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Tax incentives for business are good for schools

Do you know that about half of school funding comes from income tax? Jobs — and the income tax that is generated by jobs — pay for important public services for all Oregonians: roads, parks, schools, firefighters, teachers.

So what does a state heavily dependent on income taxes, such as Oregon, do to help businesses create jobs for Oregonians — and provide revenues for important public services? Fortunately, the state of Oregon has strategic incentives for businesses locating and operating in the state. 

These programs can provide “fertilizer” to help attract catalytic businesses to the state; some provide loans and grants to help grow small, emerging and entrepreneurial businesses, and some provide incentives to balance the state tax burden for capital-intensive equipment for manufacturing companies. These incentives are all important to businesses — and given the state budget’s connection to income tax, important to Oregonians.

As reported in recent national newscasts, other states do everything in their power to reduce just such costs of business to recruit industry away from elsewhere. In other words, there are 49 other states with 49 different business recruitment strategies, but only one Oregon working to retain the economy it has.

As the Oregon Economic Development Association recently reported, tax incentives in Oregon equate to $226 per resident. Loans and smaller grants to emerging businesses come to only a mere $1.17 per Oregonian. 

As we remember that many states work aggressively to recruit businesses away from elsewhere, consider that Washington residents have approved $349 per person in tax discounts to companies. That is 54 percent more than Oregon. In Arizona, a frequent competitor for high-tech manufacturing, businesses receive a whopping $6.26 per resident in grants and subsidies, according to the report by the Oregon Economic Development Association.

Given these facts, and a still-fragile economic recovery, Oregon is now engaged in a very important discussion, and it seems that there are three ideas upon which most agree: Oregon’s public schools deserve a better funding strategy. Oregon children deserve high-quality education. Alternative tax revenue strategies merit attention.

But here is where there is strong disagreement and disappointment in some current education funding proposals: the potential reduction or elimination of tax incentives for economic development.

By mislabeling tax incentives as outright cash subsidies, proponents of this scheme assert vast revenues can be diverted to school funding. 

The trouble with that line of reasoning is this: increasing higher-wage employment is what actually enhances school funding, especially with property taxes limited by Measure 50. In this closing biennium, nearly 87 percent of Oregon’s general fund came from jobs-supported personal income taxes. That translates into 51 percent of all statewide public school resources from jobs-driven income taxes. 

The state of Oregon recently released Hillsboro enterprise zone data showing that $10 million in property tax discounts — only $3 million of which would have gone to education — have doubled manufacturing jobs in one zone. Assuming average manufacturing wages in Washington County, taxable payroll grew by over $198 million in the city.

Let’s say all of those jobs pay Oregon’s top marginal income tax rate. Conservatively: Oregon schools gained almost $7 million in personal income tax revenue from a $3 million reduction in property tax revenue. And that doesn’t include property taxes those employees pay elsewhere in Oregon.

But elimination of Oregon’s relatively modest tax incentives will do just the opposite. Every $1 in economic development tax incentives eliminated means over $2.30 in school resources lost due to reduced income tax revenue.

If Oregon’s budget continues to be singularly dependent on income tax revenue, reducing income tax revenue to fund schools is the last solution we should consider.

Bill Reid is the senior economic planning manager for Cardo Consulting Group and a member of the Westside Economic Alliance, a nonprofit group advocating for economic vitality. Learn more at westside-alliance.org.



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