Oregon’s Economic Outlook Slips Again in 2012

Hit hard by the national recession, Oregon lawmakers started the regular 2011 legislative session―and then the new shorter annual 2012 session―with calls to create jobs. By the time those sessions ended, little had been done to encourage job growth in the state. And virtually nothing was done to address the major factors that determine the state’s Economic Outlook, as identified by the national organization of fiscally conservative state legislators, American Legislative Exchange Council (ALEC).

Every year since 2008 ALEC has compiled and reported on the 15 policy variables influenced by state legislatures that appear to signal the economic outlook of the states. These variables are:

• Top Marginal Personal Income Tax Rate
• Top Marginal Corporate Income Tax Rate
• Personal Income Tax Progressivity
• Property Tax Burden
• Sales Tax Burden
• Remaining Tax Burden
• Estate/Inheritance Tax Levied?
• Recently Legislated Tax Changes
• Debt Service as a Share of Tax Revenue
• Public Employees Per 10,000 of Population
• State Liability System Survey
• State Minimum Wage
• Average Workers’ Compensation Costs
• Right-to-Work State?
• Number of Tax Expenditure Limits

ALEC published its 2012 report, Rich States, Poor States: ALEC-Laffer State Economic Competitive Index, in early April.

How does Oregon rank? Oregon now ranks number 26 out of 50 states in its actual economic performance over the last ten years. Looking forward, however, Oregon has slipped from number 35 in 2008 to number 45 in 2012, dropping from number 43 in 2011. Our economic outlook is now worse than 44 other states, again, based on policy variables that the state legislature could change.

In May 2011, Rich States, Poor States authors Arthur Laffer and Stephen Moore published an article in The Wall Street Journal in which they identified the two policies that “have consistently stood out as the most important in predicting where jobs will be created and incomes will rise. First, states with no income tax generally outperform high income tax states. Second, states that have right-to-work laws grow faster than states with forced unionism.”

How does Oregon rate on those two most important variables? The authors spent almost a full page of last year’s report discussing how damaging Oregon’s 2010 retroactive income tax increases on wealthy individuals and corporations are to the state’s economic outlook. They mentioned Cascade’s analysis of those two measures, 66 and 67, which were approved by voters in January 2010. They noted that “Oregon is tied with Hawaii now with the highest state income tax rate in the nation,” a fact likely to deter entrepreneurs and other high-income individuals from coming to Oregon and to cause some who are here already to leave. Initial results confirm what we feared: These tax measures generated far less revenue than voters were led to believe, and the state had some 8,000 fewer high-income tax-filers in the first year of these measures than the state predicted.

Oregon also ranks poorly on the right-to-work variable. Over time, economic growth in states with strong union protections has significantly lagged growth in states with more worker freedom. Twenty-three states have right-to-work laws which prohibit agreements between labor unions and employers that make membership or payment of union dues or fees a condition of employment, either before or after hiring. Twenty-seven states, including Oregon, require that all employees of unionized employers must become union members or pay dues to the union within a specified period of time or lose their jobs. Cascade is promoting the economic benefits of Oregon becoming a right-to-work state.

So, Oregon fails both important economic outlook tests: We have one of the highest income tax rates in the nation, and we require workers in unionized companies and government entities to join those unions and/or pay union dues. We also fare badly on other variables, including the fact that we continue to tax estates, and we have the second highest minimum wage in the country.

Again, the 15 policy variables taken into account to determine our economic outlook are all within state lawmakers’ control. Of course, there are national and international policies and conditions that are outside our control. But that is the case for every state. Oregon lawmakers must take responsibility for the factors they can control. Unfortunately, they haven’t, and our economic outlook continues to decline relative to other states.

Talking about creating jobs is great, but actually reducing taxes and protecting workers against forced unionization would go a lot farther in turning Oregon’s economic outlook around. Slipping from 35th to 45th since 2008 is bad enough; let’s encourage Oregon’s legislators to enact policies that will start turning that economic outlook ranking back up.

An analysis of Oregon’s 2011 economic outlook can be found here.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.