Oregon Business Taxes: We’re number 2 (lowest)

Chuck Sheketoff

A new study funded by big corporations found that Oregon has the second lowest state and local business taxes among all states and the District of Columbia and that businesses get a better deal for the taxes they pay in Oregon than just about anywhere else in the country.

Cover_COST_2009_FY08_State_And_Local_Business_Tax_Study
The study’s data suggest that Oregon’s state and local business taxes are so low that the state could raise business taxes by $1.6 billion annually and still be in line with state and local business taxes nationwide.

In the study, Oregon tied with Connecticut for the second lowest business taxes — state and local taxes combined — as a share of the state economy among all states and the District of Columbia. Only North Carolina has lower business taxes than Oregon, according to the study.

The accounting firm Ernst & Young conducted the study on behalf of the Council On State Taxation (COST), an association of over 600 multistate and international corporations that lobbies on state tax policy. COST does not disclose its membership list, so it is not known which multistate or multinational businesses operating in Oregon are members of COST.

The big business lobby says that Oregon is one of the cheapest states in the nation when it comes to taxes. Their study finds that businesses in Oregon pay state and local taxes totaling 3.7 percent of the private economy, compared to 4.9 percent for businesses nationwide.

Using COST’s figures, OCPP has calculated that Oregon could increase business taxes by $1.6 billion annually and we’d just reach the level of state and local taxes being paid by businesses nationally.

The COST study also claimed that Oregon’s ratio of business taxes to public expenditures directly benefiting business tied with Virginia’s for the second lowest in the nation. Only Nevada got more business services for their business tax buck than Oregon.

In other words, Oregon businesses are getting a heck of a deal compared to their counterparts in all but one other state, if this study published by big business is to be believed.

Although COST is the nation’s largest state tax lobby on behalf of multistate and multinational corporations, COST does not show up as a registered lobbyist in the Oregon Government Ethics Commission’s records. COST apparently doesn’t bother lobbying in Oregon to bring down taxes for businesses, because by its own estimation, the state is already at the bottom.

A word of caution. COST study has methodological flaws that skew the numbers, painting a picture that states have high taxes and that businesses get little for the money. The study inflated the share of taxes paid by businesses by including taxes that businesses may pass on to consumers and workers but excluded a great deal of public spending that benefits business. Here’s an example: the study counts all unemployment insurance taxes as business taxes but fails to acknowledge any benefit to business from the payment of unemployment insurance benefits.

Even though they designed the study to paint states as having high taxes and few services that benefit businesses, Oregon came out as tied for having the second lowest business taxes in the nation and for getting the second greatest bang for their business tax buck.

The study’s definition of public expenditures that benefit businesses also erroneously excluded most spending on education, as well as all spending on child care subsidies, Medicaid and housing and community development. The study’s definition of taxes paid by businesses included an estimate of the personal income taxes that business owners pay when they use “pass-through entities” like limited liability companies and partnerships.

The bottom line: They used a broad definition of business taxes and Oregon still came out tied for second lowest business taxes among the 50 states and the District of Columbia.


Ocpp_final_1 Chuck Sheketoff is the executive director of the Oregon Center for Public Policy.   You can sign up to receive email notification of OCPP materials at www.ocpp.org.

Comments

  • (Show?)

    But... but.. but... the Oregon GOP are always talking about how our taxes are driving companies out of the state... or something. ;-)

  • Mike (unverified)
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    Low taxes aren't the only incentive to entice new businesses.

    There are other factors which will make a region attractive: - pool of skilled employees - quality of life - quality education is available - moderate climate - affordable housing

    etc.

    There may be other factors besides taxes that cause businesses to go elsewhere.

    I like it here in the PDX metro area. But in my travels around the world, I've seen other places that are similar and a few that might be better. There are also many areas that are a lot worse (to me at least), yet new businesses still locate there.

  • JK Arlock (unverified)
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    Mike shows we're actually #1, all things considered. Our quality of life is infinitely better than Connecticut's.

    Why isn't this on the SOS's website , instead of having to have a third party tease it out?

  • (Show?)

    Chuck,

    Are you saying that even low taxes aren't enough to get businesses in Oregon?

  • (Show?)

