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Wealths flight shows need for state tax reform

POST SCRIPT • Oregon is missing a good opportunity to end its boom-bust tax system
by: L.E. BASKOW, Several Portland corporate leaders have moved to Vancouver, Wash., and Clark County sometimes to avoid Oregon's income and capital gains taxes. One writer stresses the urgency of tax reform to interrupt that pattern.

The Portland Tribune's article, 'Tax savings lure big names across river' (Oct. 8), raises all sorts of issues relative to the tax structure in Oregon.

Parts of the article emphasized my resentment of wealthy individuals who earned their income in Oregon and then sidestepped their tax responsibility by moving to Clark County, Wash. What the article did not stress was the need for reform in Oregon.

While many comments in the article alluded to reform, I am passionate about that concept and hope to someday assist that effort through a consortium of community leaders. Tax systems in both Oregon and Washington are obsolete, and citizens of both states exploit opportunities to defy their sense of citizenship to either state by circumventing them.

Why is our form of taxation obsolete? It wasn't obsolete when conceived, yet no one would have been expected to comprehend its impact during the years, notwithstanding global changes that would occur. Oregon has the most volatile tax variations in the country, as a full 70 percent of the state tax revenue is generated by the state income tax. Oregon collects far more than it normally requires in a good economy, and falls way short in a bad one.

It is also very difficult to predict capital gains in any given year, but the impact can be enormous. Sales tax variations over time have not been nearly so volatile, and the states which employ these consumption taxes have been far more stable in their budget challenges, although in this current recession sales tax revenue has also been impacted far more than in past contractions.

Opponents of tax reform like to comment on the 'fairness' of our tax system. While I agree that a progressive system of taxation is more 'fair,' the issue goes far beyond that perception. The key to job creation is competitiveness, and unless we also insert our competitive position into the equation the conversation becomes meaningless.

In a global economy, we struggle to create a robust economy against the entire world - let alone the other 49 states - so we can be 'fair' and maintain high unemployment rates, or be competitive and generate jobs with tax policy that then makes redistribution more equitable to low income Oregonians.

The word 'competitiveness' is also easy to misunderstand. Competitiveness does not just apply to tax policy. It includes education in the state, quality of the labor pool, infrastructure and transportation, etc. Certainly we need a tax policy that contributes enough into the system to support these needs. Oregon lacks the ability to adequately fund these essential ingredients to be aggressively competitive, so tax reform is essential to adequately fund these requirements.

But without attracting new business growth and retaining what we have, which results in adequate job creation, there is no revenue source to fund these services. Being competitive results in generating more tax revenue than being more 'fair' and maintaining the status quo of what we have.

Washington, which has no income tax but a very high sales tax, must not debate the fairness issue. And when you look at economic growth, they parallel other non-income tax states like Texas, Nevada and Florida, which have experienced rapid job growth. Consequently, their citizens have enjoyed better prosperity and the state has enjoyed more stable and rapid tax income growth. So, if our system is so equitable and superior, why do we have so many suffering people who cannot locate a job?

The answer is that both states need reform. Both states need to balance their tax revenue with both a consumption tax and an income tax. I cannot argue for Washington, but the minimal it would do for Oregon - if we added a sales tax and reduced our income and capital gains rate - is to provide stability and more income for state services.

Paul Warner, the director of the Department of Revenue, asserts that we lose more than a billion dollars a biennium in non-collectible income tax revenue. This includes money changing hands from illicit activities (like drugs), bartering, tourist income and aggressive deductions on income tax returns.

Yet, if these same people were to purchase something with that same amount of money at, say, a 5 percent sales tax, it is automatically collected and cannot be hidden from tax collections. And there are all sorts of methods to assure that our low-income citizens are protected from excessive taxation through rebates and exclusions.

So, back to Oregonians flipping to Washington to avoid taxes? It is a very real and serious problem, as once Oregonians are gone, we get nothing from them ever again unless they move back. Just take a boat ride from the Interstate 5 to the Interstate 205 bridge and see the homes of those who should still be Oregon citizens.

We need tax reform.

Randy Miller is former chairman of the Portland Chamber of Commerce and is involved in numerous community, business and civic organizations. He lives in Southwest Portland.