More good news from the states. After our Saturday editorial on states eliminating the death tax, Tennessee Govenor Bill Haslam called to say he has seen the light and favors doing the same in the Volunteer State. He had campaigned in 2010 to repeal the tax but once in office he got worried about the revenue loss. Then this week he sealed a deal with the GOP state legislature to phase out the 9.5% estate tax entirely over four years.

“The evidence is clear that the tax makes Tennessee uncompetitive and moves capital out of the state,” Mr. Haslam says. He’s right. State death taxes are economically self-defeating because tax return data confirm that the wealthy in America often arrange to die tax-free in states like Florida or Texas.

Advocates say death taxes break up family dynasties and prevent a class of trust-fund babies who live idly off inherited wealth. In reality, most revenue from the tax doesn’t come from $1 billion or even $100 million fortunes; those families have lawyers to keep the IRS away.

Most of the money is snatched from those who die with assets of less than $10 million. The average taxable estate in Tennessee is $4.5 million. After a life of hard work and savings, this level of assets hardly makes one a malefactor of great wealth. Family farms and businesses that a parent wishes to pass on to a son or daughter can be devastated by the tax. It’s not uncommon for family-owned businesses to be sold at auction to pay the federal and state estate-tax bill. Could there be anything more un-American?

As is true in most states with the tax, Tennessee’s estate and gift tax is fiscally trivial, raising only 1% of state revenue. Even on static terms the $75 million or so raised each year won’t be missed in Nashville, but a study by Laffer Associates finds that when taking into account the flight of capital and families, state and local governments in Tennessee lost $7 billion in sales, income, property and other tax revenues over the past decade.

Nashville has never imposed an income tax, so by abolishing the estate tax Tennessee will make itself even friendlier to investment and to retirees who might otherwise flee to Naples or Palm Beach. The wonder is that 20 states still impose this unfair and counterproductive tax.

Summary:

Connecticut had a net loss in migration from the period of 2002-2006.  They sent out a survey in 2007 to practitioners in the legal, accounting, and estate planning fields.  Their surveys (166 responses) reported that 52.6 percent of the clients of the practitioners had left the state primarily due to the Connecticut Estate tax, and 76.9 percent reported that their clients had changed domicile at least in part due to the Connecticut Estate Tax.

Connecticut was not alone in experiencing this trend.  Comparing all states that had an estate tax to those that did not have an estate tax from the period of 2004-2007, the states without an estate tax experienced greater annual percentage growth as follows:

“Leaving Rhode Island” Policy Lessons from Rhode Island’s Exodus of People and Money
Ocean State Policy Research Institute
January 2011

Summary:

Rhode Island has the 3^rd most punitive estate tax in the country.  This contributes to the out-migration of people and wealth.  In Rhode Island, the people who are leaving tend to be the wealthier people in the state.  In 2004, when the US tax policy changed with regard to tax credits for state estate taxes, some states kept a state estate tax (such as Rhode Island), while other eliminated their state estate tax.  After this point, the out-migration of Rhode Island accelerated.  Rhode Island’s average income out-migration became much more pronounced in 2004, going from an average of $580,934,000 (1995 to 2003) to an average of $833,992,000 (2004 to 2007).  This is a significant loss of income.

Moreover, while Rhode Island collected $341.3 million in estate taxes from 1995 to 2007, they lost $540 million in other taxes due to out-migration.

Ohio’s Estate Tax:

Ohio passed legislation which eliminates Ohio’s estate tax, effective January 1, 2013.  This was given a delayed implementation date because the current budget in Ohio, which includes estate tax allocations to counties and cities, relied on continuing estate tax collections.  In terms of Ohio’s reasoning for elimination of its estate tax, Sponsor Testimony made reference to the “Leaving Rhode Island” article, but made no reference to any Ohio studies conducted.  This suggests that they relied on previously completed studies to make their determination.  Outside commentary (after the repeal), also referred to the Connecticut Estate Tax Report.

WASHINGTON, D.C. – The American Family Business Foundation (AFBF) yesterday released a dynamic report on the economic impact of repealing Oregon’s estate tax. Following the release, Dick Patten, President of the American Family Business Foundation, stated:

“There’s a new fairness movement arising across America. After Ohio’s estate tax repeal and recent actions by Indiana’s legislature to repeal their inheritance tax, Oregon is the next State aiming to give family businesses a fair shake at growth by eliminating its death tax. We’re proud to release this critical report that highlights the benefits of eliminating a tax that on hampers economic growth and public revenue for Oregon.”

The report, Oregon’s Death Tax: An Impediment to Economic Growth, In-Migration, and Public Revenue, complied by Dr. Eric Fruits, an economics expert at Portland State University, and Dr. Randall J. Pozdena, a Portland-based economic consultant, measures the impact of eliminating Oregon’s estate tax on the State’s economy through an analysis of employment growth, income growth, and migration patterns. The report presents the impact of an elimination of Oregon’s estate tax under two scenarios: (1) the elimination of the estate tax in its entirety in 2013 and (2) a phased elimination of the tax over a 3-year period beginning in 2013. In sum, the report reveals that by 2017, a full repeal of Oregon’s estate tax will lead to:

• increased Oregon employment by  44,500 new jobs.
• increased personal income of Oregon’s residents by $2.4 billion.
• increased Oregon income tax collections exceeding the loss of estate tax revenue.

