Spotlight: Eric Fruits and Joe Cortright

To what degree can the governor and the Legislature actually impact the state’s economy?

Cortright: In the short term, not at all. In the long term, policies and investments that we make play a pivotal role in our prosperity, but if you are fixated on what’s happening in the short term, the state doesn’t have the tools to influence that. And what the Prosperity Council is saying is, oh God, we’re going into another recession again and therefore we need to do something radically differently than we’ve done in the past. That’s a complete non sequitur.

So you don’t think the recommendations of the council address the long term?

Cortright: Not at all. There’s some window dressing about rebranding the economic development effort—upgrading the state’s economic development agency to a department of commerce that would get more focus and resources—spending money on infrastructure, and higher education, but there’s no funding attached to it. They focused on four tax cuts: Lower the corporate activities tax; lower the estate tax; restore a tax break for business investment; and give a break to qualified small business stock sales. My estimate is, and this is still up in the air, it’s very ambiguous, but it looks like that would be about a $650 million hit on a biennial basis, and all of those benefits go to the largest businesses and the wealthiest households.

Joe, you’ve said taxes don’t matter much—to businesses or individuals.

Cortright: If your objective is to improve your economy, your tax level doesn’t have very much to do with it.

Fruits: When a headhunter calls and says, OK, we’ve got a job opportunity for you in California, in Ohio, and in Oregon. You know what that person does? That person gets their spreadsheet and they look at the schools, they look at the taxes, they look at how much money they will bring home. You can’t just say, “Oh, that doesn’t happen.” It matters, because every single person I know who has had a job offer does that.

So is it good policy for us to have the most punitive estate taxes in the country, a situation the Prosperity Council recommends changing?

Cortright: First, for Oregon, the estate tax is one of the most rapidly growing sources of income. It’s going to be $1.2 billion in the 2027–29 biennium. It’s also one of the few taxes that captures the effects of wealth that aren’t otherwise taxed. Second, 95% of Oregon estates don’t pay any estate tax, because they’re less than $1 million. There’s no evidence that high net worth people move out of Oregon to avoid an estate tax.

Fruits: I have four friends that live in the same complex, Joe, in Vancouver, Wash., that moved because they were in their 70s.

Let’s talk about the corporate activities tax (a sales tax on businesses that lawmakers passed in 2019 to augment school funding). About 40% of filers last year had revenues of less than $2 million, and they paid collectively only $13 million in tax—1% of the total. The Prosperity Council wants to exempt them. Why would that be a bad idea?

Cortright: Why would it be good?

Because it could send a signal to small businesses that we’ve heard your concerns, and frankly, your money’s not worth the cost of processing your return.

Cortright: We’ve already run the experiment on the importance of taxes to economic growth in Oregon. In 2010, we had Measures 66 and 67 in front of voters. One was a surcharge on high income tax households and the other an increase in the corporate minimum tax. At the time, Dr. Fruits and his colleagues said that those measures would cost us 50,000 jobs over the next eight years. (They passed.) In fact, we added 300,000 jobs. We grew faster than the United States.

Oregon now has one of the oldest populations in the U.S. and its population overall isn’t really growing. What do you make of that?

Fruits: If you look at the under-18 population in Oregon, there’s strongly negative growth. That’s a big, long-term problem. We have to have a serious conversation about closing schools. There’s a huge demographic reckoning, and part of it is nationwide, but there’s also something uniquely different about Oregon. Somehow, Oregon is uniquely stagnant, even relative to our neighbors. There is something special about our state, and not in a good way. Why would anyone who lives somewhere else in the country say Oregon is my land of opportunity?

In the past three or four decades, what has the state done right and wrong in terms of making long-term decisions?

Cortright: I think we’ve done a pretty good job of managing the quality of life, although we need to do a much better job on homelessness. We need to invest more in housing. We have failed to invest enough in higher education, although we’ve offset it by having a place where talented people want to live.

Fruits: It’s hard to find things that we’ve done right. But back in the early ’90s, when Intel started expanding, they recognized that the property tax system can be somewhat punitive for large investments and so they created the Strategic Investment Program. They said, OK, we need the tax revenues, but we’d rather get some amount of property tax revenue than zero, because you get zero if they don’t come. That was kind of forward-thinking.

Part of the underlying theme in the report is Oregon is a high-tax, low-service state. We rank poorly on some very key indicators: substance use disorder, truancy, shortest school year, reading scores, etc., and yet we’re a high tax state.

Cortright: When you look at the Prosperity Council report, they named best practice states: Arizona, Indiana, Virginia, Pennsylvania, and North Carolina. Oregon systematically outperforms every one of those states on most of 10 key economic measures. I don’t think we disagree that we need to do a better job of providing public services, particularly education. But the question is, is there anything in the council’s report that helps us do it? No.

Eric, is that wrong?

Fruits: Well, it’s not wrong, but it isn’t telling the whole story. Joe and his allies say the answer is more education. But educational attainment doesn’t cause income, because in some ways income causes educational achievement. The most educated people tend to come from higher-income families, and so there’s a sort of circularity in it. And so I wouldn’t put a whole lot of weight in saying all we have to do is boost the number of college grads and everything’s going to be wonderful. A lot of other things like regulations, tax policy, and public services are huge factors that drive economic development.

Was the Prosperity Council a worthwhile endeavor?

Fruits: The problem is that Gov. Kotek gave them terrible marching orders. Her Prosperity Roadmap was just a rehash of stuff that has been repeated ever since the Goldschmidt days. They got terrible marching orders, and they delivered on those terrible orders. I think it’s a real shame.

Cortright: What you got from the council is a set of very self-serving recommendations. Full stop. I think it’s cynical and opportunistic.

If you had a Magic 8 Ball and could wish for only one thing, what would be the one thing you would waive to get Oregon’s economy rip roaring?

Fruits: The No. 1 thing that would ensure economic growth and prosperity is if we can get energy to be cheaper and more abundant. Imagine what we could accomplish if electricity was free.

Cortright: I think I’d want much better results from our education system than we have right now.