Last Tuesday, I posted on the Portland Monthly interviews with the gubernatorial candidates, in which Bill Bradbury and John Kitzhaber both responded to questions posed by anti- Measure 66 and 67 business people. Bradbury fans responded that as a result of my Kitzhaber partisanship, I was unfair to Bradbury.
On re-reading the Portland Monthly transcript, I’ve concluded that the Bradbury fans are right in one respect: My partisanship did distort my reaction. But it wasn’t that I was unfair to Bradbury. No, my sin was that I wasn’t harsh enough on John Kitzhaber.
The record shows that progressives have work to do with both Kitzhaber and Bradbury. Kitzhaber, consistent with his lukewarm support of 66 and 67 during the campaign, said a number of things that demand a response from the people who (a) worked hard to pass 66 and 67 and (b) Kitzhaber will have to count on to work hard from him if he gets the nomination. The man needs re-education. Bradbury, faced with a hostile, anti-66 / 67 audience, started fudging his previously strong support for the measures. We need to help him develop a different message for those audiences – a message designed to educate and engage, rather than placate and validate, Measure 66 and 67 opponents.
Let’s revisit the Portland Monthly interview, starting with Kitzhaber:
It was very unfortunate that Measures 66 and 67 ended up on the ballot. I do not believe that they couldn’t have been brokered. Once on the ballot, it was a Hobson’s choice. I voted for them. But it was a stopgap, not thoughtful tax reform. There’s broad concern about the impact it will have on angel funding for new start-ups and on the philanthropic community. The capital gains portion is having a big impact on high volume/low margin businesses.
OK, John, let’s see. This was a “Hobson’s Choice” – the choice between asking people making over $250,000 to pay a little more, moving Oregon from 48th in the country to 46th in taxes on corporations (with out-of-state corporations footing most of they bill), on the one hand, or gutting education and other vital services, on the other? You found that a real gut-wrencher, did you? You need to understand that doesn’t make a lot of sense to – again – the people you will be counting on to be your footsoldiers in the fall. (By the way, who was Hobson, anyway? Are we talking about Butch Hobson, the Red Sox third baseman from the ‘70’s? And what was the choice? To take the sure out at first or to make a risky throw to try to get the lead runner at second?)
And you say it was “not thoughtful tax reform.” Well, Oregon voters seemed to think it was more thoughtful than pretty much any other statewide revenue-raising measure they’ve seen since 1930. And with all respect, you haven’t been a tax reform specialist during your long political career. You can act all superior about health care policy if you like; you’ve earned the right. But you’re not in much of a position to criticize Phil Barnhart’s work – and it’s not a very forward-thinking thing to do, anyway, given that he’ll still be chair of the House Revenue Committee next year, and you’re going to have to work closely with that feisty little Eugene progressive.
But this one’s the topper: “already having a big impact on high volume/ low margin businesses.” First of all, the ‘capital gains’ part makes no sense at all – we generally think of capital gains taxes as applying to individuals, not businesses, and even to the extent businesses have capital gains, nobody argues that that taxing them has any particular effect on high volume / low margin businesses. So I assume you must be parroting the ‘no’ side’s argument on the gross receipts feature of Measure 67. That would be the 0.1% gross receipts tax. A ‘big impact’? John, as a doctor, when a patient has a temperature of 98.098 degrees, would you say she has a “high fever”?
So much for Kitzhaber. Now, let’s take another look at Bill Bradbury’s comments:
Forbes: After Measures 66 and 67, we’ve given up the ability to do all the reform that needs to be done. There’s no trust.
Bradbury: I wish 66 and 67 were temporary.
Chambers: How are you going to keep businesses and individuals from leaving Oregon because of 66 and 67? Some are already planning to.
Bradbury: I think you need to repeal 66 and 67. That’s a huge challenge given the fiscal situation. But, frankly, I think 11 percent is a pretty high income tax. Let me be clear, I’m not proposing repeal. But I’d certainly look at it if we have serious impacts from the increase. I don’t think it’s sustainable.
It’s hard to look at that and think that Bill just “misspoke,” or was “inarticulate.” How many times can you “misspeak” in the same way in two minutes? Did Bill “misspeak” when he said the measures should be temporary; “misspeak” again when he said they should be repealed; “misspeak” again when he said he would consider repealing them if their opponents’ predictions about their impacts come true; and “misspeak” a fourth time when he said they were “unsustainable”? Bradbury fans focus on the fact that he said “look, I’m not proposing repeal.” He did say that. But let’s suppose you were Kevin Pritchard, general manager of the Trail Blazers, and you read an interview with owner Paul Allen in which he said: “I wish we had appointed Kevin on an interim basis rather than giving him the permanent job. I think we need to fire Kevin. Look, I’m not proposing firing Kevin, but we might have to consider firing him depending on how the team performs. I don’t think Kevin’s tenure as GM is sustainable.” Would you think your job was safe? Even if Allen sent out a press release the next day saying “I misspoke, I was inarticulate, I love Kevin,” wouldn’t you still feel mighty unsettled?
