Next!

        >What about health?

        What about it? Get a job, buy some insurance. Oh gee, you cant do that? Wow, well, sorry, I don’t see why my health should suffer because now I have to buy crappier insurance because I now have to pay for mine and part of yours.

        • Rupert in Springfield

          Oh, and in case anyone wants to do the math on all of this – total student population, around 45 million in any given year, remember, this can include part time students. Total spending, around $1 trillion. Divide it out, whaddaya get?

          About $22 grand per kid. For K all the way through higher ed.

          And this is taxpayer spending, not private spending, so dont start telling me how much Harvard costs.

          $22 grand?

          Per Year?

          Come on, thats fully funded.

          • dean

            I’m personally relieved that everything is adequately funded and we have no problems left to solve. And those potholes I dodged getting home tonight? A figment of my imagination. Those high school dropouts? A bad pice of meat I must have eaten. 50 million without health insurance, and another tens fo million under-insured? Their tough luck.

            Cut taxes. Its all so easy. Why didn’t I see this years ago? Thanks Rupert.

          • Rupert in Springfield

            Oh I never said there weren’t any problems to solve. Yet again you need to re read.

            I simply said that with some things, such as education, we can now clearly and definitely say
            it is not a funding problem. I would probably go that far with roads as well. Any transportation system that can afford $200 Mill-i-on dollars a mile on a train that probably doesn’t even have nude dancers on it clearly has enough money to fix potholes.

            Sorry if that’s tough to face, but its the truth. Deep down everybody knows it. The difference is Liberals think they can keep fooling people. I think the tides are turning. When you cant raise a cigarette tax in Oregon using the usually successful tear jerking “do it for the poor little orphan kids health”, that speaks volumes.

            Not everyone knows about the $1 trillion dollar figure for education, but you can bet most people in Oregon know about the $200 Million dollar a mile choo choo. You think that doesn’t piss people off when you then come whining to them for more taxes for potholes?

            That’s it Dean, when my world takeover is complete and the Dynasty of Rupert begins, I’m scratching you off my list for propaganda minister. Its the weedy old organic department of Agriculture for you.

          • dean

            Rupert…thanks for thinking of me as secretary of weeds maybe? I should have never told you that one. But truly, if you do end up with your world dynasty, I’ll head for the hills and form an underground terrorist group the next day, so watch out for the PLRA. The People’s Liberation from Rupert Army.

            Are we spending enough on education? Your figures are impressive but are meaningless if we are results based. Oregon has zero capital funding for schools. As in nothing. Any new school or substantially remodeled one has to come from extra taxes passed locally. Class sizes are not good. Based on dropout rates a lot of kids are falling through the wide cracks. Tuition at Oregon’s state universities is unaffordable for most families, yet faculty salaries are in the bottom 10 percentile nationally. Will more money help? Better/smarter leadership? Lower health care benefits for teachers? I have no answer, but less money or the same amount does not bode well unles we like what we are getting.

            On transportation…the thing is, you aparently live in Springfield. Up here in the Portland area we made collective decisions, starting with the abandonment of the Mt Hood Freeway project in the days of yore (1970s,) to build an integrated light rail system, or “choo choos” as you call them. They are capital intensive, but operationally cheap. Portland area people and our elected leaders are trying to re-shape the area to make it easier to walk around, bike around, or get places by transit, making cars less dominant or necessary, so a fair amount of the limited money availalbe is going to the things you and a minority of others don’t approve of. Yet cars also remain, and potholes beckon either our expensive tires or a hot patch now and then. And the longer we defer maintenance, the costlier the repairs get. The state gas tax has not been raised since 1993, yet inflation happens every year and cars are beginning (at long last) to become more fuel efficient, so transportation revenues are declining in real terms even as more cars and more people hit the road and rails.

            The proposed new bridge over the Columbia is a $4 billion project. That alone represents 8 years of everything spent on transportation in the Portland region from all sources (about $500 million per year). I suppose we could build that bridge and put everything else aside for 8 years, but it will be bottleneck city. And transportation projects take years to plan, gain approvals, buy rights of way, and then build. Do we stop all projects mid course to redirect money to the I-5 bridge? What would that cost us?

            On the tax question…I don’t think the tide is turning. I think Oregonians have always been parsimonious with tax dollars, and we remain so (the tide is permanently out). The cigarette tax was problematic even for hopeless liberals like myself because it picked on a small number of mostly low to moderate income folks to fund health care for everybody’s poor kids. I voted for it as the lesser of 2 evils, but was not too sorry it failed, except for the kids left uncared for.

            So the maddening dichotomy remains. Oregon is a very progressive/liberal state on some issues, but is not (outside of Portland) prone to raise taxes for much of anything. But life goes on somehow.

  • Sybella

    it might be a little too late to encourage investment growth in Oregon. Anybody with half ounce of sense who has a business is looking to get out. Just as soon as they can get out of the aligator pit our politicians put us in

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