Representative Dennis Richardson: Measure 66 and 67 explained

Measures 66 & 67: Economy and Jobs
By State Representative Dennis Richardson,

The State of Oregon is in a financial crisis. Like most states, Oregon’s revenues are down and its costs are up. Although individuals, families and businesses have cut back to deal with these hard times, in the current 2009-11 Budget, Oregon State has expanded programs, added 1540 additional employees, increased spending by $4.7 Billion (9.3%), and increased long-term debt by $4 Billion. All of this spending in 2009 was on top of a 21% General Fund spending increase in 2007. In short, Government spending compounds and Oregon’s spending is unsustainable.

Oregon’s problem is not the need for more revenue, but the need for more discipline in spending. The total State Budget for 2005-07 was $40.8 Billion, and for 2009-11 it is $56 Billion””a jaw-dropping $15 Billion, 37% spending increase in only four years. (Click here.)
The consequence of the State’s insatiable appetite for additional revenue through tax increases will be a slower economic recovery and the loss of thousands of jobs for Oregon workers. In sum, Measures 66 and 67 send the following message to high-earning Oregonians and their businesses: If you live in Oregon, move away, and if you are considering business investment, take your money and jobs elsewhere. If you think this is mere hyperbole, read what the economists have learned from other states that raised such taxes. (Click here.)

It might be helpful to review what occurred in the crafting of our current 2009-11 State Budget. Even though Oregon’s economy was in recession and State revenues were down, the All Funds Budget rose by $4.7 Billion–a 9.3% increase in spending.” (Click here.) To compensate for inadequate revenues, the solution of the House and Senate Democrat Majority and the Governor was to create new revenue streams. These new revenue sources included increasing our gas tax, vehicle registration fees and multiple other tax and fee increases. (Click here to see the entire list of new taxes and fees passed by the 2009 Legislature.) In addition, the Democrats increased the state’s debt load by borrowing an additional $4 Billion of long-term debt. (Click here.)

The increased gas tax, the substantial increase in vehicle registration and title fees, the new sales tax on health insurance policies and hospital bills, as well as the other new taxes and fees are now in force, and we have no choice but to pay them. These new taxes and fees will generate an additional $916 Million of revenue this biennium to the State (without even mentioning the $4 Billion in new State debt).

Unfortunately, $916 Million in new revenue was not enough. The Democrat leaders and Governor wanted $1.650 Billion to pay for expanding programs and government expenses.

To get the additional $733 million to cover the additional spending, the Democrats passed additional tax and fee increases on high-earning Oregon individuals and businesses. Many believed these additional taxes went too far, and 120,000 Oregon voters signed petitions to give Oregon’s voters the final vote on these tax increases.

This brings us to the January 26th vote on Measures 66 and 67.

The voter’s pamphlet, the news media, and our mail boxes are full of information and misinformation–Pro and Con–seeking to influence our votes.

The proponents of these Measures would have us think life as we know it will end without these two tax increases. We heard such fear-mongering in the campaigns for tax increase Measure 28 and Measure 30 (both of which the voters defeated). We are hearing it again. Proponents of Measures 66 and 67 are wringing their hands and pleading that K-12 education will be decimated, senior citizens will lose their access to basic care, criminals will be set free, etc., etc. We have heard this propaganda before.

Such scare tactics cloud the fact, there will be no automatic cuts in programs if the tax increases in Measures 66 and 67 fail.

The Legislature is already scheduled to meet in February. If these two tax measures fail, I believe there will be a vote to raise the corporate minimum tax from $10 to $150, without imposing a permanent tax based on business sales””a tax that would have to be paid, even when the business is losing money””like the tax increase contained in Measure 67.

Next, the Legislature will look at existing pools of money sitting in various accounts, and decide how much would be prudent to use. Finally, the Legislative leaders and Governor will calculate what amount, if any, will need to be cut from the State Budget.

Any actual cuts will be made where Legislative leadership and the Governor choose to make them. Such cuts should start in places that will have the least affect on our children and actual programs benefiting our citizens.

Nevertheless, it may be tempting for Oregon voters to pass these Measures. After all, don’t they just affect rich people and big corporations?