It seems to me that although Bill Bradbury knew what to say about 66 and 67 to friendly audiences, he was at a loss as to what to say to a hostile audience. Understandably, he didn’t want to say “Measures 66 and 67 are the greatest thing since sliced bread and you’re a bunch of greedy pigs”; instead, he backed away from his previous staunch support of the measures.
So what could Bradbury (or Kitzhaber) have said instead? What should the Democratic candidate for Governor tell business people who opposed 66 and 67? After this post, I doubt that either candidate will feel inclined to take my advice, but here’s what I would suggest:
I understand that a lot of people in the business community are angry about Measures 66 and 67. And I can see why. For months now, business lobbyists and the Oregonian editorial board have been saying that the Legislature had a short-term revenue problem which business groups were happy to help with, but the Legislature chose to impose permanent tax increases on high-income Oregonians and businesses, purely out of spite. If people I trusted were telling me that, I’d be angry too.
I think that there is an historical and factual context that is important, and that you haven’t been hearing from the business lobbyists. Let me try to summarize it. I probably won’t do as good a job as the Eugene Register-Guard did in a phenomenal series of editorials on 66 and 67, but I’ll give it a shot.
The Legislature wasn’t just dealing with a short-term crisis, but a long-term crisis. Public services in this state have been in crisis for twenty years. Before Measures 5 and 47, we offset the absence of a sales tax with high income and property taxes. In 1990, property tax collections amounted to 5% of total personal income in the state. Now, that’s down to 3% of total personal income - a 40% cut. Total personal income is about $136 billion a year. That means that we have $5.4 billion a biennium less for public services than we would under our old tax system. About 40% of that money would go to schools, so schools alone have $2 billion less than if we had kept the old system. For some school districts, like Portland and Eugene, that had especially high school taxes in the old days, the hit was especially harsh, because they lost more than their share of money in the process of statewide equalization.
Business pay over 40% of total property taxes. So business got essentially a $2 billion property tax cut. It happened gradually, so none of you feel like anyone handed you a check for $2 billion, but it is a fact.
Once the temporary parts of 66 and 67 go away, it will raise $610 million in the 2-13-15 biennium. That’s less than 12% of what we lost to Measures 5 and 47.
As I mentioned, we used to have both high income taxes and high property taxes to make up for the absence of a sales tax. And the high income taxes applied, and do apply, to EVERYONE. As you know, Measure 66 took one of the highest income tax rates in the country on rich people and made it even higher. What you might not know is that we have the VERY highest income tax rate in the country on working-class people. The 9% rate kicks in at $16,000 of taxable income. So yes, the new permanent 9.9% marginal tax rate is one of the highest in the country – but it’s also only 0.9% higher than the marginal rate a waitress pays.
Now, I know that some of you think there’s an easy solution – pass a sales tax and cut the income tax! But, aside from the fact that Oregon voters have defeated the sales tax nine times, I’d like you to reflect on the fact that the absence of a sales tax is a huge boon to Oregon businesses. It’s not just consumers who pay sales taxes on goods; businesses pay it on the materials they buy. In a typical state, businesses pay 35% of the total amount raised by the retail sales tax. If we adopted a 5% sales tax tomorrow, and repealed Measure 67, it would be a $2 billion tax increase on businesses, minus a $261 million decrease. It’s largely because we don’t have a sales tax that Oregon is 46th in the country in taxes on businesses – up from 48th when Measures 66 and 67 were passed. If business owners are contemplating moving to other states, they’ll soon figure out what impact the sales tax will have on them.
I know also that some of you may have the impression that Oregon is uniquely messed up, that other states have it all figured out. Other states do not have it all figured out. The Governor of Illinois just proposed a permanent 1% increase in their income tax rate. Arizona is raising the sales tax rate by 1% and completely gutting their children’s health insurance plan. California is opening prison gates and closing school gates.
We do have one uniquely messed-up public policy in Oregon: the kicker. But even getting rid of the kicker wouldn’t give us that $5 billion a biennium back. You get a kicker every once in a while, and I think the biggest personal kicker ever was $1 billion.
So those are the facts. I don’t know what policy position they lead you to, but I hope that you no longer think that the Legislature passed Measures 66 and 67 simply to spite the business community, or that other states are Nirvana, either from an overall fiscal policy perspective or a business tax perspective.