With the Oregon voter-approved increase in business income tax from 6.6 percent to 7.9 percent and the increase in personal income tax for the wealthiest 2.2 percent of Oregonians from 9 percent to 11 percent, Oregon now has one of the highest personal income tax rates in the nation.
Oregon’s personal income tax rates are now nearly twice the national average and just behind New York, which taxes residents at 12.6 percent.
The increase also runs contrary to the national mood about government spending and tax hikes as reported by major news sources across the nation.
While the yes campaign on the personal income tax increase, Measure 66, was able to persuade 54 percent of voters that only the “rich” would pay more taxes, that is not exactly the case, according to various local and national sources.
An article published in the Wall Street Journal on Jan. 28 outlines the reality that the $700 million will fall largely on small and medium-sized businesses, roughly two thirds of the businesses that will be affected. That includes many of the businesses in the Molalla area.
“I think the average person was hoodwinked by it,” said Molalla’s Main Street Pizzeria owner Peggy Wurdinger. “I think they think they understood it (the measure) but when it comes right down to it I think they are going to be very surprised and unhappy with the results. I don’t think the money is going to go where they thought it would.”
According to the Tax Foundation, a non-partisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937, the tax increases take Oregon out of the top 10 business-friendly states in the nation.
The foundation said the passage of the measures shows Oregonians willingness to tax others while not willing to tax themselves as the majority voted to tax a certain segment of the population and that segment only.
“The referendum process in Oregon has been used previously to block tax increase that would affect the majority of the population directly. So the legislature came back with taxes directly targeting a smaller minority population,” Tax Foundation Director of Projects Joseph Henchman said in a statement following the passage of the measure.
Since Wurdinger of Molalla’s Main Street Pizzeria is a new business owner, she will not have to worry about the retroactive tax that will be imposed on businesses’ 2009 gross tax receipts because of the passage of Measure 67.
However, being a new business does not shelter her from much more than that small part of the measure.
She is worried that as she is forced to pay higher taxes in 2010, her customers and staff will be affected.
“If worse comes to worse we will have to up prices, lay-off employees. It is something that worries me,” she said.
Both measures lost in 25 of Oregon’s 36 counties, including Clackamas County.
Ron Farner, registered principle and investment executive for national securities and owner of RJF, Inc. in Molalla, said the problems with the passage of this measure will not be what happens right now but rather what will happen in the future.
“These are legacy costs and those costs never go down,” he said. “So today it is people who make over $250,000 per year, but then it will go down to people making $125,000 per year, then $75,000 per year. This measure should have been voted down, forcing the state government to balance the budget and live within their means.”
These measures were so unusual that they drew national media attention.
In another article published in the Wall Street Journal on Jan. 15, the writer questions how many private sector employees and employers will still be there in a few years to pay the higher taxes.
The same article also points out that during the last budget, the Democratic controlled state legislature handed out a $259-million pay raise to the government work force even though Oregon was facing a $1 billion deficit.
In the last three years the state has added 25,000 new public employees but has lost 40,000 private sector jobs. The average state worker makes $83,402 a year in pay and benefits which is 30 percent higher than the average private sector employee.
According to the Wall Street Journal story, it is not schools, the elderly or those most in need in the community who will see any of the $700 million. The additional money will go to continue funding government workers’ salaries and raises.
“The private sector is taking a hit and anybody in state or government is not affected,” Farner said. “They are still getting raises, benefits and PERS. They are getting everything they got before plus increases. The average private worker has taken cuts in pay, hours and benefits. At best they are keeping their jobs without a raise. Unfortunately this measure allows that to continue.”
Molalla’s Key Carpets owner Mary Lynn Jacob is not yet sure how her business will be affected by the increase. Jacob, who moved to Molalla from New Orleans after Hurricane Katrina, said an increase in this type of tax is completely different from the Louisiana tax system.
“It’s very foreign,” she said. “In Louisiana we had a state sales tax and a much lower income tax.”
But Jacob is not convinced how things will turn out and cautioned against using any examples from the previous year to predict how the measure will affect Oregon businesses.
“We are going to have to wait and see,” she said.