This week the Oregon National Guard will deploy a large group of Oregonians to the Iraqi war zone including 85 being deployed from Klamath Falls. These young National Guardsmen and women volunteered to join the Guard. The Guard is a ready force, equipped and trained to respond to any contingency. When they volunteered, they knew full well that they might be asked to place their lives in peril to protect their families, friends, communities, state, and nation. They are now stepping up to heed that call. No greater love and devotion can be expressed than to offer to place their own life in peril to protect and defend those they leave behind.

            These men and women are true modern day American heroes. I hold the deepest respect and admiration for their devotion and sacrifice. These young citizen soldiers are truly outstanding role models. If all Americans, both young and old, could only recognize them as role models and attempt to emulate their actions, our nation would be on much stronger ground and would have a much brighter future.

            The sacrifice is not limited to the Guardsmen who volunteered. These young men and women are leaving family and loved ones behind. The very least that we can do to express our gratitude for their sacrifice is to ensure that their families will be safe and cared for while they are deployed. This is more than a government obligation. It is a moral obligation of friends, neighbors, and communities. We should all seek out these families and offer our assistance and our support.

            We should also be on hand to welcome them home at the end of their deployment. More important, we must also make the concerted effort to help them resume their private lives and careers when they return. We are obliged by both law, and by the laws of morality, to ensure that these Guardsmen and women are able to return to the jobs and the careers that they left behind.

            Gail and I offer our prayers to these brave men and women for a safe deployment and safe return home to their loved ones. God’s speed!

Taxes, Unemployment and Revenue

            An inverse relationship exists between jobs, unemployment and state revenue. As unemployment increases state revenue decreases. On average, Oregonians pay about one dollar of each ten dollars earned to the State of Oregon in the form of taxes, fees, licenses, registrations and other charges.

            This relationship is somewhat consistent for both income taxes and sales taxes, although for different reasons. Income tax revenue is reduced in a near linear manner by the loss of citizen income. On the other hand, sales tax revenue is reduced by the diminished citizen purchasing power that is the result of the loss of income. In fact, two of the states with the highest income taxes and the highest sales taxes are currently experiencing the highest percentage deficits of any states.

            An even larger inverse relationship exists between the revenue contributions of private sector and public employees. Both sectors contribute about one dollar to state revenue for each ten dollars earned. However, in the private sector the money to pay employee wages and benefits is produced from the gross income of the businesses that employ them. The state gains about $1 billion in revenue for each $10 billion increase in private sector salaries and earnings. Conversely, in the public sector, the money to pay employee wages and benefits is all derived from taxes paid. For each ten dollars expended on public employee wages and benefits, only one dollar is derived from public employee taxes. Therefore, $9 billion dollars must be charged to the taxes paid by the private sector out of each $10 billion in public employee wages and benefits.

            This inverse relationship is further skewed by the sharp discrepancy between non-wage benefits paid in the public and private sectors. For the most part, whether paid by government or by private sector businesses, these retirement and medical insurance benefits are largely exempt from income taxes. The much more generous non-taxable benefits paid to public employees reduces their tax burden significantly below the 10 percent average paid by private sector employees. That difference too must be recouped from tax revenue derived from the private sector.

            For these reasons, increasing taxes and fees often does not raise significant additional revenue. Increased taxation creates roughly ten times more stress on the private sector economy that supports the public sector, than it does on the public sector. These added taxes and fees too often creates additional stress on already economically challenged small and moderate sized businesses. At some point that stress reaches a tipping point resulting in the elimination of jobs and in business closures. Increased unemployment and reduced government revenue is the certain outcome. As the private sector economy contracts the tax base that supports the public sector contracts as well.

            During the past several budget cycles the annual rate of government sector cost inflation has averaged more than six percent. During the same period the private sector inflation factor has averaged less than three percent. Obviously, this is an economic structure that is not sustainable. This structural budget deficit is mostly caused by three factors. Public employees usually negotiate a cost of living increase about equal to the private sector rate of inflation. Additionally, most public employees receive a “step increase” that amounts to about a five percent raise each year. Moreover, the cost of the medical insurance provided for public employees increases faster than policies provided in the private sector because government-provided policies cover virtually everything with only minimal deductibles and co- pays. Finally, the public sector retirement benefits are significantly more costly because most public employees are allowed to retire with full benefits at a younger age than their private sector cohorts. The current negative growth in the private sector has only accelerated the inevitable government revenue crisis.

            Government cannot tax and spend its way out of this revenue crisis. Neither can government continue its failed policy of borrowing its way out of debt. The solution is to shrink both the size of government as well as the future growth rate of government spending. To be sustainable, our government must be correctly sized to be supported by our private sector economy. To do less will result in fiscal chaos.

            By next week we expect to have an alternative budgeting plan that will attempt to address this structural budget deficit. Stay tuned.

Ways and Means Committee Update

            The Ways and Means Committee “listening tour” is now completed. I was able to attend all nine meeting from the Oregon Coast to the Snake River and from Portland to Klamath Falls. The committee heard two minute snippets of testimony from an average of about 70 people in Lincoln city, Portland, Salem, Pendleton, Ontario, Bend, Ashland, and Eugene. We also stopped in Klamath Falls where we divided up into subcommittees to meet and talk with interested citizens and public officials. Those conversations, shared over about two hour lunches were, in my opinion, the most productive exchanges of the entire tour. In that forum we were able to discuss local issues in some detail and to delve deeper into the difference between what we must have and what is nice to have.

            The May economic forecast is due to be published May 14, and the Ways and Means Co-Chairs expect to roll out their recommended budget May 15. I have little doubt that their recommended budget will include significant increases in a variety of taxes and fees. In the last election the Democrat majority won sufficient voting power to pass any revenue increase that they choose without a single Republican vote.

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