Since Oregon’s unemployment rate continues to hover around 11%, let’s consider the consequences of these Measures on Oregon’s families and their economic survival. In other words, how will Measures 66 and 67 affect the Oregon economy and our desperate need for more jobs?

As stated above, knowledgeable economists have demonstrated that Oregon will lose thousands of jobs, over time, if the voters pass these permanent tax increases on Oregon’s high-income-earners (business owners), and Oregon’s successful corporations (job creating employers). The analysts have reviewed other states that have increased such taxation, to learn from their experiences. They found that when income taxes are increased, wealthy people leave high taxation jurisdictions and move to lower taxation jurisdictions. Recently, a Medford C.P.A. told me that Reno, Nevada is actually recruiting Oregon residents and businesses to “come to Nevada, where there is no income or inheritance taxes.”

This is common sense. If you were an employer and were looking for the best state to move or build your business in, would you go to a state with the highest income taxes in the nation?

If Measure 66 passes, Oregon will have a top personal income tax bracket of 11%, and will tie with Hawaii’s new tax rate and share the distinction of having the highest tax rate in the nation. Washington and Nevada collect zero personal income taxes and Oregon will be at 11%. (Let’s see, which sounds more attractive”¦the lowest tax in the nation or the highest?) I know that Oregon could point to the fact that we have zero sales tax, but that does not change the national income tax rankings, and the adverse publicity high-taxing states receive. (Click here.)

Like most of you, the Measure 66 tax increases will not affect my wife, Cathy, and me. Nevertheless, our votes should not be based on class envy. With the Measure 66 rate fixed at $125,000, and with income creep and inflation, those who do not earn $125,000 now may well be subject to the higher tax rate in the future. When I was a boy, my father, a contractor, earned a good wage, $7,000 per year. Today, that same job would pay more than $70,000 per year. Those of us who have been around for awhile have felt the affects of “bracket creep” during our careers.

High Income Earning taxpayers already pay most of Oregon’s taxes (Click here.) They should be rewarded for their success and thanked for the jobs they create for Oregon workers. Instead, we punish them. If the proponents of Measure 66 want to increase Oregon’s revenues, they are free to increase the taxes they pay on their own State Income Tax returns. To me, it makes little sense to drive those who create Oregon jobs and pay most of Oregon’s taxes across the Columbia River to Washington State or other low-tax states.

Regarding Measure 67, I have already pointed out that an increase in the minimum filing fee is not the issue. The problem is that Measure 67 will tax Oregon corporations on their sales and not profits. Here in southern Oregon is located Town and Country Chevrolet. Yesterday, I talked to its owner. Alan Deboer. He confirmed that their profit margin on new car sales is so low that the dealership lost $250,000 in 2009, even though it did $14 million dollars in business. For Town and Country, $15 million is the break-even point. If Measure 67 passes, Town and Country Chevrolet will have to add $15,000 in additional taxes to a balance sheet already dripping in red ink. Such will be the case with all high-volume, low-margin Oregon corporate businesses.

The Measure 67 tax increase is 1/10 of 1% of sales, and when the profit margins are only 1-3%, it can represent a 10% tax increase on profits. It is unwise to burden Oregon’s highest income earning taxpayers and high volume businesses with additional, permanent tax increases such as those contained in Measures 66 and 67. We cannot tax our way out of this recession. It is time for a change in spending habits in Salem. Oregon’s economic problems will not be solved by raising taxes on those who own Oregon’s businesses and hire Oregon’s work force. Although Measure 66 and Measure 67 were passed by the Legislature, by Referendum their future will be determined by the voters. Will these Measures pass or fail? It is up to you, me and the other Oregon voters to decide.

Sincerely,

Dennis Richardson
State Representative

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Posted by at 06:00 | Posted in Measure 37 | 111 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rob DeHarpport

    Thank you Rep. Richardson. You newsletter always offers the factual information that Oregonians deserve to hear, and you explain it in an understandable fashion. Too bad we don’t have more like you in office.

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  • Mike M

    Thank you! Though the measures don’t directly affect my family, your writing does a pretty good job of laying out the issues and how they will affect everyone.

