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Milk Matters?

Commentary
March 3, 2005By Chuck Sheketoff

Do you make life-changing decisions based on dairy prices? Is the price of milk a factor in whether you have more children? Buy a car? Move to a new house? Go back to school? Give to charity?

If you believe the business community in Oregon, if lawmakers lowered milk or cheese prices, you'd make major changes in the way you conduct your life - and might even spend that extra money on lots of things that benefit everyone else in Oregon.

Nationwide, all state and local taxes are just eight-tenths of one percent (0.8 percent) of the cost of doing business, or just about what dairy products cost the average household each year. From all their whining about taxes, you'd think that Oregon's largest businesses make major decisions based on fluctuations in this minor cost.

The fact is, when it comes right down to the bare essentials, taxes don't matter much to significant business decisions.

Take Intel, for example. They moved to Oregon in 1974, a time when corporate taxes were about 18 percent of Oregon's income tax revenue, compared to just 5 percent today. Our income tax revenue from multi-state manufacturers' profits increased when they invested in property and payroll in Oregon.

Why did they come to Oregon? According to Intel's website (PDF), Intel's co-founder Gordon Moore was encouraged by a Tektronix board member to consider moving to the Portland area because it was within two hours by air from Intel's California headquarters.

In 1974 Intel told the media (PDF) that they came here because Oregon was one of the few places they had found where people still took pride in their work. Intel said they liked that Oregon had a stable, well-trained labor force. As a growing company, Intel said they needed an assured energy supply, which they couldn't get in the Bay area.

Intel today notes that Oregon was "an ideal place to do business" because of "Oregon's workforce, abundance of pure water, K-life education system, quality of life and proximity to the Silicon Valley."

In other words, other important factors – not taxes – drove the initial decision by Intel to invest in building its business in Oregon.

Regardless of how low lawmakers make Oregon's business taxes, if our workforce is not up to speed, if water quality and supply cannot be assured, if our education system is not adequate (when was the last time you heard lawmakers talk about a K-Life education system?), or if the quality of life for their employees deteriorates, you can rest assured that Intel will abandon Oregon.

Don't get me wrong. If you ask Intel today if lowering their taxes impacts their business decisions, they will say "yes," even though it means about the same to them as your grocer lowering the prices in the dairy cabinet means to you. They are not going to look a gift horse in the mouth, nor are they going to stop trying to get more gift horses (i.e., tax breaks). Intel's not stupid.

But Intel could be candid, like former Bush Administration Treasury Secretary and Alcoa CEO and Chairman, Paul O'Neill, who once said in sworn testimony to the US Senate:

I never made an investment decision based on the Tax Code . . . If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements; they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.

When Orville Roth, my local grocer, offers me a "green bow tie special" on the price of milk and cheese, like Paul O'Neill I take it, even though I pretty much buy milk there each week anyway. Orville's at least as smart as the Oregon Legislature, and I suspect he knows that I'll still keep shopping at his locally-owned supermarket even if he doesn't make me a deal on an item that's a small part of my budget. That's because Orville's store, like the State of Oregon, offers me more benefits than just a few pennies off a small ticket item.

The next time you hear Intel and other big businesses bemoaning Oregon's income tax system, think milk and ask whether we really need to lower the cost to keep their business.


Charles Sheketoff is the executive director of the Oregon Center for Public Policy, which uses research and analysis to advance policies and practices that improve the economic and social opportunities of low- and moderate-income Oregonians, the majority of Oregonians.