Fish Wrapper Editors Show Ignorance Of Basic Economics

Here's a question to consider. Let's say that your state budget is expected to increase by 20% in the next biennium dur to increased tax revenues. However, your state economy, which, although it has lagged behind the rest of the country, has been doing well, is now showing signs of slowing down. What do you do?

Do you

A) Budget to spend all of that money, propose even more taxes for more spending, and then try to take additional money that is supposed to be returned to corporations out of the economy and into a "rainy day fund"?


B) Budget wisely, don't spend all of the increase in revenue, and keep some of the surplus in a rainy day fund?

Well, if you're a liberal like Ted Kulongoski and the Daily Dead Fish Wrapper, the obvious answer is A. (that extra money just burns a hole in their pocket, you know). And, true to form, the Fish Wrapper editors continue to push the typical liberal agenda of tax and spend, tax and spend.

For those that are unfamiliar with the situation, here is a recap. First, the law. The 1979 Oregon Legislature passed the “2 percent kicker” law, which requires the state to refund excess revenue to taxpayers when actual General Fund revenues exceed the forecast amount by more than 2 percent. This limitation is applied separately to corporate income tax revenue and the sum of personal income tax revenue and all other General Fund revenue. If revenues from the corporation income tax exceed their forecast by more than 2 percent, then all revenue in excess of the forecast is refunded to corporations. If revenues from all other General Fund sources exceed their forecast, the total excess is refunded to individuals through the personal income tax program.

So, according to revenue forecasts, there would be approximately $275 million in kicker refunds returned to small businesses this year. But, as explained in the Fish Wrapper, Teddy and the liberals, er, Dems, decided that they wanted to keep the $275 million and put it in a rainy day fund, but those mean Republicans didn't go along with it. And, as is expected the Fish Wrapper editors whined about it.

The Legislature wasted a historic opportunity Tuesday. It had a chance to build a new rainy-day fund to shield the most vulnerable Oregonians -- kids, seniors, the disabled -- from the effects of the next recession.

It had unprecedented support from business groups to divert this year's corporate kicker -- $275 million in taxes -- into a savings fund. It had the painful lessons of the state's recent economic collapse, including the humiliating early school closures, still fresh in its memory.

Still it failed. In another show of political posturing and petty partisanship, Democrats and Republicans killed each other's savings plan. Now the Legislature is all but certain to punt to Oregon voters in May the question of using the corporate kicker to build a rainy-day fund.

Thanks for nothing. Sure, it's likely that voters will decide that Oregon should save unanticipated corporate tax revenue rather than return it to mostly out-of-state corporations. But it would have been nice, just once, to see leadership in the Legislature on a major issue facing the state.

Instead, Oregonians were treated to another bipartisan failure. The Democrats who have narrow control of the House -- Speaker Jeff Merkley of Portland and Majority Leader Dave Hunt of Gladstone -- overplayed their one-vote majority. While Senate Democrats and Gov. Ted Kulongoski's office were willing to negotiate a compromise with minority Republicans, one that could have resolved the kicker, the rainy-day fund and several other tax issues, Merkley and Hunt insisted on calling the question.

House Republicans, meanwhile, decided it was more important to make political hay and stand with their leader, Rep. Wayne Scott of Canby, than create the rainy-day fund that Oregon needs. After the vote, Scott rushed out a news release claiming that GOP lawmakers "defeated a $275 million tax increase" on Oregon businesses and accused Democrats of "recklessly raiding the kicker."

Then, after a day of negotiations, the legislators reached a deal which would, among other things, cancel $250 of the corporate kicker and put it into a "rainy-day" fund.

The plan melds Democratic and Republican ideas but tilts toward the preferences of the majority Democrats. It would:

  • Cancel $250 million in corporate kicker tax rebates and put that money into a new state savings account.
  • Raise the corporate minimum tax, set at $10 in 1931, to a sliding scale of $25 to $50,000, depending on how much a company sells in Oregon. That plan would generate about $75 million a year for public services.
  • Raise the value of estates exempted from a state inheritance tax from $1 million to $2 million, a step favored by farmers and business owners.