    Whether the measures pass or fail, I hope that the current dialog – for and against – actually helps the legislators address the future crisis the state is facing. Simply going to the well each time there is a shortfall reinforces the fact that Oregon is unfriendly to large, successful businesses. Tax revenues will only increase by creating higher paying jobs and attracting the knowledge industries that hire the skilled people that make these companies successful. 66 and 67 do nothing for business development or job creation, except within the public sector.

    Yes, the impact on high-income earners is small; perhaps even noise. But consider what happened with the AMT which targeted only 100 high-income families when enacted in the 60’s. Today, AMT affects millions of families earning as little as $75,000 per year. Fortunately (unfortunately?) high income families have the means to defer or shift their compensation to avoid these new taxes in the future.

    The same goes for large businesses with the bulk of its revenue from out-of-state. This will unfairly shift the tax burden to local businesses. Taxing gross revenues is simply wrong as there is no provision for determining the ability to pay.

    The entire campaign in support of the measures is built on the premise of class warfare – “the other guy will pay; not me”. Appealing to greed and envy is simply wrong.

    Oregon simply needs to live within its means, and restructure its revenue sources to track the economy’s ups and downs.

    • Rupert in Springfield

      Couldn’t agree more. When you build an issue based on class warfare, don’t expect to get away scot free when the dust settles. If these taxes pass no one should wonder when the business mood sours and companies don’t feel like adding more jobs any time soon. Always a bad idea to demonize one day, then ask for help the next.

  • Byron in Salem

    Oh, but it DOES affect your family, Mike, if you life in Oregon and work for a private employer. You make wage X right now. Your company now pays more taxes (if these pass). Now that raise becomes an issue for the employer to consider since now the amount of funds available for raises is less. So, if your superiors were considering a $50/week raise for you, they now consider only a $30/week raise. You never know the difference because you’re happy with the $30, but you never knew that you WOULD have gotten $50…

    Yep, it does affect you…you just didn’t know it.

  • Mike M

    Byron,

    As I wrote, it does not affect me directly. I guess my comment doesn’t indicate my leaning – I am soundly no on both. I certainly know the indirect affect of both measures.

    Raise? What’s that? My pay has been frozen for several years. Not complaining, simply facing reality given the economic situation. I did get a bonus when the company did well; nothing when it didn’t.

    • v person

      “I did get a bonus when the company did well; nothing when it didn’t. ”

      Therein lies an important distinction between private and public sector employees. Private sector employees can get bonuses and raises when the companies they work for do well. Government employees for the most part get no bonuses, and raises are tied to individual performance and longevity, not the state of tax revenues. As I’ve argued elsewhere, if you want public employees, working under signed contracts, to take lower pay in bad times, then offer them contracts that include bonuses and raises in good times to balance things out.

      I’ve yet to hear a conservative make or embrace this suggestion. Why? Because when times are good they want tax cuts. And those tax cuts would be used to fund public employee bonuses and raises.

  • Kathy

    Mr. Richardson, BRAVO!, now this article needs to be published in all the newspapers in Oregon. My husband & I are one of those family owned corporations which is a trucking company. Our profit margins are so low now that we will be in the same boat as Town & Country Chevrolet. Our account said our tax from measure 67 if passed, would be a minimum of $7400. based on our 2008 gross revenue. Our 2009 books are not going to look good due to the economy, fluctualtion of fuel prices, increasing road taxes and what is going to happen when we get hit with the 30% increase in the weight mile tax 10/1/10? More trucking companies will be cheating on miles or going around this state.
    I sincerely hope the public gets their heads out of the sand and look at the crooks in Salem. Our governor has done nothing for the welfare of this state. We will be like Calif. in a very short time.

    • current UO student

      Kathy, I’m confused. How will the passage of M67 result in a minimum of $7,400 tax bill? Or did you mean to say M66?

    • come again?

      “More trucking companies will be cheating on miles or going around this state.”

      Good luck with that. Pacific Ocean on one side, 400 miles of not much on the other. I think your trucking company needs to invest in a road map.

    • eagle eye

      In reality, won’t you be able to pass on most of the increased mile and gross receipts taxes to your customers?

