Representative Dennis Richardson: Tax bills and tough times

By State Representative Dennis Richardson,

It should not come as a surprise to learn I do not support tax increases at this time. As a matter of principle, I will not vote to increase our citizen’s tax burdens until we can demonstrate to Oregon taxpayers that the current revenue streams and levels are being spent efficiently, effectively and economically.

In years past, I was often challenged to give examples of where elusive accusations of “waste, fraud or abuse” were actually occurring. I would then start down my list of examples, such as the state paying $27,000 per month to rent an empty floor of a Portland building. (It had been vacant for more than 10 years.) Next, I would shift to the extraordinary cost of PERS paid by Oregon’s 875 public employers. (For the 2009-11 biennium, 20 cents will be paid into PERS accounts for every dollar of salary that will be paid to Oregon’s teachers, statewide. For comparison purposes, private sector employers with retirement accounts pay an average of 3-6 cents toward retirement benefits for every wage dollar paid.)

Next, I would shift to the fact that 100% of group medical, health and dental benefits costing $1,070 per state employee per month, is paid by the state. (Oregon is the only state in the Union that does not require some level of employee participation toward their health care costs. If the 50,000 state employees paid only $100 per month ($2,400 per biennium) toward the cost of the benefits, it would save $120 million that could be used for public safety, educating the children or providing care for Oregon’s most fragile citizens.) After hearing such examples, my inquisitors stopped challenging me to provide instances of Oregon’s “waste, fraud or abuse.”

The Tax Bills Begin. This week the Oregon House passed its first tax bill of the session. HB 2672 was passed by a near-party-line vote of 40 to 18. It was a fairly simple bill raising the tax on “moist snuff” (flavored tobacco flakes, sold in small round (hip-pocket) cans containing about 1 oz. of “chew”). The challenge of HB 2672 is that it confuses “Public Policy” and “Revenue Raising” considerations. Policy matters are often emotionally driven, while revenue raising strategy should always be rational. In the case of HB 2672, we had a bill with good policy considerations and a flawed revenue raising strategy. The bill’s policy purpose is to lessen youth consumption of “chew” by theoretically pricing it out of teen-agers’ chew-budgets by imposing a higher tax rate.

The revenue raising strategy is another matter. Presently, such tobacco products are taxed at a rate of 65% of the wholesale cost of the product. HB 2672 raises the tax to $2.14 per ounce, regardless of the cost of the can of “chew.” Since inflation is inevitable, you might think it would be appropriate to merely raise the minimum tax to $2.14 per one ounce can and retain the overall tax at 65% of the wholesale cost. I stood during floor debate and recommended House leadership return the bill to committee and correct its flawed formula. No such action was taken. The bill merely coasted on to a vote, even though it will not accomplish its long-term revenue goal, but after all, “it is for the kids.” Unfortunately, due to inevitable inflationary factors, unless amended in the future, it will result in lowering taxation on expensive brands of chew, while driving lesser-known brands out of business. You can see my short impromptu floor speech, here.

State of the Economy & What Actions Families Can Take.

On March 17, 2008, thirteen months ago, the stock market closed at 12,000. Oregon’s unemployment rate was 5.7%, and the Governor, in his 2008 State of the State Address was about to, “”¦offer a vision for Oregon’s future”¦. [that] Oregon is on the right track”¦. [That] it is possible to have prosperity and livability”¦. [And that], For the first time in decades, we have financial stability and integrity.”

My viewpoint thirteen months ago was dramatically different from the Governor’s. On March 17, 2008 I distributed the newsletter entitled, “Recession, Depression & Knowing How To Sleep When the Cold Winds Blow.” Please take a few minutes and read it (here), then decide for yourself whose “vision for Oregon’s future” was clearest.

Since March 2008, the Dow Jones Industrial Average has peaked at 14,000 and sank to a 6,500. It now has climbed back to 8,000. (Nouriel Roubini, the internationally-acclaimed economic professor who predicted the credit market crash, warns investors to beware of this “bear market rally.”) In short, since March 2008 a massive economic earthquake has struck, and our world has changed. I will not belabor the point, but merely make it by mentioning names of once rock-solid bastions of Wall Street, such as Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual, AIG, Citibank, Chrysler, General Motors, etc., etc.

