Politics & Policy

Voting for Higher Taxes

The real takeaway from Oregon's recent referendum.

When Scott Brown was elected to the Senate in Massachusetts, it was because he rode a “wave of voter frustration” (Associated Press) and “capitalized on voters’ disaffection with the status quo” (New York Times). “Anger” and “antipathy toward federal-government activism,” more than support for Brown, drove Massachusetts’s voters to go with the Republican (Washington Post).

When Oregon voters approved tax increases on corporations and families making over $250,000, however, it was because the voters had finally decided to “behave like responsible adults” (Newsweek). It showed that Beaver State voters had bravely “gnawed back fears of tax hikes” (The Olympian) and “ended two decades of tax scrimping” (L.A. Times). What motivated them was the very opposite of the “anti-Washington sentiment” that animated Scott Brown’s campaign (CBS News). In voting for new taxes, voters in Oregon “bucked decades of anti-tax and anti-Salem sentiment” (The Oregonian).

When voters go for higher taxes, they are acting bravely, responsibly, and wisely. When they put Republicans into office, they are throwing “temper tantrums.”

There are a few minor problems with this thesis. Russ Walker, Oregon director for the grassroots group FreedomWorks, explains that the coalition of public-sector unions that supported the tax was able to exploit voter anger at Wall Street. “If Democrats think this is a referendum on their policies in general, they’re making a big mistake,” he says. The coalition that formed to oppose the tax “did a bad job of messaging, and the other side did a very good job of tapping into these populist emotions.”

Walker points to an ad run by the unions that focused on Oregon’s corporate minimum tax. Corporations in Oregon that lose money or find sufficient write-offs pay only a nominal amount of $10. “Costs for the middle class have gone up a lot,” the narrator says. “But big corporations like Wall Street banks and credit-card companies still pay the $10 minimum tax.”

It’s true that corporations use write-offs to avoid paying more than the minimum, but Walker says the new gross-receipts tax — which is retroactive to Jan. 1, 2009 — will hit many businesses that really did lose money last year. Walker says he’s already heard from small-business owners who are planning to relocate out of state, but the real problem is that businesses who might have been attracted to Oregon’s relatively good business climate before will look at the tax hikes and say, “Oh, no thanks.”

Besides the lost jobs and lost opportunities, the top-heavy tax hikes increase the likelihood that the next “boom and bust” revenue cycle will be more intense, leaving an even bigger budget hole. The top 1 percent of Oregonians already pay approximately one-quarter of all the state’s personal-income taxes. High-earners are subject to the greatest fluctuations in income during booms and busts, which leads states with very progressive income taxes to overspend in good years and go broke in bad ones. As business writer Megan McArdle quipped, “Ask New York and California how that’s going.”

Some on the left are attempting to inflate the Oregon vote into a victory for Democrats on the same level as the Brown victory for Republicans. The real takeaway is the not-exactly-earthshattering news that voters are okay with taxes if they are sufficiently convinced that they will not have to pay them. As more state governments facing large budget deficits attempt to copy the Oregon model, the challenge for conservatives will be to illustrate ways in which we all pay for tax hikes at the top.

– Stephen Spruiell is an NRO staff reporter.

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