      If your M67 tax will be $7400, doesn’t that mean your gross volume is $7.4 million? Is there no way you can raise your rates by to make up for this 0.1 percent? After all, your competition will be paying this tax too.

      I’m sympathetic to the argument that these taxes will be bad for business, overall. But my guess is that most of the taxes will ultimately be paid by consumers, not by business owners. (And that’s one of the main arguments business uses to try to persuade people that the taxes are not in their interest.)

      • current UO student

        Perhaps you, eagle eye, can explain to me how Kathy’s tax burden would be increased by $7,400 under M67? She describes her company as a family-owned corporation, which sounds like an S-corp to me. S-corps are exempt from the .01 percent tax on gross revenue, therefore the only effect of M67 on her tax bill would be the $140 increase.

        • eagle eye

          Since she owns the business, and I don’t, I’ll let her explain it, if she likes.

          I assumed it’s either 0.1 percent of gross revenues (not your .01 percent, you may want some more math there at UO, factors of 10 are important!) or (more unlikely given what she said) increased income taxes on profits. But I have no way of knowing.

          Believe me, there are family businesses with that kind of annual revenue i.e. $7.4 million.

          • Anonymous

            Well, first of all, no need to be a dick. Thus far I’ve been able to maintain a 4.1 GPA, that doesn’t however protect me against the occasional typo. But, fair enough. Good thing this is just a silly blog and not a tax return. That said, I never doubted her revenues (or her low margins), I am simply questioning her (and your) understanding of M67. M67 does not tax an S-corporation’s profits. M66 would at marginal rates, but if she and her husband are good/smart tax planners they will keep their salaries and the business income separate on their return (as opposed to drawing the entirety of the business income as salary) and will in fact realize significant tax savings (because only their salaries will be subject to FICA). One of the benefits of organizing as an S-corp.

            I doubt Kathy will be back.

          • eagle eye

            Well, am I being fair, or a dick? (I hope they don’t overlook things like that in your accounting classes or whatever you are taking, and I hope you don’t call the profs “dick” when they do!) I had already explained my understanding of the $7,400, to the extent I can understand something of which I know no details. My guess is what she meant, if this business really exists, is that the gross receipts are high but the profits are low or nil. That’s why the factor of 10 is important, it’s the difference between $7.4 million in gross receipts for a family business (plausible) and $74 million (seems unlikely).

            Maybe you will be a good tax accountant some day, and can help all these corporations avoid these new taxes. But then, the whole exercise will be pointless for everyone, if the taxes can be avoided?

            If Kathy wants to come back with some info, fine.

          • current UO student

            Eagle eye, I comment here very infrequently, but I do read here very regularly. From where I sit your voice seems to be one of the more reasonable of the regular contributors, but, yes, I think you were being a dick (“you may want some more math there at UO”). Though why you would want to alienate me I have no idea. And, yes, I would call a professor a dick (or confront him one way or the other) if he spoke to me so condescendingly. I am an adult. Your point though was fair, I made a typo. A typo that would have been very costly if blog comments were of any consequence. You called me on it, good for you. My point, however, is simply that not only are an S-corporation’s revenues not taxed, neither are their profits. M67 will cost this particular business $140 and not a penny more.

            “Maybe you will be a good tax accountant some day, and can help all these corporations avoid these new taxes. But then, the whole exercise will be pointless for everyone, if the taxes can be avoided?”

            I completed a Minor in Business and have no plans on becoming an accountant, but if you think that corporations of all sizes don’t use every trick in the book to avoid paying taxes (be they state or federal) than you are more naive than I would have ever imagined. I do not think you are that naive. I wouldn’t characterize any of this as an exercise, more like as a game.

          • eagle eye

            Well then, I guess in your eyes, I’m a dick, but a fair one. I jumped on you because you cast aspersions on her claim, but then made your own bonehead math error (or typo, I’ll take your word for it). If you’re going to claim that people don’t know what they’re talking about, or worse, better to get the factors of 10 right!

          • current UO student

            Eagle eye, please, I am not your enemy. I said you were being a dick, not that you are one. There is a subtle difference, but I apologize if it came off as overly aggressive. Nonetheless, a polite correction would have sufficed.

