Sticking it to the Rich

When it comes to tax policy, the liberal wing of the Democrat party (that includes virtually all of those holding public office north of Eugene and west of Bend) has one of the most myopic points of view witnessed anywhere. Their point of view is consistent with their campaign rhetoric of class warfare. It is designed to portray a society of have’s and have not’s and to pit one against the other. It assumes that the redistribution of wealth will heal all societal ills.

But that tax policy belies the realities of the global economic world. Okay, it’s cute, and it makes them feel good, to demand that tax increases fall solely on the wealthy but that tax refunds, rebates or reductions be distributed on a pro rata basis rather than a contributions basis. You’ve already seen these liberal Democrats argue that the person that pays $10,000 in taxes should get exactly the same amount in reductions or rebates as the person paying $100 in taxes. And while intelligent people shake their collective heads in wonder, the beneficiaries of this type of policies snicker to themselves and rush to the front of the line – and probably vote for the Democrats in the next election in hopes of another windfall.

But there are two areas where these tax policies are creating economic aberrations that are injurious to Oregon in both the short and long run – the capital gains tax and the inheritance tax. Let’s deal briefly with each.

Capital gain represents capital growth and capital accumulation. That occurs primarily as a result of business growth. Business growth is the only factor representing job growth. (Okay, yes, government does provide a steady growth in jobs but that comes at the expense of growth in taxes which, in turn, is a drain on business growth, capital growth and private sector job growth. There is really no economic growth realized through the growth in government.) To the extent that business can attract capital, grow capital, and retain capital, it can expand and create additional jobs. Conversely, to the extent that taxes erode the ability to attract, grow and retain capital, business growth and job growth are adversely impacted.

In today’s global economy, business has a choice as to where to deploy capital (create jobs). While taxes are not the sole determinant of where to deploy capital, they are a significant determinant. All things being equal, capital will move to the place that has the lowest tax burden. Thus, a comparatively high tax burden, in this case capital gains taxes, discourages the deployment of capital in Oregon. And again, the lack of capital adversely impacts job growth. So, while liberal Democrats profess to represent the working men and women of Oregon, their insistence on maintaining one of the highest capital gains taxes in the country deprives the very constituency they profess to represent the opportunity to obtain quality jobs with quality wages. Despite relatively low unemployment nationally, Oregon retains one of the highest percentages of unemployment in the nation – these types of tax policies are a major contributing factor. (Of course, the only groups not effected by such policies are the public employee unions who benefit from high taxes and who currently dominate Oregon Democrat policies.)

The second area is inheritance taxes. Again the liberal Democrats like to portray this as a tax on the rich and thus continue to promote the concept of class envy. They have steadfastly refused to consider either reducing the inheritance tax or raising the exemption. God forbid that would be a (gasp) “tax break for the rich.” Therein lies the stupidity of that concept. The rich are ultimately mobile. Every tax advisor worth his/her salt tells the “rich” that the first element of estate tax planning in Oregon is “leave.” The situs for the taxation of intangible property (stocks) is the residency of the owner of the stock. When the owner of the stock moves to another state the ability to tax that intangible property moves with him/her. The “rich” in Oregon avoid the state’s high inheritance tax by simply leaving. And in leaving, they take not only their future inheritance taxes but also the current income taxes and their charitable contributions to Oregon communities’ activities. If you doubt the veracity of this statement simply look at the Portland business leaders, including a succession of heads of the Portland Business Alliance who move from Portland immediately after retirement.

So if the “rich” avoid Oregon’s high inheritance taxes, who gets stuck paying them? Well, generally, it is the farmers, ranchers and small business men and women seeking to pass on their land and operations to the next generation in their families. The high tax burden often forces these stalwarts of Oregon’s economy to mortgage their futures or defer capital replacements or improvements to pay the tax burden. Oregon depends primarily on small business for economic growth and such tax burdens adversely effect their ability to grow. While the liberal Democrats purport to represent the interests of small business, the fact of the matter is that their resistance to reduction of the inheritance tax disproportionately burdens these small business owners while the “rich” avoid the burdens through mobility.

In the end, if you want to determine tax policy based on what makes you “feel” good – sticking it to the rich – instead of what “is” good – encouragement of economic (job) growth, you will make the same kind of mistakes that Oregon’s liberal Democrats have imposed on the state for years. In all probability, however, most Oregonians (other than the public employees unions) would rather have a good job than “stick to the rich.”