    What's interesting to me is how the most reliably Republican states are the ones with the highest business taxes. Check out Table 7, "Business taxes as a share of state, local, and total taxes and private sector GSP":

    [[apologies in advance for the poor spacing - the site won't honor my justification]] Rank State Share % of GSP 1 Alaska 89.3% 22.3% 2 Wyoming 74.3% 9.2% 3 N. Dakota 65.3% 8.9% 4 N. Dakota 61.7% 5.2% 5 Texas 61.2% 5.3% 6 Louisiana 59.4% 5.2% ...

    ..and little old Oregon is stuck near the bottom at 38.2% and 3.7% respectively.

    It just goes to show that the real political force behind the GOP isn't the plutocrats, but the poor white theocrats and racists who, despite their noxious views on other things, still want businesses to pay their fare share of taxes.

    It's States like ours who have GOP plutocrats, who want to strangle local infrastructure to the point that we resemble a third-world nation.

  • Phil Philiben (unverified)
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    When I owned a small business in the nineties the first couple of years I was able to bring in just over $200K in gross receipts. I was losing money - it cost me to be in business and that $10 minimum was just right. However in a few years I was able to raise my sales to nearly $500K and made a small profit - believe me a real small profit. I still was only required to pay the $10 minimum. At Nearly $500K in gross sales I could of easily paid more than $10 minimum and would probably would have whined, but would have been pleased if I knew that small amount of those taxes would have gone to education.

  • Terry (unverified)
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    Phil, Correct me if I'm wrong, but why should you be expected to pay taxes on a net business loss? Whether your gross sales were $200k, $500k, or $5 million, if you should only be taxed on your net profit. Is this not how it works?

    Secondly, is there any data or studies to show what the overall benefit is to Oregon by reducing the business tax? If we raise our taxes, is there risk that business would look elsewhere to operate, and if so, that would reduce our employment rate, which would affect our state revenue anyway. I'm not sure if this study is out there or not, I'm just asking.

    Seems though that if there are 48 states ahead of us, a slightly higher business tax rate doesn't have much affect on where a business moves, obviously within reason.

  • Rob (unverified)
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    Mr Sheketoff, we may not agree on everything, but your note should be publicized far and wide. Thanks for your analysis.

    Personally, I would like to see governmental entities make a compact with business: the state expands its efforts in X (X are specific education programs, trade, transportation...) and you pay an additional Y$ in taxation, as measured by Z. X, in this case, should be things supported by Oregonians statewide, but not vetoed by niche elements.

    The X factor is what makes Oregon creatively outstanding in governance, and final results.

    The biggest Oregon F500 companies support efforts like these through charitable contributions and that should be encouraged, tracked, expanded and publicized.

    If a corporation provides non-profit support offsetting state tax expenditures, we should encourage and publicize it. It becomes a creative effort to ensure that Portland company donations measurably support counties spread across the state. Given communications and the Internet, this is within reach.

  • Sid Leader (unverified)
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    All this talk of us tax cheapos make me want to drink a nice, frosty beer!

    Anyone have half a penny for the tax?

    Thanks!

  • mp97303 (unverified)
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    Great news. Oregon has really low business taxes. The Oregon State Chamber of Commerce should be sending a PR release to every news agency and Fortune 1000/Inc 5000 company there is. What better news could we possible want in these current economic times. Oh wait....

    Shoot. This means y'all want to raise their taxes. Oh well, who wants jobs anyway.

  • mp97303 (unverified)
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    Off topic, but interesting...

    A new study takes issue with the media narrative that foreclosures are dangerously widespread. The paper’s authors, William Lucy and Jeff Herlitz at the University of Virginia, examined foreclosure rates in every state, 35 metropolitan areas and 236 counties, and they found that 62 percent of foreclosures in 2008 were in [Arizona, California, Florida or Nevada].

    The study claims that "66 percent of potential housing value losses in 2008 and subsequent years may be in California, with another 21 percent in Florida, Nevada and Arizona, for a total of 87 percent of national declines."

    Source: Andrew Sullivan

  • (Show?)

    Oregon's business taxes are low compared to other states, but this particular survey is misleading, and not just for the reasons Chuck states. Measuring business taxes as a percentage of the state economy (or private gross state product, as the survey says) isn't really relevant to business location decisions.

    To the extent businesses look at taxes as a function of where they are going to locate (and it is not the major factor in their locational decisions), it is the tax their operation will pay in one state versus another that influences them, not what percentage of the state's economy their taxes, added to the taxes paid by every other business in the state, represents.

