We’re still waiting for the mass exodus of businesses that conservatives predicted in the wake of voter approval of Measures 66 and 67 to happen. Meanwhile, a couple of developments this week suggest that Oregon isn’t really such a horrible place to locate a business after all.
Yesterday, the pharmaceutical company Genentech cut the ribbon to open its new manufacturing plant in Hillsboro. The facility will employ 250 people to start, with the prospect of adding more as production ramps up.
“Genentech executives say they chose Oregon for several reasons: taxes are higher in California; Genentech received Strategic Reserve Funds from the state; and there’s a well-educated local population,” Oregon Public Broadcasting reported.
The mention of a well-educated workforce shows once again that tax rates aren’t the only factor in deciding where to locate a business – especially a business that employs people with more than a minimum skill level and pays more than minimum wage, which is the kind of business Oregon needs to attract more of.
Meanwhile, a study commissioned by the Council on State Taxation (COST), an association of corporations that lobbies for lower state business taxes, reported that Oregon tied for the lowest level of state and local business taxes in fiscal year 2009.
The study, conducted by the accounting firm of Ernst & Young, compared the amount of state and local business taxes collected in each state with the total size of the state’s economy. On that basis, Oregon tied with Delaware and North Carolina for having the lowest tax level.
The study also calculated how much state spending benefited business and compared that with total business taxes paid. According to that computation, Oregon tied with Virginia and Maryland for giving businesses the biggest bang for their tax buck.
The study doesn’t take last fall’s tax measures into account, but it does seem to show that Oregon’s business climate isn’t as hellish as opponents of the measures claimed – and continue to claim.
“The data confirm that Oregon voters and the legislature were right in asking businesses to chip in a bit more to address Oregon’s revenue shortfall,” Steve Robinson, an analyst for the Oregon Center for Public Policy, said in a news release. “Throughout the recent campaign on Measures 66 and 67, OCPP said business taxes were low in Oregon. This corporate-funded study reaffirms that we were correct.”
Meanwhile, Ben Jacklet, managing editor of Oregon Business magazine, wrote on March 31 that “I still am lacking the name of a single job-creating investor or executive who is in fact leaving Oregon because of Measures 66 and 67.” Jacklet cites Genentech, Facebook (which is building a big server farm in Prineville) and Ferrotec (a Japanese company that’s planning to open manufacturing plant in Gresham) as examples of businesses that are moving here. (ToH to Steve Novick on BlueOregon.)
A few months ago I offered $25 to anybody who could produce a bona fide example of a business that moved out of Oregon because of Measures 66 and 67. I’ve had no takers, so I’m renewing the offer today. I’m pretty confident I’m not going to go broke paying off all the winners.
This article appears in Apr 8-14, 2010.
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Bruce,
You are such a wally. The process will be a simple, but methodical one. Businesses will have growth opportunities. They will run a NPV analysis based upon costs, and taxes, and revenues. If it pays they will make the investment, if it doesn’t they won’t.
A firm has facilities/plants/offices/warehouses etc in 5 states, Oregon, Washington, Nevada, Idaho, and Colorado. They do the NPV and the state where the return is the best is where it will be built, or where the investment $’s will go. If Oregon is high cost then the jobs will go elsewhere. Taxes are a cost, and Oregon’s corporate taxes are the second highest in the nation. These tax measures will absolutely positively impact investment decisions. If you want to believe that those decisions will not have implications for jobs then you are delusional, but I already knew that.
Measures 66-67 were about 1 thing. It wasn’t about people voting in their own self interest to get important and needed services. We would not have suddenly had important services taken away, regardless of how much scare mongering you wanted to try and foist on us.
Measures 66-67 was simply the case of one group, public sector unions, using the voting process to extract wealth from another group, high income earners and corporations. We would not have lost services, and we are not now going to get services we weren’t getting before. All that will happen is public sector employees will get paid more, that is it.
The public sector debt bomb is coming, and Wally’s like you have no concept of the implications.
xyz, I’m confused. Bruce cites multiple studies showing that Oregon has very low business taxes. Yet you assert it has the second highest in the nation. What are your sources?
Also, you go on and on about how a company will make its business decisions based upon costs, etc…and that said company will NOT put its investments in Oregon because of its high taxes. Yet, as Bruce notes, Genentech just opened up a facility in Hillsboro. Evidently, they did the NPV test you talk about and decided Oregon was a GOOD place to invest. They could have chosen any other state to open up shop, but they chose Oregon. How does that square with your assertions?
