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Angela Wilhelms and Jason Brandt
Wilhelms is president and CEO of Oregon Business & Industry. Brandt is president and CEO of the Oregon Restaurant & Lodging Association.
If legislators go in for new year’s resolutions – here’s hoping they do – they should commit to taking the tax-related recommendations of the Portland Central City Task Force statewide, beginning with a multiyear moratorium on new taxes.
It’s true that the tax environment in and around Portland is unique and particularly onerous, thanks to the proliferation of local and regional taxes. However, state-imposed business taxes also have ballooned in recent years, affecting employers from Ontario to Klamath Falls. Policymakers shouldn’t wait until circumstances everywhere are as dire as those in Portland to offer needed relief.
The task force determined, among other things, that rapid increases in local and regional taxes have eroded Portland’s economic competitiveness and contributed to Multnomah County’s recent outmigration. In response, it recommended not only a three-year moratorium on new taxes and tax increases affecting Portland, but also an expansion of Portland’s business license tax credit and, crucially, the creation of a tax advisory group. This group would review local and regional taxes and recommend changes needed to maintain economic competitiveness.
The task force’s recommendations recognize that Portland needs businesses to thrive. Employers pay taxes and provide jobs, and the people who hold those jobs pay taxes, shop, support the arts and contribute in many other ways to the city’s vitality. When employers leave, those benefits leave with them.
The same is true of businesses elsewhere in Oregon. Even as policymakers and voters in the Portland area have created or expanded local taxes, legislatively adopted tax increases have, as the task force recognizes, moved “Oregon … above the United States average in total effective tax rates.” Things may be worse in Portland, but from an economic competitiveness standpoint they’re tough all over.
Between 2019 and 2022, Oregon’s state business tax burden increased nearly 43% according to an Ernst & Young study commissioned by the Oregon Business & Industry Research and Education Foundation. Oregon’s combined state and local business tax burden is now 8% above the national average. It exceeds those in California, Idaho and Washington, three of Oregon’s closest neighbors.
Just as individual taxpayers may respond to rising taxes in Portland by moving to Clark County, Wash., where they’ll pay no income taxes, businesses may respond to escalating state taxes by moving to or expanding in friendlier states. And when they do, they take their jobs, tax revenue and innovation with them.
The biggest contributor to Oregon’s swelling business tax burden is the corporate activity tax, which the Legislature adopted in 2019 with the intention of raising $1 billion per year. Much like the Portland Clean Energy Fund and Multnomah County’s homelessness tax, this tax is generating far more revenue than expected. According to the state’s most recent revenue forecast, the corporate activity tax is expected to generate almost $2.8 billion during the 2023-25 biennium and a staggering $3.1 billion during the ensuing biennium – roughly 50% more than expected.
This gusher of unanticipated revenue should make it easy for lawmakers to give the state’s employers a tax breather for a few years. The tax is generating so much unexpected money, in fact, that lawmakers should look for opportunities for relief well.
If nothing else, the Legislature must establish a state-level version of the tax advisory group recommended by the task force. To do so, it need not look far. During the 2023 session, legislators considered a bill, SB 45, that would have created a task force on tax competitiveness to suggest changes that would improve Oregon’s business climate.
In addition to the recommendations of the Portland task force, legislators should take two lessons from the city’s experience. First, tipping points exist. Second, it’s best to act before you reach one.
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