    The Tax Foundation's annual analysis is probably a better indication, and they've ranked Oregon in the top ten states for business tax climate for years.

    Of course, I reach the opposite conclusion as Chuck: I think this is good news. But then, I'm not one of those Republicans who ever believed the Lars Larson line about Oregon being a terrible place to do business.

  • (Show?)

    Jack, if the purpose of the study was to help members lobby states for (what one presumes is) lower taxes, why would they construct the methodology in a way that you describe as functionally irrelevant to them?

    And I posted this a good while ago, and still don't see it--maybe I didn't hit send. Am I clear that the entire projected shortfall--and then some--for the next biennium would be wiped out, if only Oregon's corporate tax burden was at the national average instead of 49th?

  • Chuck Butcher (unverified)
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    And the bang we get for our buck is...

    I know, a sales tax.

  • (Show?)

    mp97303 writes: Oh well, who wants jobs anyway.

    Um, MP, don't you understand the point here? Oregon's business taxes are ALREADY the second-lowest in the country. (Or as anti-tax Jack Roberts points out, maybe in the bottom 10.)

    If low taxes created jobs, then Oregon should be at LEAST in the top 10 job markets. If low taxes create jobs, then where the hell are all the jobs?

    Perhaps, maybe just maybe, it might be some other factors that cause businesses to move jobs here. Maybe it's a well-funded educational system for their employees' families (not to mention the importance of a long-term supply of educated workers.) Maybe it's a well-funded program of infrastructure investments so that raw materials and finished products can move rapidly and smoothly.

    At least Jack Roberts has the intellectual honesty to agree with former Bush Administration treasury secretary (and former Alcoa CEO) Paul O'Neill. Jack said above, "it is not the major factor in their locational decisions"

    Secretary O'Neill said at his confirmation hearing: "As a businessman I never made an investment decision based on the tax code... If you give money away I will take it, but good business people don't do things because of inducements."

  • (Show?)

    Oh, and billionaire businessman Michael Bloomberg (and now mayor of NYC) told the NYT in November 2001:

    Any company that makes a decision as to where they are going to be based on the tax rate is a company that won't be around very long...If you're down to that incremental margin you don't have a business.
  • mp97303 (unverified)
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    Kari

    Fine. I concede you point. Now show me a statistical correlation between higher business taxes and lower unemployment.

  • Robert Collins (unverified)
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    So how come businesses aren't flocking to Oregon to take advantage of this low tax situation? Evidently something else is wrong.

  • mp97303 (unverified)
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    So how come businesses aren't flocking to Oregon to take advantage of this low tax situation? Evidently something else is wrong.

    One item is the perception that Portland is anti-business. Doesn't matter if it is true or not, a google search will readily show the perception exists.

    Housing in the metro area is really costly. High housing costs mean businesses have to pay higher wages, which, as we all know, business is reticent to do.

  • Phil Philiben (unverified)
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    Terry First if I was earning gross receipts of $5 million and wasn't making a profit I would really need to rethink my business plan. The reason a business should pay more than a $10 minimum is because business use the infrastructure. What most of the anti-tax folks don't seem to understand is it's relatively inexpensive to operate a business here in a America. Roads, Police, Fire Protection, the internet, schools to educate the work force and on an on. "Taxes are the dues we pay for a civilized society" - I particularly like this quote from blogger Lance Manion who states it much more articulately than me reguarding the anti-tax Republican crowd:

    "If the Government is a car setting out to give every one a ride to work, then for 40 years the Republicans have been puncturing the tires, pouring sand in the gas tank, stealing the distributor cap, and, whenever they can get their hands on the wheel, driving it straight into the nearest ditch and then, pointing to the wreckage as the tow truck backs up to it, saying, See, this proves that people were meant to walk. And they do this so that they don't have to chip in on gas."

  • (Show?)

    I concede you point. Now show me a statistical correlation between higher business taxes and lower unemployment.

    Nope. Not going to play your game. No moving the goal posts.

    My point is merely that it's clear that the argument that "low taxes create jobs" is just flat wrong. Which is, btw, a core argument of the anti-government and anti-tax right.

    If the jobs argument goes away, then that leaves the other major argument advanced: that we need to raise some taxes to a reasonable level to protect schools and social services.