My mistake, Oregon has the second highest marginal INDIVIDUAL INCOME TAX RATES in the country.
http://www.taxfoundation.org/taxdata/show/228.html
Small business owners will consider this when making investment decisions.
As far as Genentech I do not know their particular circumstances so I cannot respond to their particular choices. It is highly possible, in fact probable, that they got significant tax breaks to place the facility on Oregon, which of course just confirms the notion that tax rates can and do play a significant role in investment decisions. These tax breaks happen regularly, forcing up tax rates on existing businesses, to support special deals for new businesses.
Regardless, I am glad they came, as I want my state to grow and prosper. At the same time, for every Genetech there may be dozens to hundreds of other investment choices that bypass Oregon because of the high tax nature of the state. There of course will not be any articles anywhere confirming those decisions, but that shall happen just the same. So northwesthippie.wordpress.com are you making the assertion that tax rates do not influence investment decisions?
Bruce has used his typical shtick in this article. Mis-characterize the arguments of those on the other side, and then find one example that seems to refute the straw man he threw up. Oregon is not tax hell, as Bruce likes to claim is the counter-argument. Oregon is generally a high tax state. Oregon has a huge budget hole, and a rapidly expanding state government. Oregon state government has grown well beyond the rate of population growth and inflation, in fact it has grown at double that rate for well over 20 years. Public employees compensation is 41% more than private sector compensation. Oregon has had one of the highest levels of unemployment in the nation for months and months. Raising taxes in this environment will not solve the structural problems this state faces. Focusing all those tax hikes on a very small segment of the population will have a massive impact on that small segment, and will have a massive impact on the decisions that small group makes.
northwesthippie.wordpress.com I did a quick web search on this Genetech deal and this is what I found.
Oregon’s corporate income tax structure was a key factor when Genentech chose Oregon, the company said, which singled out a feature known as “single sales.”
That provision, approved by the Legislature in 2001 (by a Republican controlled legislature) and phased in over several years, made sales within Oregon the primary factor in determining corporate income tax bills.
Oregon was one of the first states to use that approach, but it’s now been adopted by nearly half of the country. In aggregate, it reduced companies’ Oregon income tax burden by more than half since its approval.
For global corporations which sell nearly all their products outside Oregon, the change virtually eliminated their state income taxes.
Additionally, the governor promised $4.8 million in training assistance for the company’s workers. And Genentech won a property tax exemption valued at $23 million over the 15-year life of the deal under Oregon’s Strategic Investment Program.
“Every dollar we don’t spend on taxes go back to research,” said Starkman, the Hillsboro facility’s manager.
So in short while Bruce is trying use the Genentach decision as one where the Oregon tax structure didn’t seem to make a difference, the reality is the exact opposite. Because our tax structure is so convoluted and out of control, we have to give massive tax abatements and tax breaks to businesses to move here. Income tax rates played a huge role in the decision, and those rules, passed by a Republican legislature, facilitated their decision. In short this blows a hole the size of the Grand Canyon in Bruce’s argument.
Ok now this is how this will play out. I have shown Bruce for the idiot that he is, so now he will pop up with a pejorative laced tirade, calling me every name in the book. it happens every time I blow up BS straw man arguments.
“Public employees compensation is 41% more than private sector compensation.”
How is that figure calculated? Is it based just on aggregate numbers, or does it take differences in the nature of the jobs and the skill and education levels of the employees into account? State government probably does not employ as many low-skill, low-wage workers as the private sector does.
But in any case, the way to achieve greater prosperity is not to drag public-sector employee wages down but to bring private-sector employee wages up. I have never been able to understand how reducing the incomes of consumers (whether they work in the private or the public sector) is supposed to help the economy.
From HBM
But in any case, the way to achieve greater prosperity is not to drag public-sector employee wages down but to bring private-sector employee wages up. I have never been able to understand how reducing the incomes of consumers (whether they work in the private or the public sector) is supposed to help the economy.
More pretzel logic from HBM
You don’t get why reducing income of consumers is supposed to help the economy, but you want to raise marginal tax rates on high earners, and corporations.
So your argument is that it will make us all better off if we reduce the net income of one group (high wage earners and corporations), but you can’t understand why taking income away from one group (public sector unions) will improve the economy. In other words you are arguing with yourself.
