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-Ã -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.