Oregon Business Agenda: Taxes and Tax Reform

Oregon is in deep trouble right now. Between March, 1996 and February, 2015, the unemployment rate in Oregon has been higher than the federal rate. Its manufacturing jobs have all skipped town, the timber industry is nearly non-existent, and many are continuously fighting for higher business taxes so that they pay their “fair share.” The cause of this has been a mixture of state and federal legislation that just isn’t in the best interest of Oregon and its residents. I have an agenda that I believe would help put Oregon in the right direction: Progress and prosperity.

NOTE: This article is part of a series that outlines a common sense agenda for the benefit of all Oregonians.

The Agenda

  • More taxpayers, not more taxes
    • Sensible business tax reform
  • Give some authority back to counties
  • Increase tourism interest
  • Educate Oregonians right

More Taxpayers, Not More Taxes

Believe it or not, it seems like the first thing the people in Oregon do is call for higher taxes on businesses. Would it surprise those people to know that Oregon has more small business than large corporations? Nike, Intel, Columbia Sportswear, Symantec, and Leatherman, just to name a few large corporations, are some of the only ones that I know of. Interestingly enough, they are all located in or near Portland. Other larger corporation businesses exist within Oregon, but they aren’t corporate offices of any kind.

Oregon already has something similar to what I’m proposing, but its not really working, so what I have in mind is a little more extreme. For new and relocating businesses, no taxes for 5 years. This includes franchises and corporate stores such as fast food and retail. Depending on the income level determined for the business, the rate will go to the regular business tax rate as outlined in the business reform.

Sensible Business Tax Reform

Currently, the top business tax rate in Oregon is 7.6 percent. However, to incentivize things, I propose a compromise: Instead of only increasing business taxes (because that’s inevitably going to happen with this legislature), why not incentivize lower tax rates in exchange for an increased investment in Oregon?

An increased investment in Oregon doesn’t necessarily mean donating to the state or lending money to businesses. It is in more specific reference to expanding a business or increasing wages. The idea revolves around relying more on taxpayers by a natural increase in employment, which would ultimately generate tax revenue in the most natural way possible. So how do we do it?

  1. Raise the business tax rate to 10 percent for businesses generating more than $1 million in revenue, 5 percent for those generating $500,000, 0 percent for those making less than $500,000. This does not include sole proprietorships. It’s high enough for people to consider the incentive and it makes tax-crazy Democrats in Salem happy to at least have it on paper.
  2. Offer a 50 percent tax cut (One-half their current rate) for all businesses that raise all of its lowest wages in Oregon by 33 percent. This is a sensible way to get companies to raise wages without forcing it upon them with a $15 minimum wage they can’t afford. Trust me when I say that a larger business can afford a top tax increase of 2.4 percent than a $15 minimum wage.
    • This way, there is a benefit to the business by ultimately lowering taxes from 7.6 percent to 5 percent. There is a benefit to the bottom workers by increasing their pay by 33 percent. Ultimately, there is a benefit to the state from the increase in tax revenue generated by the workers earning more or through the money they will ultimately spend.
    • If a business decides to not increase its lowest wages in Oregon by 33 percent, it may receive the 50 percent tax cut by using that money to expand its operations. If desired, a business may do a combination of the two and receive a 75 percent tax cut. However, the expansion must be very aggressive.
  3. Abolish the payroll tax. We want to maximize employment in Oregon, not hinder it! The payroll tax in Oregon is a small tax that tells employers that the cost of a minimum wage worker is not really $9.25 per hour. It can be between 1.5 percent and 5.4 percent, so $9.25 per hour has the potential to cost $9.71 per hour.
    • If 100 man hours were worked in a business day in Oregon at the top 5.4 percent, it costs that business $46 in pure tax for the day. A business could hire one more part-time worker at 4-hour shifts to pay an additional $37 per day. This way, the business benefits from the work performed and saves $9 per day ($3,285 per year), the state benefits from the tax revenue generated by the additional worker (or the money that is ultimately spent by the additional worker), and the worker benefits by receiving money for their labor! The current system only benefits the state.

How Much are These Benefits?

Through this sensible tax reform, we can effectively incentivize businesses to increase the minimum wage from $9.25 per hour ($1,480 per month; $17,760 per year) to $12.30 per hour ($1,968 per month; $23,616 per year) without actually increasing the minimum wage. Because the businesses would no longer be required to pay the additional 5.4 percent per hour on each employee, they can save money to reinvest back into their businesses. Ultimately, businesses that do increase their lowest pay rates by 33 percent will lower their taxes by 2.6 percent instead of actually increasing them by 2.4 percent.

Let’s end with a detailed example of how this would look.

Example

2016
A business generating $2 million per year in Oregon currently pays 7.6 percent, or $152,000 in taxes. This business has a total of 25 full-time employees and all earn minimum wage, which is $9.25 in Oregon. The true cost is $9.71 due to the employment tax. These employees have a total cost of $466,080. All other costs total to an average of 20 percent of revenue, which would be $400,000 per year. Total cost of this business is $1,018,000 per year, or 50.9 percent. Nearly $1 million per year is pretty good for any business to have as profit, but this is before federal taxes. Income tax revenue from the employees is only $39,960.

2017
If this agenda got passed in full detail and the business took the incentive, the tax rate would become 5 percent. All 25 of these employees would now earn $12.30 per hour. All other costs stay the same, revenue increased to $2.5 million due to the increased productivity from paying the extra wage. The business now pays $125,000 in taxes. The total cost of employees is now $590,400. The total cost is now $1,115,400 per year, or 44.62 percent. The business now wants to expand. Income tax revenue from the workers is now $53,136 (+$13,176).

2018
The business expands its manufacturing to a eastern Oregon in efforts of helping the economy in the rural parts. In order to keep its 5 percent business tax, it maintains its $12.30 per hour starting wage, which is 33 percent higher than minimum wage. It hires 20 workers to manufacture and sell its products. Due to the expansion, business has started to come over the border from Idaho. The business now has a revenue of $4.5 million due to the increased demand. The tax rate is still 5 percent because the expansion didn’t happen with the wage because. The amount paid in taxes was $225,000. 45 workers cost $1,062,720. All other costs increased by 40 percent, which is low due to cost cutting manufacturing methods. This cost is now $560,000.

The business now has a total cost of $1,847,720, or 41.06 percent. The income tax revenue generated by the workers is now $95,644.80 (+$42,508.80).

2016 Income Tax Revenue: $39,960
2018 Income Tax Revenue: $95,644.80
TOTAL INCREASE: $55,684.80

If this exact example happened amongst 1,000 businesses, 20,000 Oregonians would be employed and earn higher than minimum wage. Income tax revenue would increase by $55.685 million. More importantly, businesses would have lower tax rates and can continue to reinvest money back into Oregon. In addition to this, rural Oregon would be rejuvenated and no longer in poverty.

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