    It seems to me that with one of the two opposing arguments thoroughly discredited, the other argument wins. At least until the anti-tax folks come up with some other argument.

  • (Show?)

    mp97303 - there isn't any such correlation, just as there isn't a correlation or causation between Oregon's low biz taxes and our high unemployment. Too often people assume correlations and causations. It's like saying that there's a correlation between global warming and the decline of pirates and global warming is caused by the decline of pirates. Despite this nice graph, it is not true. <img alt="Piratesarecool4" title="Piratesarecool4" src="http://www.blueoregon.com/images/2008/09/19/piratesarecool4.gif" width="150" height="107" border="0" style="float: right; margin: 0px 0px 5px 5px;"/>

  • mp97303 (unverified)
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    My point is merely that it's clear that the argument that "low taxes create jobs" is just flat wrong.

    How do you arrive at that conclusion. According to the BLS, Oregon has 148,828 more jobs than it did at the start of the decade. The conclusion is easy. Oregon has low business taxes. Oregon added jobs. Low business taxes = more jobs.

  • (Show?)

    Jack,

    Measuring taxes against a measure of the economy -- personal income or GSP -- is a measure of fairness.

    Nationally, state and local taxes are just eight tenths of one percent (0.8%) of the cost of doing business for businesses -- they don't matter. To the extent you play the game that they do, you are selling the state and local governments who provide vital services short on a race to the bottom.

    I imagine the fact that our courts are now closed 20 percent of the time really helps with recruitment and retention of employers. Why would a business choose a state where they can't be assured that their courts will remain open 5 days a week? If we had adequate revenues from the corporate income tax we would not be in the bind we are in.

  • (Show?)

    I wrote an article a few years back looking at state taxes and economic performance:

    The Economic Irrelevance of State Tax Policy

    Recently, I read that some Oregon legislators are pushing a cut in the capital gains tax as a way to improve Oregon’s economy. I started wondering: what about this whole idea that tax policies have a big effect on states’ economic health? Do we have to take it on faith? Or, in the Information Age, is it possible that – as Casey Stengel used to say – “you can look it up?”

    As it turns out, you can look it up. So please join me on the Google Express for a Taxes and Prosperity Tour of the United States. From the high-tax shores of Hawaii to the low-tax mountains of New Hampshire; from the business-friendly ski slopes of Colorado to the business-bashing lakes of Minnesota – come along, to see what we can see.

    First stop, the big question: how do the economies of the ten highest-tax states (state and local taxes as a percentage of income) compare with those of the ten lowest-tax states? To evaluate their economic health, I decided to look at ‘per capita income’ – isn’t the purpose of an economy to make money? (I also looked at ‘unemployment rate,’ because most of us like to have jobs.)

    Well, Minnesota and Hawaii are going great guns with high taxes, high incomes, and low unemployment. But high taxes aren’t working out so well for poor New Mexico and West Virginia. Low-tax New Hampshire and Virginia are high in both income and jobs. But low-tax Tennessee and Alabama are still rather poor. And then there’s Oregon, listed at 45th in taxes as of 2002 (the last year official Census statistics are available; we may have moved up a few notches since then).

    The Tax Foundation evaluates what it calls the “business-friendliness” of the states, using measures such as the simplicity of the tax system and the level of direct taxes on business. Oregon scores high, at 10th. Prosperous Minnesota hates business with a passion; it’s 48th. New Hampshire (again) and Wyoming are business-friendly, high-income and low unemployment. But Connecticut, the richest state in the union, is business-indifferent (37th).

    What about the rest of the 10 richest states (in per capita income)? Well, look at the chart. Some are high-tax, some low-tax. On average, they collect 10.34% of income in state and local taxes – compared to the national average of 10.4%. (Incidentally, most states collect between 9 and 11% of income in state and local taxes – not a huge range.)

    Oh – what about capital gains? The National Center for Policy Analysis lists 17 states with favorable treatment for capital gains. Those states don’t seem to be doing any better or worse than other states. New Hampshire and Nevada don’t tax capital gains and are doing well; but well-to-do Minnesota and Hawaii tax capital gains heavily. Seven of the 17 are above the median unemployment rate of 4.6%, seven are below, and three are right at 4.6%.