Since March of last year we have been told by two United States Presidents that America’s economic survival requires borrowing incredible amounts of money and bailing-out certain multi-national corporations deemed, “too big to fail.”

Remember when we were shocked at the glib use of terms like “hundreds of billions of dollars”? Remember when we were told that to avoid a stock market crash that could take the stock market “as low as 8,500,” Congress must pass the $700 billion Troubled Asset Relief Program (TARP).

As we now know, TARP was just the beginning.

Today, the Federal government and Federal Reserve has lent, spent or promised $12.8 Trillion. That is 12.8 trillion–a mind-numbing number. It represents $42,105 for every man, woman and child in the USA ($168,420 for a family of four). It represents 14 times the total amount of US currency in circulation ($900 Billion). It represents nearly three times the value of all the gold in the world.

Today’s economic crisis will have both short-term and long-term consequences for Oregon families. In the short-term, Oregon’s unemployment has risen each and every month since January 2008. In February 2009, Oregon’s official unemployment rate was 10.8%, the highest rate since the Great Depression Era. In the past month Oregon’s “seasonally adjusted unemployment rate has risen to 12.1%. By “seasonally adjusting” unemployment rates, actual unemployment rates are “smoothed out” over time. By linking to the State’s Employment Department website, we can see that while the U.S. unemployment rate is at 9%, the unadjusted, Oregon’s actual unemployment rate has climbed to 12.9%. The Employment Department’s graph is quite revealing. It shows how the unemployment rates in Oregon’s 36 counties are drastically dissimilar. Jackson County’s actual unemployment rate is 14.8%, Josephine’s unemployment rate is 16.6%, and Klamath County’s rate is 17.3%. You can see all of Oregon’s current county unemployment rates -here.

To put these unemployment percentages into perspective, in one month, March 2009, the revised number of unemployed Oregon workers rose from 232,568 to 256,404″”an increase of 23,836. The previous month (February 2009), the number of unemployed Oregonians increased by 20,589 over Oregon’s unemployment rate in January (211,979). Thus, the number of Oregon workers who became unemployed in March (23,836) was nearly 16% more than the number who became unemployed two months ago, in February (20,589). Obviously, this is not a good trend, and it has been worsening every month. Springtime may bring a reprieve, but we cannot depend on it.

The long-term consequences of this deepening economic morass should be obvious. We should not expect a quick solution to this deepening “recession.”

Here in the Oregon Capitol there is a failure to recognize the economic paradigm shift that is taking place. A few states saw what was coming and cut non-essential programs and bureaucracy, consolidated agencies, conserved assets and cancelled additional debt. They were wise to do so. Oregon was not one of them. When faced with historic revenue short-falls and unemployment, the Oregon Legislature’s answer was to create a debt-based public works jobs bill, which was funded with more than $175 Million in additional long-term debt. This “Oregon Stimulus Plan” was limited to deferred maintenance projects on state buildings and promised 3,000 new jobs. To date 16 new jobs have been created. It is time for Oregon to wake up! The American experiment in self-governing cannot flourish while being expected to provide cradle-to-grave benefits. Individuals, families and communities must do more for themselves and expect less from the government. The current system, both at the federal and state levels, is financially unsustainable. When $12.8 Trillion of stimulus and bail-out dollars are borrowed on paper, printed on paper, and backed by nothing, there will come a day of reckoning. When Oregon state government continues to borrow more money, raise taxes, fines, fees and penalties, without reforming the size and complexity of state government, there will come a day of reckoning.

It is becoming more and more vital for Oregon citizens to make their voices heard here in Salem. But change at the state and federal levels take time. Individually and as families, we can immediately begin taking greater control of our own lives.

Some time ago, I told my adult children to “act poor now, and avoid the rush.” Such advice is worth considering by all of us, especially with such high unemployment figures. For some it is already too late.

