Lessons From Oregon?

by Art Woolf

Last week, Oregon's voters overwhelmingly approved a ballot initiative to raise the state's corporate and personal income tax rates.  The initiatives passed by 54-46 majority, despite the opposition of well-known right wing entrepreneurs who lead corporations such as Nike and Columbia Sportswear.  (Just kidding about the right wing part.   But entrepreneurs Phil Knight of Nike and Tim Boyle of Columbia did vocally oppose the initiatives.)

Oregon's personal income tax rate before the tax hike was 9.0%, and it kicked in at such a low level that just about every taxpayer paid at that rate.  By contrast, Vermont's 9.4% rate only applies to income levels above $400,000 for married couples.  The Oregon ballot initiative raises the income tax rate from 9% to 11% but only for taxpayers earning over $250,000.  

Does this have any significance for Vermont?  I think so. 

Vermont faces a $150 million deficit.  I don't think the legislature will be able to cut that much out of the budget.   Even assuming a new federal stimulus plan that gives $50 million to Vermont (that's just a guess, based on nothing), that will still leave a $100 million hole.   Even a $100 million transfer from future U.S. taxpayers to current Vermonters will leave a $50 million hole. 

Whatever the size, despite the fact that the Governor, the Speaker, and the President Pro Tempore have all publicly said that the state can't afford higher taxes, my guess is that we'll see a $50 to $100 million tax hike enacted this year. 

Vermont legislators will look to Oregon, and also to California and New Jersey  (and here).  All those states have recently raised taxes on people earning over $250,000 and they'll see that there is no broad opposition to raising taxes on the rich.  

But before policymakers use Oregon as a model, it's worthwhile noting some differences.   First, Vermont ranks fifth in the nation in taxes as a percentage of income.  Oregon ranks 42nd.  Vermont has a six percent sales tax.  Oregon's is zero.   Oregon spreads its current income tax burden over the middle class.  Vermont doesn't.  Oregon had some tax capacity.  Vermont doesn't.

Still, my money is on a sizable 'temporary' income tax increase this year which will be levied on Vermont taxpayers with an income of over $250,000.  That temporary increase will, by statute, last for at least four years.  

Do I have any takers for a friendly bet?

Comments

[Vermont Woodchuck]

Probably will!
But that's like shooting crows on the fence. You get one, the rest fly away.
Not a productive scheme for the long term, but VERY Proggy.

[Chris Campion]

There's not a lot of other space in the financial demographics to tax, from a political perspective. It'll be easiest (not easy, but easiest) to target the highest earners for what's likely a tax hike, but as we've shown on the Tiger before, when someone else is carrying 70% of your water for you, do you really toss another couple of gallons for them to tote while you whistle past the economic development zone?

Sadly, all of this fails to address the underlying problem in VT - no economic growth equals lower and lower tax revenues, and a growing demographic of reduced income earners. When spending and revenues are negatively correlated (spending goes up and revenues go down), only fools believe that there isn't a hard stop looming in VT's future.

California is the model we're following right now. It's not a model we should emulate.

[GreggB]

Does VT have enough wage earners over 250K to soak 100 million out of? My WAG would be a lower limit to start the higher tax rate, maybe 101K or 125K. Time to make all those evil maple syrup barons pay.

[Lazarus Long]

Of course, this is always an option
http://neveryetmelted.com/2010/02/04/70-billion-left-new-jersey/

[Daniel Foty]

Well, as I noted a few days ago, even true-blue Democrats grasp the gist of what can be done with Oregon's self-inflicted wounds:

'[W]ho would have thought of Chicago as a lower-tax refuge? The bright idea comes from Chicago Mayor Richard Daley, who is looking to lure employers from Oregon after that state's voters approved a huge tax increase last week. The tax hike in Oregon "will help our economic development immediately. You'd better believe it," Hizzoner told the Chicago Sun Times late last week.'

http://www.vermonttiger.com/content/2010/02/it-does-matter.html

Oh, BTW, yesterday I was exchanging e-mails with a modest-sized company in California that I work with occasionally - I hadn't talked to my contact there in several months. I happened to notice that down in his signature, the address given was no longer one for California - but now said Nevada. I inquired if the reasons for this were the obvious ones - and was told that yes that's the case and the relocation is in progress....

And we haven't even gotten yet to a discussion of the interjurisdictional competition issues on the international stage....

[GreggB]

The California model would work fine if Nevada would stop messing things up...

[Vermont Woodchuck]

After the BIG one Nevada will be beach front property...

[Mark Shepard]

Ballot measures are not all they are cracked up to be. This is the second assisted suicide ballot measure to pass in Oregon.

"When the people find they can vote themselves money, that will herald the end of the republic." - Benjamin Franklin

People seem to forget that a thief that will steal for you will just as quickly steal from you.

[Dennis Lukas]

Before the state thinks about taxing its upper income earners it had better take a look at the new federal taxes that will take effect next year and the end of the Bush tax cuts.If you combine the federal and state taxes on upper income earners what would they pay 90% of income? I think they would run from VT.

[NevadaCorporateServices.com]

There are better ways to opt out of wealth taxes than picking up and moving everything you own to another state.
Don't get me wrong if you simply hate the state you are in then move and move fast. But if there is something that you'll miss, then don't move.
Realize that states compete. Certainly Mayor Daley of Chicago understands this from his reaction to the New Oregon Wealth Tax.
You might own a house in NJ, but you can choose to vacation in FL, PA, or HI they are all competing for your vacation dollars.
In a similar vein you can own a business in NJ but vacation your profits in . . . maybe Nevada. . .
But that is far too simplistic an answer to be of real value. If you want the more correct answer contact me.

[Bill]

I agree with Dennis. What if they passed the tax and revenues actually declined? And what if a significant portion of the wealthiest Vermonters move away? In the long run and the short run the people of Vermont will be better off if taxes on all Vermonters are cut. For the most dramatic positive effect on state revenues, cut taxes on the wealthiest Vermonters.

[Vermont Woodchuck]

"... For the most dramatic positive effect on state revenues, cut taxes on the wealthiest Vermonters."

In Vermont, cutting taxes on the rich is akin to making dysenteric Progs' coffee using soapy water. That's the dramatic effect you'll get.

Wear your boots!