    What would the economists say about our little tour? Some, at least, would not be surprised. In a recent City Club appearance, Oregon’s State Economist, Tom Potiowski, said that claims about the effect of State tax policies on their economies tend to be exaggerated. Respected Portland consulting economist Joe Cortright said such claims are “grossly exaggerated.” Businesses and individuals, he says, make decisions based on factors like “Is this a nice place to live?,” “Is there a good labor pool?,” and sometimes, even “How are the schools?”

    But politicians like to think they’re important. They know the economy’s important. And they have some power over tax policy, so they’d like to think they can control the economy through tax policy. They’ll probably keep thinking that, whatever the economists say.

    They just happen to be wrong. And you can look it up.

  • mp97303 (unverified)
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    Chuck

    You are NOT mocking my fellow pastafarians are you? FSM rules.

    I am very aware that such simplistic and moronic correlations like "Oregon has high unemployment" and "Oregon has low business taxes" therefor low business taxes can't possibly lead to job creation are utterly asinine.

  • mp97303 (unverified)
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    In re: Mr. Novick's posting

    From the Minnesota Council of Non Profits

    There is one last piece to our puzzle. Per capita rankings — such as Minnesota’s 2nd place ranking in state taxes — simply take revenue and divide by the number of people in the state. But per capita measures have two flaws:

    Per capita rankings do not recognize that states with high incomes, such as Minnesota, tend to have higher labor costs. For example, Minnesota cannot hire a teacher for the same salary as Arkansas, nor can it hope to retain quality teachers if wages are significantly less than could be earned in the private sector. Per capita rankings do not take into account the fact that states have different average incomes. A $500 tax is a bigger slice of the household budget for a family making $30,000 than for a family making $60,000. The shortcomings of per capita rankings can be overcome by measuring revenues as a percentage of statewide income. When all the sources of revenue are put together and measured as a percentage of income, all the puzzle pieces are in place. The completed picture shows that Minnesota ranked 24th among the 50 states in the size of government in 2002, the most current year for which data are available. Interestingly, our rank on this measure has been falling: Minnesota ranked 9th in 1992 and 18th in 2000. In all likelihood, Minnesota’s ranking will continue to slide given that government revenues in Minnesota are expected to grow less rapidly than in most other states.

    Tax rankings are popular because they compress complex issues into a single number. But Minnesotans need to be particularly cautious of claims about the size of government that focus on only one piece of the puzzle, especially when those claims are used to justify the sort of tough belt-tightening measures that Minnesota has gone through for the last two years. State comparisons should include all government revenues — not just state taxes — and should also take into account variations in incomes among states. Based on this more meaningful and complete measure, Minnesota ranks in the middle of the fifty states.

    Minnesota's current rank on business friendliness is 41

  • (Show?)
    Posted by: mp97303 | Mar 3, 2009 9:41:35 PM How do you arrive at that conclusion. According to the BLS, Oregon has 148,828 more jobs than it did at the start of the decade.

    Ummm.... are you saying that the adult population in Oregon didn't go up by at least 148,828 over the course of a decade?

  • mp97303 (unverified)
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    Posted by: lestatdelc | Mar 3, 2009 10:26:16 PM Ummm.... are you saying that the adult population in Oregon didn't go up by at least 148,828 over the course of a decade?

    Ummm.... NO

  • (Show?)

    How do you arrive at that conclusion.

    I thought you already conceded my argument. But to restate it: We have the #2 lowest business taxes in the country, but one of the highest unemployment rates in the country.

    If low taxes create jobs, then where the hell are all the jobs?

  • (Show?)

    If low taxes create jobs, then where the hell are all the jobs?

    One could pose the same question with respect to Mexico. The migration North in search of jobs argues rather pursuasively that low taxes = jobs is a canard.

  • (Show?)

    Frankly, it's not taxes that are the main driver of a business's decision to move to one state or another.

    It's the availability of skilled workforce that almost always is the biggest concern in the majority of surveys of why businesses chose one place or state over another.

  • (Show?)
    Posted by: mp97303 | Mar 3, 2009 10:43:54 PM Ummm.... NO

    So you agree that simple population growth over the decade outstripped job growth. So why did you bring up the BLS stat and what did you think it would show in context with the issue?

  • mp97303 (unverified)
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    If low taxes create jobs, then where the hell are all the jobs?

