The Bend Chamber of Commerce joined several anti-tax groups in the coalition that turned in more than twice as many signatures as required (55,179 is required) to refer the personal income and corporate tax measures passed by the recent legislature to the ballot for a January 26, 2010 Special Election. The coalition collected 129,500 signatures to refer the personal income tax increase and 126,183 signatures to refer the corporation tax increase to Oregon voters.
Registered voters in the State of Oregon have the ultimate say in laws passed by the legislature and signed into law by the governor through the referendum process. The Secretary of State now has 30 days to verify the signatures.
Then the real campaign begins but the overwhelming response to the signature collection might be a telling story as to how Oregonians feel about these tax increases.
Jack Holt, chair of the board of the Bend Chamber of Commerce, noted in a letter to the editor: both bills will have a profound effect and consequence on not only business, but also every tax payer and consumer.
HB 2649 would increase, for three years, personal income and capital gains tax rates from the current 9 percent to 10.8 percent and 11 percent for those earning more than $125,000 and $250,000, respectively. A 9.9 percent rate would be imposed thereafter.
Additionally, the deduction allowed on Oregon tax returns for federal income taxes paid would be phased down for joint incomes between $250,000 and $290,000 ($125,000 and $145,000 for single returns). There would no longer be a deduction for federal income taxes paid on joint tax returns showing income over $290,000 ($145,000 for single returns).
HB 3405 increases rate of corporate excise tax imposed on C corporations for tax years beginning on or after January 1, 2009. The measure increases the current 6.6 percent corporate income tax rate to 7.9 percent of corporate net income in excess of $250,000 for the 2009 and 2010 tax years.
It also imposes a $150 entity tax on partnerships, increases corporate minimum tax imposed on S corporations to $150, increases filing fees for specified documents and reports delivered to Secretary of State and increases filing fees for financing statements and other records related to Uniform Commercial Code.
If these two tax measures were to go into effect Oregon businesses and individuals will be saddled with $765 million in new taxes over the next two years. HB 2649 raises personal income taxes by $504 million; HB 3405 increases corporate and business taxes by $261 million.
In the case of these two tax measures those in the legislature who supported the tax increases have focused solely on the revenue side of the equation believing that it will some how solve all of our problems.
They couldn’t be more wrong. Over taxing those who make Oregon’s economy succeed through investment and job creation will not have a positive outcome. Businesses and individuals who invest in our economy shouldn’t be punished for their innovation and their success nor for their ability to create jobs and provide family wages. Tax hikes impair job creation and entrepreneurship along with the motivation of businesses and individuals to invest, provide employment and locate their companies within the state.
The following information, collected over the years regarding tax hikes, comes from Randall Pozdena of Cascade Policy Institute:
Economists have been concerned about the collateral effects of tax policy for decades. These findings are from recent, authoritative studies of corporate income taxation:
Organization for Economic Cooperation and Development (2008)
• Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes.
• Investment is adversely affected by corporate taxation.
• The adverse effect of corporate taxes is strongest on industries that are older and more profitable, because they tend to be more exposed to taxation.
• Increasing the corporate tax rate may be particularly harmful for productivity growth of the most dynamic and innovative firms. This is because such firms rely heavily on retained earnings to finance their growth.
National Bureau of Economic Research (2008)
• Researchers from Harvard University and The World Bank looked at 85 nations’ taxation of similar sectors of their economies. They found higher corporate income tax rates discouraged entrepreneurship, foreign direct investment and economic growth.
Lee and Gordon (2004)
• These University of San Diego professors found a strong, negative relationship between corporate taxation and economic growth. Each 10 percent increase in corporate tax rates appears to lead to 1 to 2 percent decreases in the rate of economic growth.
These are findings from recent, authoritative studies of personal income taxation:
Gruber and Saez (2002)
• Increases in income tax rates by 10 percent reduce taxable income by 5.7 percent for taxpayers with incomes over $100,000.
• The decline in taxable incomes for those under $100,000 is only one-third that amount.
• These effects occur partly because the well-to-do have more options for how and where they work and report their income. (See the migration studies, below.)
Feld and Kirchgässner (2001) and Schmidheiny (2006)
• High earners locate to communities in which the average effective tax rates on high incomes are relatively low.
• In reaction to high tax rates, rich households are significantly more likely to move to low-tax communities than are poor households.
• These are studies performed in Switzerland, where unique cantonal and community variations in tax policy provide an ideal environment for studying tax migration.
Effects on Public Revenues
• Herbert Hoover raised the high-end income tax rate from 12 to 63 percent the first year of the Great Depression. Revenues from the affected taxpayers fell 80 percent.
• Conversely, when Coolidge cut tax rates from 73 to 21 percent in 1926, revenues had increased 61 percent.
• When JFK cut the top rate from 91 recent to 70 percent in 1965, revenues grew by 62 percent.
• The Reagan tax rate cuts in the early 80s increased revenues 99 percent.
• The Bush tax cuts produced a 20 percent increase in revenue between 2004 and 2006, after inflation.
In a time when many companies are not showing any profit at all and nearly all corporations are posting dwindling profits, how could the Oregon legislature determine that this is the time to increase taxes? The looked at one thing and one thing only: revenue. They failed to see the overall impact on business.
The economic vitality depends partly on a fair system of taxation that preserves safety, health and education systems but at the same time in order to achieve a healthy economy the state must recognize the significance of its business climate.
These two tax measures could have a serious detrimental impact on Oregon’s economy and should be defeated in January. PHA