It is bad public policy for government to pick winners and losers in the marketplace. The ability of government to provide benefits to some businesses and place obstacles in front of other businesses is what gives rise to special interest groups. These groups try to convince legislators that their business is special and fragile and deserves subsidies while their competitors are reckless and deserve to be more heavily regulated. But the business with the best products — not the business with the best lobbyists — should win. The proper role of government in economic development is to set uniform policies that treat all businesses fairly. There should be no special deals for special interest groups.
For example, government should not provide loans, subsidized loans, or loan guarantees to private businesses. The private financial industry is fully capable of determining which investments make sense and which ones do not. Of course, the private sector financial industry also makes some bad investments, but because it is guided by the profit motive it has the incentive to closely scrutinize its investments and to choose those that make the most economic sense. In contrast, government investments are guided by political favoritism (like favoring "green" jobs) rather than economic sensibility, resulting in government largely making investments that the private sector has rejected as unwise. Additionally, in the private sector, investors voluntarily choose to participate — but when government makes loans (or loan guarantees), all taxpayers are forced to participate whether they want to or not.
The Strategic Investment Program (SIP) favors large and expanding businesses over small and existing businesses, because qualifying for the program requires a large amount of new investment. The purpose of the program is to secure these large new investments by waiving property taxes on part of the investment. The justification for this program is that it encourages business investment and therefore job creation. Oregon also has a similar "Enterprise Zone" program offering incentives for certain favored types of businesses within certain designated areas.
The Gain Share program attempts to identify the amount of state income tax attributed to a SIP investment and to send part of that money back to the taxing district(s) that provided property tax waivers. The justification for this program is that the locality should not pay the whole cost (in property tax waivers) for economic development that benefits the whole State through income taxes. In other words, this is a subsidy that rewards localities for participating in SIP.
The Gain Share program is based on the theory that localities are giving up property tax revenue by participating in SIP. But that is an incorrect theory: if a business would not have made its investment without the property tax waivers of SIP, the locality actually didn't give up any revenue at all. Gain Share is just an incentive for localities to participate in SIP: because SIP-derived jobs mean more money from the State, localities will aggressively promote the program and court large businesses to invest, to the neglect of smaller and existing businesses, further cementing the too-cozy relationship between big business and big government. Gain Share lets politicians brag about bringing home the bacon.
These programs clearly contribute to an unequal playing field in the marketplace. These programs only benefit large and expanding businesses, not all businesses. They benefit the kinds of businesses favored by politicians — large businesses with lots of money that are ready to "partner" with government. But government should not pick winners and losers in the marketplace.
The Strategic Investment Program is a great example of government gone wrong. The program exists because Oregon has a broad business personal property tax. Machinery and equipment are taxable (ORS 307.020(1)(c)). But what sense does that make? Machinery and equipment do not consume government services, so why should they be taxed to pay for them?
You may be surprised to learn that this tax only contributes a couple percent of the state's revenue. How can such a broad tax result in so little money? Well, Oregon has over a hundred property tax exemption programs! Egg handling equipment is exempt (ORS 307.397(1)(e)). Logging equipment is exempt, but only if manufactured after 1992 (ORS 307.827(2)(a)). Strategic Investment Program projects are exempt (ORS 307.123). The tax is Swiss cheese - every lobbyist and each of their cousins got an exemption for their special interests put in.
Politicians will tell you that the exemptions in the business personal property tax are needed to protect business and to be competitive. But the ugly truth is that the Strategic Investment Program requires negotiations between government and business, inevitably breaking down the neutrality government should have. The people are rightly suspicious when they see government working with and favoring businesses with political pull.
The tree is bearing poisonous fruit. It's time to chop it down. We must abolish the business personal property tax. A tax on tangible capital makes Oregon uncompetitive, and is economically a stupid tax. The fact that there are so many exemptions stands as evidence that the legislature is not serious about this tax, anyway.
I believe there is a different, better, and simpler way to promote economic development. We should start by following the Oregon Constitution, which offers some protection against corporate welfare and crony capitalism. Article IX states that "All taxes shall be levied and collected under general laws operating uniformly throughout the State." I interpret this to mean that the State should not use tax policy to favor certain kinds of businesses. The Strategic Investment Program violates the spirit of the Constitution, and Enterprise Zones violate the letter of it — special tax laws for special designated zones are clearly not uniform.
We should stop meddling in the economy and repeal the business personal property tax exemptions in ORS 307 and the economic development laws in ORS 285C. Instead of creating new incentives to please special interest groups, the Legislature could help promote economic development by getting the government out of the way. The Legislature should streamline and repeal burdensome regulations, relax licensing requirements, and simplify and reduce taxes.
Reducing the quantity and complexity of laws and regulations reduces the costs of compliance for all businesses and simultaneously reduces opportunities for special interest influence and favoritism. That is the right way to promote economic growth. Government doesn't need to make the economy grow — it needs to let the economy grow.
I gave the following statement at the August 26, 2014 joint meeting of the Washington County Board of Commissioners and the Hillsboro City Council before they voted to approve a Strategic Investment Program agreement with Intel. My election opponents did not give statements, although several other incumbent legislators did.
Full disclosure: I am an Intel employee, I do not speak for Intel, and I am also the Libertarian candidate for house district 30.
The Strategic Investment Program is the wrong solution to a real problem. The problem is that Oregon's property tax system defines "machinery" and "equipment" as real property subject to tax. But, why? Machinery and equipment do not consume government services, so why should they be taxed like land and buildings?
The right solution is to change state law so that machinery and equipment are treated differently than other real property. The law already contains numerous exemptions for certain types of favored businesses that have faced this problem before, but another exemption for another special interest is not the solution.
The Strategic Investment Program is actually worse than simple exemptions, because it is only available to the largest businesses, who can afford to go through the process. This involves negotiations between business and government, creating the appearance of special dealing, and raises suspicions of the potential for graft and corruption, especially when negotiations are conducted in secret.
Intel shouldn't have to pay unrealistic, uncompetitive taxes on its capital equipment. But neither should any other business. The right solution is to fix our tax laws at the root, not to make special deals for special interests.
I sympathize with the fact that you cannot fix Oregon laws yourselves, and therefore will probably vote to approve this deal as the only solution presently available to you. But if the audience here agrees with me that this is a bad solution, and that we deserve better, and that our incumbent legislators won't fix this, then vote for Libertarians in November, and we will. Thank you.