Time to Escape the Vacuum! By Rep. Scott Bruun

Lessons from the 2005 Session and a timely tax trade.

As a freshman in the 2005 legislative session, my learning curve was steep. Not a day went by that I didn’t learn something important about the process. These could be positive or negative aspects and usually were not things discussed in any political science book or class that I’ve ever seen.

One of those aspects, that I now appreciate in hindsight, was that so many of our actions were conducted in a vacuum. What I mean by this is that issues and bills were discussed, often voted on, without any wholistic or synergistic perspective. Again, in many cases, it as if the debate and process related to too many of the bills was void of any connection to the outside “real” world. This is not the same as saying we were “out of touch.” It is simply the recognition that successful politics is not a singularity, but instead a blending of many actions and ideas. Again, it is — or at least should be — wholistic.
Let me give you an example of what I’m talking about: To me, the most important thing we could do as a state to promote economic growth, job creation and wealth creation, would be to lower our state capital gains tax rate. Right now, at 9%, Oregon has the highest capital gains tax rate in the nation. In effect, we are disproportion ally punishing those risk takers and entrepreneurs that are vital to the future health of this state. As a result, we have fewer risk takers and job creating investors in Oregon.

We voted on capital gain tax reductions in the Republican-led Oregon House where of course it passed. However, not one of us Republicans had a doubt in our mind that the bill was DOA in the Democrat-led Oregon Senate and governor’s office. Yet we went through the motions anyway. We acted in a vacuum.

A better approach in my mind on this particular issue would have been this: We know that Democrats hate the idea of a stand alone capital gains tax cut, however some of them do admit that there would be economic gains. We also know that Democrats hate the corporate kicker and the corporate minimum income tax even more. Why then shouldn’t we trade the corporate kicker and the corporate minimum for a capital gains tax cut?

For me the answer is simple. I have spent my entire adult lifetime studying growth-oriented economics. I am a proud supply-sider! I want a capital gain tax cut because it will incentivize new investment and business expansion in Oregon. I also know that not a single investment decision, not a single decision by a business regarding growth and expansion will be made based on the corporate kicker or the corporate minimum. Sure, as a businessperson I’ll take a kicker tax refund, but I’m not going to plan for expansion and take risks because of it. Whereas, if I know that my return-on-investment will be enhanced because of the capital gains tax reduction, then I am motivated to expand and take risks. Simply put, the formula for a businessperson is this: I get something that I want and give up something I could care-less about. What an easy decision!

I’m hopeful that the idea of acting wholistically, rather than simplistically, will take root in the next legislative session. If we want Oregon to be exceptional rather than mediocre — especially from a business perspective – it’s imperative. I for one will be working in that direction.

Rep. Scott Bruun

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Posted by at 07:00 | Posted in Measure 37 | 11 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Wayne Brady

    This is an excellent article. The example you gave really drives home what needs to be done to make real progress.

    • Jerry

      Wayne, another issue that would help the state’s economy that you should explore is the misuse of urban renewal and it’s consequences to the states economy. It don’t have all the web sites to postulate this subject at this moment, and maybe others can begin filling in the background on this subject. The fallout from UR to so many of our major state issues-like education and transportation, could be improved with proper application of the real intent of urban renewal. Addressing UR could also be benefical because I don’t think it would become such a Dem vs Rep issue as capital gains reduction; not that I disagree with your points.

  • question

    First, bravo for your relativel degree of reflection. Second, could it have been that the only reason there was a vote in the House was that Republican leadership wanted to put Democrats on record as voting against a tac cut. Further, you claim to be a proud supply sider? What evidence can you provide that supply side tax policies spur economic growth? What evidence can you provide that a STATE capital gains tax cut spurs growth in that state? What did the tax modeling on your capital gains tax cut show? A tax model program at Legislative Revenue that is considered by most people as objective. If Oregon’s capital gains rate is such a disincentive to economic growth, why is Oregon among the top six states currently for job growth, and throughout the 1990s when we had the same “high” cap gains tax rate why was Oregon among the strongest state economies?

    Why don’t you just admit that you, like House Rep. leader Wayne Scott, believe in faith-based economics? Afterall, when pressed by a colleague across the aisle on how he could claim that your cap gains cut would actually lead to increased revenue despite every tax model performed by LRO showing a loss of revenue (roughly $500 million per biennium when fully phased in), all Rep. Scott could muster was, “I don’t have any real evidence that it will, but it is something I believe will happen.” Well, folks, believing that supply side economics will work no longer cuts it. In fact, we have more than enough evidence (compiled not by hacks but by Nobel Economists) that supply side economics generally lead to stagnant wages and are relatively disconnected from economic growth.

    Here’s an idea…if you want Oregon’s economy to continue growing, invest more in higher education, and work to lower the cost of health care for Oregonians.

  • mac

    This is off-topic, but I can’t find another place to post this recommendation: see commentary by Kimberly Strassel in the Wall Street Journal about Oregon’s “runaway judges.” This article deserves wide circulation in Oregon right now. Hope you can read it here:
    http://online.wsj.com/article/SB113461024336223009.html?mod=opinion&ojcontent=otep

  • scottr

    About ten years ago, The Cato Institute published a very informatibe Policy Analysis regarding cuts to the capital gains tax. It’s still available at http://www.cato.org/pubs/pas/pa-242.html.