    I probably made a huge error is thinking the 148,828 jobs created in this decade were private sector jobs. The truth is government is probably responsible for all of them.

  • mp97303 (unverified)
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    lestatdelc

    What the hell does population growth have to do with whether or not low business taxes in Oregon did or did not create jobs?

  • (Show?)

    "What the hell does population growth have to do with whether or not low business taxes in Oregon did or did not create jobs?"

    Is that a serious question? If the labor force grows, but job growth doesn't keep pace, that's not "creating jobs;" it's losing them. Unless you're planning to argue that a 5% increase in the labor force with a 1% increase in the number of jobs, pencils out as a GOOD thing for employment...

  • mp97303 (unverified)
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    TJ

    So if 50,000 move to Oregon this month, and we don't add 50,000 jobs, we are "losing jobs?"

    Heck, why don't we kick out the 165,000+ unemployed and then we would have 0 unemployment and by your logic, massive job growth.

  • Mike Austin (unverified)
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    62 percent of foreclosures in 2008 were in [Arizona, California, Florida or Nevada].

    Back in 2003 I worked a contract at Wells Fargo's call center in Beaverton. As part of my requirements gathering process, I spent roughly two days listening in on conversations between Wells Fargo customers and the CSRs.

    A typical call involved a customer who paid a certain amount for their home, say $300K. The home's "value" was now $600K and the customer had a $150K equity line of credit on the home. They were calling because they only had a small amount left on the eloc and they wanted to increase the line to $250K. I can not recall the CSR denying the request for an increase in the limit.

    At this point, the customer now had $550K of liabilities on a bubble-induced $600K home. Multiply this by tens of thousands of homeowners and it's not surprising that we've had so many foreclosures. Nor is it surprising that Wells Fargo's stock is in the pooper...

  • Mike Austin (unverified)
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    It's the availability of skilled workforce that almost always is the biggest concern in the majority of surveys of why businesses chose one place or state over another.

    I read somewhere (in a magazine, so it must be true...) that the biggest factor in a business relocating was the proximity of the new location to the CEO's residence.

  • (Show?)

    "So if 50,000 move to Oregon this month, and we don't add 50,000 jobs, we are "losing jobs?""

    effectively, yes--since the point is not to "add jobs" but to maintain as high a percentage of the labor force with employment as possible. If the percent of the labor force that is employed goes down, that's a bad thing.

  • mp97303 (unverified)
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    TorridJoe

    I agree with you completely. What we have here is a failure to communicate. You are trying to interject college level thoughts into a second grade level discussion Kari and I are having :)

  • Zarathustra (unverified)
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    The adult population moving here and "jobs" are confounded since the #1 reason they're coming is they have a job. That's my beef with the "we'll create xyz jobs" rhetoric when a company asks for tax breaks. Many- most in many cases- of those workers move here with the company. I'm mainly thinking of this counter-balanced for income. There may be fewer upper management jobs, but they pay much more, and are more likely to be filled from out of town. Add to that that many of the high tech employers are the biggest per capita H2 and H4 visa hosts in the US and the real jobs created don't compete with a small, local start-up. Anyone that follows the data and leaves politics aside knows that's where the action is at. They care most about local taxes.

  • mp97303 (unverified)
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    Chuck

    Since you made the statement, "It's like saying that there's a correlation between global warming and the decline of pirates and global warming is caused by the decline of pirates," and given that many would content that we are entering a period of global cooling and increased global pirate activity, might there be something to the theory after all?

  • lida (unverified)
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    waksis google

  • lida (unverified)
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    I agree with you completely

  • Roberta Palmer (unverified)
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    What Mr. Chetekoff does not point out is that Oregon's revenue from business is low because most businesses pay nothing. We rely on a tax that does not work. If a business is profitable, that profit can be offset with expenses (including CEO pay) and losses carried forward. Our actual tax is rather high--6.2% added on to the federal rate (now 39%?), and the city rate of 2.2%. Since profitability is more difficult to predict than sales, business tends to prefer a sales tax, such as Washington's gross receipts tax, unless they are established in Oregon, where they will likely pay no more than $10.

    WA enjoys 5 times the revenue from corporations that OR does, yet WA has more corporations than OR, notably 4 of the top 20 F500. Oregon makes up for low revenues with less state support of education and health care than WA. What a stupid system!

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