More specifically, the repeal increases Oregon’s tax collections by:

• increasing the net number of returns filed by 3.6 to 4.1 percent.
• increasing the associated Adjusted Gross Income by 2.4 to 4.1 percent.
• increasing the taxpayer base (measured by exemptions filed) from 3.8 to 4.3 percent.

Overall, the report presented by AFBF reveals that Oregon’s economy is strengthened by estate tax repeal. The elimination of the tax provides more incentives for existing Oregonians to save and invest more in their local economy, which creates jobs, bolsters personal income, and supports greater revenues for public services. The report also highlights the fact that removal of the tax will also encourage Oregonians to stay in the State.

AFBF is the lead organization in Washington, D.C. that conducts studies, research and analysis to educate the public about the implications of public policy for family-owned businesses and farms.

The Oregon Employment Department reported Tuesday that Oregon’s unemployment rate is now 9.1%.  This percentage is reported as the lowest unemployment rate this state has seen in the past three years.

A reason to celebrate?  Not exactly.  The Employment Department also reported that Oregon lost1,600 jobs last month (seasonally adjusted).  If the facts don’t seem to add up, the chart below may help explain:

Source: Oregonian

This chart suggests that the reason our unemployment rate went down is because more Oregonians have become discouraged and have given up looking for a job.

So is Oregon unique?  How do we compare with our neighbors?

Here’s one report out of the state of Washington this week:

“Private-sector job growth has pushed Washington’s unemployment rate to the lowest point since February 2009, officials said Wednesday. The November jobless rate of 8.7 percent was down from 9.1 percent in October, according to the Employment Security Department. The state added some 12,100 jobs — more than any month since the official start of the recession at the end of 2007.”

What is Oregon doing to support its private sector?

Find this article on our website at http://www.oregontransformation.com/2011/12/16/oregon%E2%80%99s-unemployment-rate-going-down-or-giving-up/

Sources: http://www.oregonlive.com/business/index.ssf/2011/12/oregon_jobless_rate_holds_lead.html, http://www.qualityinfo.org/pubs/pressrel/1211.pdf, http://www.seattlepi.com/news/article/Wash-jobless-rate-at-8-7-pct-lowest-since-2009-2402627.php

Oregon’s voters will have an opportunity during the coming election season to engage in an open debate about our court system, with actual candidates for election to open seats on the Supreme Court.

Two current court members, Chief Justice Paul DeMuniz and Justice Robert Durham, have announced that they will retire at the end of their current terms of service.  Both of these positions are scheduled for election in 2012, so Oregonians will be able to directly elect two Supreme Court Justices who are not already in office.

This is significant because most judges retire in the middle of a term.  When this happens, the Governor appoints someone to the seat, and that person later runs for retention as an incumbent judge.  In recent years, 87% of Oregon’s judges first got on the bench through appointment and later ran for election to their seats.

With open seats, voters will see real campaigns and will have an opportunity to openly discuss issues with the candidates.

One important reform is judicial pay.  Oregon ranks near the bottom in the salaries we pay our judges.  This has a significant effect on the ability to recruit the best qualified candidates for these positions.  We want to do all we can to ensure that we have the widest possible pool of candidates by assuring that those who are elected receive reasonable pay.

Another issue to confront is the high fees which are now charged for court filings.  The legislature has forced these high fees as a revenue device.  High fees make access to justice very expensive, and run counter to our belief that the courts need to be readily available to the people.

A third issue is court productivity.  The Oregon Court of Appeals has achieved national recognition for its efficiency in handling cases.  Our circuit courts have also done a reasonably good job considering their staffing limitations.  Sadly, our Supreme Court stands out for its slow handling of cases.

A key example is the slow turnaround in regard to ballot titles for citizen initiatives.  Under the current statutes, a statewide initiative petition cannot be circulated until a final ballot title is established.  The Attorney General is charged with producing ballot titles under a very tight schedule; and in recent years, has done a good job meeting this requirement.  However, the final ballot title from the Attorney General is subject to Supreme Court review.

This is where the process bogs down.  It is now taking as long as six months to get the Supreme Court to decide the relatively simple issues regarding how a ballot title describes the contents of a citizen initiative.  This kind of delay is embarrassing to the court and is an obstacle to the citizen initiative process.  Opponents to citizen initiatives know that the best way to slow down an initiative is to challenge a ballot title in the Supreme Court.

During the next election season, we will have a chance to ask candidates for the Supreme Court what they will do to bring about reforms to the justice systems and to press their colleagues on the Supreme Court to decide cases with dispatch.

Kevin L. Mannix

The national movement to repeal death taxes is based on a growing understanding that such state taxes (which are imposed on top of the federal tax) are job-killers.  In Oregon, 90% of jobs are created by family-owned businesses, and these businesses are severely damaged by the death tax when the oldest generation dies.  Many families have significant property assets but do not have the cash to pay these taxes.

Common Sense for Oregon will be a strong supporter of a citizen initiative to repeal the Oregon Death Tax.  Stay tuned.

If you want to support this effort, please send an email to info@commonsensefororegon.org.