OREGON STATE UNIVERSITY

Oregon is business-friendly but taxes need work, according to new OSU study

12/03/2010

CORVALLIS, Ore. – Oregon's rankings in several indexes reveal the state to be slightly above the national average in business friendliness. However, details within these studies suggest that fine-tuning the state's tax structure would make Oregon more attractive to business.

Robert Campbell and Greg Perry, economists at Oregon State University, reviewed 10 studies that compare and rank the business climate of each state. Among those studies were CNBC's "Top States for Business," the Kauffman Foundation's "State New Economy Index," the Pacific Research Institute's "U.S. Economic Freedom Index," the Corporation for Enterprise Development's "Assets and Opportunities Scorecard," and Forbes.

The researchers found that among these published rankings Oregon had high marks for its support of technological innovation and knowledge jobs, its low crime rate and its environmental livability. The state's government ranked favorable for business, with low operating costs and openness of operations.

For example, Forbes rated Oregon fourth highest in the nation in terms of labor supply, citing education and population growth as positive factors. Education in Oregon ranked better than average in most studies. However, health care in Oregon received low marks linked to the high number of people without health insurance and the high premiums paid by those with insurance.

The authors noted that a key indicator was a survey of CEOs across the United States that ranked perception of business friendliness. In 2009 this survey placed Oregon 24th nationally; in 2010 Oregon's ranking had fallen to 38th, the largest decline of any state in the country. This drop coincided with passage in January 2010 of Measures 66 and 67, which raised corporate and personal income taxes.

"This negative perception can't be a good thing for a state seeking to attract more business and jobs," said Perry, a professor in OSU's College of Agricultural Sciences. "It illustrates one major consequence of relying so much on a progressive state income tax system to fund state services. Greater balance in Oregon's tax system could help in attracting and retaining businesses in the state, as well as helping to reduce unemployment."

Campbell and Perry found that taxation in Oregon received mixed reviews. High personal income and capital gains tax rates were considered to be a significant negative to Oregon's business environment, while the lack of a sales tax was considered to be a significant positive. The state's corporate tax burden was at about the national average.

"Although much of the concern about Oregon's business climate centers around personal and corporate income taxes, the regulatory burden on businesses may be of equal importance," Perry said. In the most comprehensive index of regulatory burdens, Oregon placed 40th.

Perry acknowledged that this report focuses on simple correlations based on published reports and that a more in-depth study of economic bellwethers is warranted. The report, Oregon's Business Climate Scorecard: A Review of State Rankings, can be downloaded at http://arec.oregonstate.edu/sites/default/files/faculty/perry/StateBusinessRankings.pdf .