Second
The mean wage for private workers is greater than their median wage by a far larger % than that of public sector workers. What does that mean? It means that private sector workers mean wage, which is the numbers I quoted, is distorted upwards by a small number of high wage earners. If we used the median wage, the number would be far greater than 41%, further indicating that there is a huge disconnect between public sector wage and private sector wages.
But of course, taxing high wage earners will not raise the wages of other private sector workers, so your raise the water level argument is apocryphal, these tax hikes will only enrich public sector workers.
I forgot to properly cite the source of my information regarding Genentech above.
http://www.oregonlive.com/business/index.ssf/2010/04/genentech_opens_in_hillsboro_f.html
“In short this blows a hole the size of the Grand Canyon in Bruce’s argument.”
On the contrary, you have shown that, all things considered, the tax environment in Oregon is not nearly as hostile to business as conservatives make it out to be. Thank you.
“I have shown Bruce for the idiot that he is, so now he will pop up with a pejorative laced tirade, calling me every name in the book.”
Hmmm … a little projection, maybe? I have never called you names, unless you think that describing somebody as a conservative or a right-winger is calling names.
“Oregon was one of the first states to use that approach, but it’s now been adopted by nearly half of the country. In aggregate, it reduced companies’ Oregon income tax burden by more than half since its approval.
For global corporations which sell nearly all their products outside Oregon, the change virtually eliminated their state income taxes.”
Forgive me if I’m wrong, but doesn’t this mean that the company viewed Oregon’s corporate tax structure as BENEFICIAL? And that BENEFIT was a key reason for locating here? You seem to be blowing holes in your own arguments…
“So in short … Bruce is trying use the Genentach decision as one where the Oregon tax structure didn’t seem to make a difference”
You’re the one flailing away at strawmen here. I never denied that the tax structure is a factor; all I’ve said is that it isn’t the ONLY factor. Genentech cited tax advantages as a reason for moving here, but also mentioned the importance of a supply of educated workers.
In their fixation on taxes, conservatives overlook or minimize the importance of other factors in attracting business and industry. Why is the American high tech industry still centered in Silicon Valley? Why hasn’t it moved to Mississippi or Alabama in search of lower taxes? Because Silicon Valley has (a) a large pool of highly educated, highly skilled workers, (b) proximity to centers of research including several great universities, and (c) a quality of life which appeals to the kind of people the industry needs. All these advantages outweigh the disadvantage of comparatively high taxes.
Oregon has (c) but still is a long way from having (a) or (b).
northwesthippie.wordpress.com they got $27 million in tax abatements to come here, that is the single biggest reason why they came. They are not taxed in Oregon, for income earned elsewhere, only for income earned in Oregon (they of course will now be taxed on sales, as well as income within the state of Oregon). Other states offer the same benefit, so there are two very obvious conclusions that can be drawn.
1.) Genentech will not do much business within the state of Oregon and
2.) That $27 million in tax breaks played a very huge role
Beyond that, HBM used Genentech as a shining example that our tax structure is not bad, and it will bring great companies into the state, but the reason they came is because they got huge tax breaks that compensated for the convoluted tax structure this state has.
HBM,
to quote you
“All these advantages outweigh the disadvantage of comparatively high taxes.”
What??????? You cannot make that statement, as you have absolutely nothing with which to support that statement. Just because you want it to be true does not make it so.
If you read the Oregonian article it is obvious for all to see that the reason Genentech came is because there were huge tax breaks offered outside of the standard state tax structure to bring them here. It was absolutely the most important reason they came. They came because Gov. Kulongoski agreed to take taxes paid by existing Oregon corporations and citizens and gave it to Genentech through one sweetheart deal after another.
XYZ – Every state in the union uses tax advantages to get businesses to come to their slice of heaven. Oregon does not have some uniquely screwed up tax structure by virtue of the fact it gave Genentech a break. Show me a state where business are not given tax incentives to relocate.
“Beyond that, HBM used Genentech as a shining example that our tax structure is not bad, and it will bring great companies into the state”
Not what I said at all. My point was that it is not as egregious as conservatives make it out to be, and that businesses seem to be continuing to locate here despite our (supposedly) horrible tax structure.
“”All these advantages outweigh the disadvantage of comparatively high taxes.” What???????”
Again, why are you misrepresenting what I said? That sentence referred to Silicon Valley, not Oregon. The point is that if low taxes were the sole factor in deciding where to locate businesses, the high tech industry would have left California long ago.