    My favorite quotes?

    “The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.”

    Who said it? President John F. Kennedy.

    An even better quote is the one attributed to a New Jersey painting contractor:

    “You’re looking at a poor man who thinks the capital gains tax [cut] is the best thing that could happen to this country, because that’s when the work will come back. People say capital gains are for the rich, but I’ve never been hired by a poor man.”

    • careful

      careful with the use of the JFK quote. That was when the top capital gains tax rate was 90%. Most proponents of keeping the capital gains tax rate where it is would concede that 90% is too high.

  • David Wright

    This is an interesting study in *practical* politics, and it’s a big step towards the general spirit of compromise and bipartisanship that will help get the country (and state) back on track. Leaning too far to the left *or* right will just cause you go to in circles, after all! 😉

    Question, though — while the “get something we want in exchange for something we don’t care about” is a great deal from your point of view, do you really think that the same applies to the other side? For a deal to happen, don’t both sides need to feel like they’ll be better off after the deal than before?

    The Democrats want to get rid of the corporate kicker and minimum income tax (actually, I presume you mean to raise the minimum corporate income tax), that’s the part that *they* want. But I’m not convinced that the capital gains tax cut is something they couldn’t care less about. So it doesn’t seem to me like quite such an easy thing to agree on from their point of view. As a matter of fact, for exactly the reason you think it’s such a great deal for you, they may not feel it’s a “fair trade”.

    But as I said, it’s a step in the right direction — everybody’s gotta give a little to get a little back. At least get the ball rolling on a discussion about the kinds of compromises that can work for everybody.

    Speaking of cap gains taxes, I’m generally sympathetic to the idea of lowering taxes in general — but I do wonder, economic impact aside (as there is plenty of debate on exactly what the economic impact of changing cap gains taxes in any direction would be) — what is the *philosophical* rationale behind taxing different forms of income differently?

    For example, if I receive $100K in salary income for the labor that I perform, why should that be taxed any differently from $100K in income I receive from the capital that I put to work for me?

    Seems to me that from a certain point of view, income is income and there’s no particular reason to intentionally tax money made from labor any differently than money made from capital. But I’d like to hear the justification for it, if anybody can explain it to me.

    Thanks…

  • scottr

    To careful:

    I believe you meant that the top *personal income* tax was in the 90% range.

    In ’63, the top *capital gains* tax rate was 25%. Kennedy’s plan would have reduced it to 19.5 %.

    http://www.presidency.ucsb.edu/ws/index.php?pid=9387&st=capital+gains&st1=

    Here’s a good overview:

    http://www.nationalreview.com/nrof_bartlett/bartlett200401280907.asp

  • you hit the nail on the head… the biggest problem is that our representatives are not in touch with “the real world”.
    Just like the cascading effects when Greenspan raises the interest rates by a quarter-point, it adds to the overhead of both businesses and government forcing government to raise taxes to compensate, businesses close to compensate their losses, people lose their jobs and then their home.

    raising taxes is never an answer to increase government revenue… lowering taxes, lowers the overhead for businesses and thus allows more money in the pockets of people, which puts more money into the system which creates more sales, more taxes, more jobs, and encourages growth.

    but what the public sees… especially from Oregon is just the opposite. For example, when we more number one in unemployment, instead of our government wanting to help the people get jobs, these self-centered people in Salem seeing a decline in taxes, were working on raising more taxes.

    Again, these people in Salem need to go outside once in while and look around and see what things are really like.

  • In Oregon a tax cut isn’t goint to happen. I just don’t see it.

    Instead as conservatives we need to concentrate on transparancy. We can win this battle and use it to forward the tax reforms we’re looking for.

    So I gotta ask Rep. Bruun – do you file your own Oregon taxes? Kinda a pain in the ass isn’t it (alot tougher to deal with than the Federal forms).

    With taxation Oregon needs to start with our own EZ form. We should seek a simple and easy to understand method of filing for taxes. I don’t understand why the state can’t provide a TurboTax digital form to fill out when filing. It can’t be that hard to create a financial questionaire by tax bracket. You sure as heck shouldn’t have to pay to make the process understandable.

    Reagan understood this. He started by simplifying the tax system. The average American’s only interaction with a government bureuacracy on a personal direct level is usually the filing of their taxes. We need to ensure that its simple enough that every American can do it without paying someone else to do it. To me it should be fundamental that a tax system be simple enough for everyone to be able to file their personal income taxes.

    If our focus was ensuring that everybody who wanted to could understand the personal income tax code it would go along way to raising awareness about exactly how much government takes and how it spends it.

  • One other thing. Tax rebates and last minute tax kickers (not the Oregon system which creates a posative incentive of watching state revenue) are a friggin scam. They bait the voting public in wanting a more complex system that siphons more of their money.

    Anything that requires an accountant to take advantage of causes the tax code to be a larger drag on our economy than necessary. When Bill Clinton was pushing for “tax vouchers” he was trying to buy people into being more interested in a tax return than their actual tax bill.

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