            My intention was never to be derogatory towards Kathy. I was genuinely confused and desiring of an explanation with regard to how M67 could effect her corporation so significantly. She described her business as a family-owned corporation, which far more often than not would mean it was organized as an S-corporation. She has since clarified that it is a C-corporation (i.e. there are more than 100 owners/shareholders). I am no longer confused. Peace.

          • eagle eye

            OK, I thought you were trying to give her a hard time for no good reason, I see that was not correct.

            Perhaps she will clarify further. I really don’t know the details of these things, I have to take people at face value when they describe the impact on them. I know that is not always safe to do.

            Peace!

          • current UO student

            I should add that it is my assumption (again) that Kathy’s company has at least 100 shareholders as I don’t understand why she would file under Subchapter C otherwise.

          • retired UO science prof

            A little nasty about the math course, unless you really know he needs it. But details count!

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          • current UO student

            The above comment was from me.

  • Kathy

    I need to state we are a C-corporation and yes if these measures pass, companies will have to pass on increases to the public comsumer. We haul a lot of groceries so, yes, your food and comsumer items will probably go up some more. It’s just with the economy the way it is and people out of work and still losing jobs, who is is going to be able to keep paying for these increases?
    For those that don’t know, the trucking industry in the US is the most regulated industry. We pay and have more taxes than any other industry in this nation. Do you pay .135 a mile to travel in this state, pay up to $3.00 a gallon for diesel and only get 6 to 7 miles a gallon? Be told by Calif. that you need to outfit your 53′ ft. trailers with fender skirt retrofits that will cost approx. $1600.00 each trailer, have to have “smart way tires” on equipment by 2013, pay some states a UCR tax for each piece of equipment, pay federal highway use tax of $550.00 a unit, pay to have a SCAC code to haul freight, have to pay for agents in each state you travel to represent you in case of an incident and I could go on with more. Yes, our revenue was close to 7 mil., but lets take into account that our fuel was about 35% of revenue, wages 36%, matching Social Security, health benefits, Oregon PUC’s 3.5%, insurance 3% and that is not even close to all the overhead operating expenses plus all the equipment costs, maintenance, etc. Talk to other trucking companies and see if they don’t all have the same problems that we do about being over regulated.

    • current UO student

      Kathy, thank you for the response and the clarification. I am supporting these measures, but the least I can do is apologize to you. You have my sincere sympathy. I feel we (voters) have been put in a very bad situation with these measures (though I’d rather be able to vote on them than not) in that they are poorly written and poorly represented. I find the 0.1 percent tax on gross revenue to be totally unreasonable and hope that if these measures are passed that that particular element is amended somehow. If only it were activated by an arbitrary profit margin. 2%? 3%?

    • eagle eye

      So it sounds like it will be a pain, but you’ll actually pass on the taxes to consumers. So if they want to vote it in, what’s the big deal to you?

      • Print12

        This is a big deal to everyone! It’s not as easy as you think to just “pass on the taxes to consumers”, nor should we have too! The people who live in Oregon need to make our government accountable for its spending which is completely out of line. The government agencies continue to spend every penny that is in their budget. One department even purchased a $1800.00 camera because of the “use it or lose it” policy. I would love to have an $1800 camera, however, it’s not in my budget. Do you have an extra $1800 to spend on a camera?? This particular state agency is not in the photography business either. Why not reward agencies for cutting back expenditures. A little money here and there can really add up.
        Passing on the buck to high income earners, large corporations and small businesses is not the right way to solve our immediate problem. What will happen in 2 years when the state is out of money again and is floundering to balance the budget? Fix the problem at hand. It’s wrong to penalize people for working hard to try to better their lives and live in a nice home and make a decent living. If your in any way jealous of the high income workers of our state, by all means, feel free to start up your own business so you to can have the living life sucked right out of you by all the various federal, city, county and state taxes. Oh- don’t forget the Trimet tax….. There’s a lot to be said for any business owner who manages to keep their doors open especially in these hard times!!!

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  • GolfMD

    Attract employers to Oregon….Stimulate Oregon’s economy….Increasing Oregon’s total tax revenue
    ………………………………………..VOTE NO ON 66 & 67………………………………………………………..

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