January 20, 2004,
When the Oregon legislature finally passed a budget in late August after what has been the longest legislative session in that state's history, the result was devastating: Without debate in the statehouse, legislators snuck through a massive tax increase of $800 million, then quickly scurried out of town.
The tax increase, House Bill 2152, contains seven different tax hikes, among them a "temporary" income-tax surcharge, an increase in the corporate minimum tax, the tobacco tax, the dividend tax, and a reduction in the property-tax discount that is in fact a tax increase. In addition, the law creates an extraterritorial income tax, targets businesses by slashing corporate tax credits, and deprives small businesses of the possibility to deduct the cost of utility vehicles for business purposes. Finally, the bill specifically singles out seniors, reducing their eligibility to deduct healthcare costs.
Nationwide, states faced budget problems when the 1990's economy burst. Like most states, Oregon failed to resist the temptation to go on a spending-spree during the boom years of the 1990s. Programs were created and expanded, especially in education and healthcare. When the hi-tech bubble popped in 2000, the wasteful indulgences of the states came back to haunt. States could no longer meet their higher spending commitments.
Oregon's economy has been ailing ever since, with the unemployment rate ranked highest in the United States. But rather than identifying the underlying budget problem excessive spending and coming up with real solutions, the Oregon legislature opted for a quick fix: take more money from hard-working families and pour it into the budget gap.
A number of states, however, have been able to solve their budget shortfalls without raising taxes. The most dramatic example is Texas, where Gov. Rick Perry and the legislature in 2003 closed a $10 billion shortfall by actually shrinking the budget below 2002 levels. Other states that restored fiscal sanity to their budgets short of raising taxes include New Hampshire, Florida, Colorado, Hawaii, Minnesota, and Massachusetts.
Luckily for the people of Oregon, voters have the chance to give their verdict on the legislature's tax hike, which will cost $936.28 for a family of four. Jason Williams of the Taxpayer Association of Oregon and a broad coalition of groups collected almost 150,000 signatures nearly three times as many as needed to place the repeal of the tax hike on the state's February 3 ballot.
This should send a clear message to legislators: There is no such thing as a sleeping electorate. Voters do care about how much is taken out of their pocketbooks. And recent history in Alabama, California, and elsewhere has shown that the people will punish politicians who raid the taxpayers to make up for fiscal mismanagement.
Gov. Bob Riley (R) of Alabama tried to raise taxes by $1.2 billion to close a $675 million budget hole. But voters humiliated Gov. Riley by rejecting his tax hike by an overwhelming majority of 68 percent to 32 percent. In California, unrestrained spending and a tripling of the state's car tax led to the recall of Gov. Gray Davis (D), and the election of tax-cutting, limited-spending Arnold Schwarzenegger. In Nevada, two petition drives are underway to repeal Gov. Kenny Guinn's (R) $800 million tax hike, and in Hawaii, a public outcry stalled a drive to raise taxes to fund transportation projects.
The big-spending interests in Salem, Oregon, charge that there are no alternatives to the tax hike. Before finding an alternative, though, one needs to identify the heart of Oregon's problem, and that's what the legislature has failed to do.
Reckless spending is the problem. According to the Cascade Policy Institute, Oregon state spending grew 151 percent from the 1989 legislative session to the 2001-03 session. The picture gets clearer when Oregon's situation is compared with that of other states, as pointed out by Randall J. Pozdena: Given Oregon's economic and demographic make up, when compared with other states, Oregonian state spending is 15 percent higher than one would expect.
Kevin Mannix, chairman of the Oregon Republican party, has been one of the few to attack the spending problem. He has laid out an alternative proposal that would eliminate nearly $1 billion in wasteful government spending. But because such a plan would eliminate the money that is at the heart of their power, Salem's big-spending interests won't even consider it.
A tax hike is by no means the way to get Oregon's ailing economy back on track. At the national level, the Bush tax cuts have spurred economic growth and job creation. Oregon's working families deserve no less in their home state. Lawmakers should by now know that you can't tax your way to prosperity. The tax hike should be killed by the vote of the people on February 3rd.
Paul Prososki is state government affairs manager and Sandra Fabry is state government affairs associate at Americans for Tax Reform.