I will conclude as I began. On March 17, 2008, my newsletter warned of the coming hard times. For many, they are here. It concluded with advice, and those who heeded it have avoided much of the financial devastation so far. If it is not too late for you, I again recommend it.

“The difference between a Recession and a Depression is the magnitude of economic decline. Whether we are heading into a deeper Recession or a Depression, one thing is certain, we would all be wise to assess our own situations, and lessen our personal vulnerabilities in case things get really ugly. This is a great time to take some or all of the following actions:
(1.) Stop incurring additional consumer debt and pay off credit cards (when in a hole, stop digging). If you or a loved one is addicted to credit purchases, stop “cold turkey.” Pull out the credit cards and with great solemnity, take scissors, cut each of them in half, and throw them in the trash.
(2.) Build up and set aside a personal home-cache of cash (preferably 1-3 months of living expenses). If you do not have a safe place at home to put the money, consider wrapping it in white butcher paper, write “bones” on it, and place it in you freezer. Even in case of fire, items in the freezer usually are not destroyed. (I assume no drug-money-seeking burglars read this newsletter.)
(3.) Store at least a 72 hour kit of food and water for every family member. (If possible increase this to a 3 month supply or more).” Considering the national and international events that are unfolding, I will add to the list the following:
(4.) Start a garden of some sort. Even if you live in an urban apartment or condominium, you can grow tomatoes in pots. Get closer to the soil; rediscover what home-grown produce tastes like. Where possible, get your children and grandchildren involved with growing something. Planting a seed, watching it germinate, grow and produce a harvest, are worthwhile experiences. They are part of the miracle of life. Too often we forget such miracles. Too often we forget the food we eat, the air we breathe, and every other needful thing is a gift from our Creator, for which we should be most grateful.
(5.) Learn to do work with your hands. Gain a hand-on skill. Accumulate common tools and start fixing things yourself. Self-help instructions for every project are readily available from the Internet and trained clerks at home-improvement stores. Consider the money that can be saved.
(6.) Learn a new skill. In addition to how you currently make a living, learn to do something with your hands that could be valuable to yourself, your family and your community. Remember, no matter how secure your present job may seem, change happens. For some, gaining a new skill will require spending less time in front of a television or on the golf course. For 256,000 unemployed Oregon workers, you now have the time, and hopefully the motivation, to consider what you might do that will be valuable to yourself, your family and to others.
(7.) Rediscover life skills that your grandparents knew. Buy some wheat and yeast, and learn how to bake a loaf of bread. Consider learning how to home-can fruits and vegetables. Such skills brought families together and saved lives during the Great Depression. They may become extremely valuable in our own future.
(8.) Determine how to provide for personal and family security. For some this is a sensitive topic. I have friends who strongly oppose having firearms in their homes. I understand and respect their feelings. I am a Vietnam veteran, a supporter of Second Amendment rights to own and bear arms, and I enjoy target shooting with my children and their spouses. Therefore, I have a different viewpoint. Regardless of one’s opinions on guns, I suggest remembering the timeless adage, “If you are prepared, you need not fear.” Preparation for personal and family security is important, and it will be different for some than for others. Just remember, when budgets are cut, law enforcement budgets are not exempt. Consider what could happen if you called for police assistance and no one could come for at least 30 minutes. That is, and always has been, the reality for much of rural Oregon. It also helps explain why so many rural Oregonians own and carry firearms.

Conclusion. This edition’s focus has been on the state of the economy and what actions families can take to prepare for their short and long-term consequences. There are no downsides to implementing the eight suggestions for personal and family preparation. I will never forget as a young man reading the simple truth, “It was not raining when Noah built the ark.” It is a message relevant to us today. For some it is already raining hard; for some it is sprinkling, and all of us can see the storm clouds gathering. Now is the time to open our eyes, reassess our spending and life-style habits and prepare for a more self-reliant future. Then we, like the farmhand discussed in the March ’08 newsletter, can learn how to sleep when the cold winds blow.

Sincerely,

Dennis Richardson
State Representative