Of course, the legislators try to pat themselves on the back.

The plan announced Wednesday would be enacted directly by lawmakers, legislative leaders said.

"Whenever it is possible to tackle a question inside this building, many of us have a strong preference to do so," said Merkley, D-Portland. "That is what we have been elected to do. . . . And this is much better than a partisan plan being sent out to voters."

Courtney agreed: "Anytime Democrats and Republicans in the Legislature can come together on something of this magnitude, that's good for Oregonians."

One key to getting Republicans to agree to the deal: Thousands of small corporations would get their kicker rebates after all. Corporations that sell less than $5 million inside Oregon would be eligible for their 2007 kicker rebates averaging about $2,000 a firm.

Together, they would get $25 million in rebates, compared with $250 million in rebates for larger corporations that would go into state savings.

"We think that is extremely important to small businesses and will circulate back through the economy," Scott said.

And, of course, the Fish Wrapper editors loved it.

The deal that lawmakers have reached on a rainy day fund is big for Oregon's future, big for the success of this legislative session and big for a state that had lost confidence in its Legislature as a place to solve problems.

It doesn't matter that the Legislature had to take a mulligan on the rainy day fund. What matters is that on their second swing at the issue, lawmakers struck a fine deal. Give them credit: After the awful show of partisan pigheadedness in the House on Tuesday, lawmakers could have trotted back to their offices and left this, like nearly everything else, for Oregon voters to decide.

Instead, party leaders started negotiating again right after the party-line votes in the House. Twenty-four hours later, Speaker Jeff Merkley, D-Portland, Minority Leader Wayne Scott, R-Canby, and other leaders announced the most important legislative agreement in years, a plan to create a rainy-day fund and seed it with most of a $290 million corporate tax kicker.

There's nothing that Oregon needs more than a real savings account. If both the House and Senate quickly approve the deal -- and they should -- Oregon will have a fighting chance to build the kind of durable savings account it needs to keep its schools open and provide other essential services during future economic downturns.

Further, the agreement will improve Oregon's tax system. It will replace the absurdly low corporate minimum tax, now at the $10 set in 1930, with a sliding scale of $25 to $50,000, depending on how much a company sells in Oregon. It also makes a reasonable adjustment in the estate tax, raising the exclusion from $1 million to $2 million.

Now that I've explained all that, here's where the ignorance kicks in. First, if $25 million will be good for the economy, how much good do you think $250 million would do? For proof, look at the effects of President Bush's tax cuts (you'll have to look hard, because they certainly aren't reported by the MSM). The economy is cruising along. very nicely. For example, the budget deficit has been cut in half, tax receipts have gone up, and tax receipts are a lower percentage of GDP. And how did this happen? We had to pay fewer taxes, which put more money into the economy, which in turn led to greater wealth creation, which in turn creates more tax revenue, even though the tax rate is lower.

Second, the phrase "it's always a rainy day in Oregon" is true in more ways than one. How long do you think it will take the legislature to decide that it's a rany day, and start dipping into this fund? Two years? I'd be even less, especially as long as tax and spend Dems are in power. Look at this year; they have a projected increase of 20%, and that's still not enough. They are looking at adding even more taxes, such as increasing the cigarette tax.

But, as is typical of liberals, they think that big government is the solution to all of our problems. They are ignorant of basic free market economics (as championed by Milton Friedman) that has demonstrated time and time again that the less you take from the economy, the stronger it is, which in turn generates more tax revenue. So in the end, both sides win. My guess is it's a power thing; they don't feel like they're doing their jobs unless they are using their power and raising taxes. Whatever it is, as long as they take from the economy instead of putting into it, nothing good can happen.

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