LONG BEFORE THE ARGUMENTS surrounding the recession-era budget patches of Measures 66 and 67 were dumbed down to a nursery-school story about nasty businessmen swiping lunch money from children—that is to say, before the “No” campaign got outmaneuvered—Oregon’s tax system already had all the resiliency of cheesecloth.
Wealthy entrepreneurs have always enjoyed flitting between Oregon’s punishing income taxes and the less cumbersome tolls of surrounding states. At no time was that fact better (if very quietly) highlighted than in 2006, when Salem businessman William Colson and his sons Bart and Bradley hopped over the Columbia River to Washington the year before selling their Holiday Retirement Corp, a massive elderly living company, for $6.8 billion. “Senior management and ownership realized the additional taxes they’d have to pay made it advantageous for them to relocate before the sale went through,” says Bruce Andrews, a business consultant with knowledge of the deal. William Colson, now deceased, is said to have cleared more than $2 billion; Oregon lost out on an estimated $180 million in capital gains taxes.
But while Measures 66 and 67 will raise $727 million for cash-strapped Oregon schools and basic services, they also appear to be expanding the opportunities for Oregon’s wealthiest residents to leave—and, this time, take their businesses with them.
“Oregon can quit touting the fact that they don’t have a sales tax now,” says Jeff Essmann, a Montana state senator who, with 45 fellow Republicans, spearheaded a charge to recruit tax-weary businesses from Oregon. “They do now; they just can’t see it.”
To recap, Measure 66 raised the tax rate to 10.8 percent for individuals earning over $125,000 and households topping $250,000—higher than tax rates for any state except Hawaii. Meanwhile, Measure 67 boosted the corporate minimum tax from $10 to $150; the tax rate on corporate income above $250,000 rose to 7.9 percent (a 1.3 percent increase.)
Business owners are not happy, to say the least. Nike founder Phil Knight called the two measures “Oregon’s Assisted Suicide Law II.” But chocolates and foot rubs are on the way. Idaho Governor C.L. Otter published a “love letter” to Oregon businesses, welcoming them with open arms. Kris Holt, the executive director of the privately funded recruiter Nevada Business Connections, says his two recent recruiting visits have already bagged him a pair of Oregon businesses—including Medford’s ComNet Marketing Group and up to 300 jobs—with 15 more mulling greener pastures fertilized by the lack of a corporate income tax. “Think about it,” he says. “I’m saying, ‘I want you,’ while Oregon is kicking them in the ass.” Just across the bridge, Bart Phillips, president of Vancouver’s Columbia River Economic Development Council, coyly asks, “Are Measures 66 and 67 game changers? It depends. Our job is to help companies in our targeted clusters answer that question. We are.”
Mike Martin, who owns four businesses in the Albany area, bluntly describes the increasingly loveless marriage between Oregon’s businesses and its government. “It’s disgusting that [the Oregon Legislature] created a [tax] knowing that the majority of Oregonians who are ‘not impacted’ would approve it—‘Won’t affect me, why not?’”
For most voters, it was a hold-the-nose vote to save education, health care, and public safety from devastating cuts. Steve Novick, chief crusader for the “Yes” campaign, empathizes with angry business owners but ultimately shrugs, “What are the consequences of not having a sales tax? You either have lousy public service or higher taxes. We’ve already cut public services, so the one thing we can do is raise top rates on rich people.”
Even with 66 and 67 in effect, Oregon still ranks as the country’s 14th most business-friendly state, according to the Tax Foundation, a tax policy think tank in Washington, DC. But with the hurt of the campaign still stinging and suitors beckoning, many a local CEO is questioning the relationship between Oregon business and government, particularly as the state faces cuts or even more taxes for the projected $2.5 billion deficit in the next biennium.
“The welcome mat is out in Chicago,” says Tim Boyle, president and CEO of Columbia Sportswear, who recently returned from opening a new store in the Windy City and holding an intimate meeting with Mayor Richard Daley and the city’s top economic development official. Sidestepping the question of a Columbia move, Boyle instead offers a question: “With the highest tax jurisdiction in the country, would you want to be the person trying to recruit new businesses to Oregon?”