"Intel leadership should be ashamed of itself."
Chuck Sheketoff
David Brunori writes The Politics of State Taxation, a column for State Tax Notes. He is a research professor of public policy at George Washington University, where he also teaches state and local tax law. He is the author of several books and articles on state taxation. Before joining Tax Analysts, Brunori was an appellate trial attorney with the Tax Division of the U.S. Justice Department and practiced with a Washington law firm. 
Here's Brunori's view of Intel's efforts to get local government officials in Oregon and legislators in Arizona, to give tax breaks from this past Monday's The Politics of State Taxation column:
So Intel is lobbying for tax breaks — that isn’t surprising. But here is the interesting part of the story: Retiring Intel CEO Craig Barrett said companies are moving overseas because of the sorry state of the American education system. The CEO of a company that spends its time shaking down state and local governments has the nerve to criticize those governments for providing inadequate public services. The Intel leadership should be ashamed of itself.
Read the full article here.
Note that Intel just announced it is opening a new plant in China. Read about it here.
And remember, Intel's own history of why they came to Oregon shows that other important factors – not taxes – drove the initial decision by Intel to invest in building its business in Oregon. Read Milk Matters?
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Mar 29, '05
This is really sad, if a company makes a profit, lets tax them until they leave.
You neglected that Intel employs about 12K people at about $60K+ per year which means about $65M worth of income taxes to Oregon. in addition, Intel pays somehting like 10% of all state corporate income taxes for Oregon.
Lets not forget these people buy houses (say 5K of them) and pay property taxes ($180K avg * 1.5% = $2500 each * 5K = $12.5M.) Of course this only goes for schools and local improvements. Lets overlook the fact that Intel has helped Hillsboro build more schools, parks and public improvements. Meanwhile, Portland can only subsidize $500K condos and close schools.
Don't forget the 401K, stock plans and tuition Intel pays for its employees and remember the donations to colleges and scholarships for non-employees. Forget the fact that Intel treats its employees very well at no cost to taxpayers.
I don't understand, Intel does not pollute, has knowledge jobs and is a good citizen (they give far more than they take out of the public coffers.) What would you replace Intel with for jobs?
Why not turn some of this righteous indignation on mis-spent tax monies where it seems government has decided money going into public safety and the classroom is the lowest priority.
I think the underlying issue is anything that does not depend on government is suspect in your eyes.
8:18 p.m.
Mar 29, '05
Steve, you're missing the point.
As a former Intel employee (admittedly, as an intern, for two summers) it saddens me to see that Intel is making these two arguments:
First, that local and state governments are taxing them too much. Second, that local and state governments aren't investing enough in schools.
Are they kidding?
Mar 29, '05
Kari
Since prop taxes provide a lot of funding for schools, it saddens me to see that 10% of my prop tax bill goes to Police&Fire Disability which ranks higher than the schools. Then I see $1M condos pay $150 in prop taxes instead of $12K which could be going to schools. Something is really wrong here. If government did a better job of convincing people they are managing funds properly, I think tax levies would really have an easier time.
Intel invests a lot in the education of its employees and schools already since that money goes directly to schools. They realize how important a good education is. Its employees make more than average and also pay a lot of taxes to the local Hillsboro and surrounding areas.
There are plenty of competing states that would love to throw tax breaks Intel's way. So Intel is paying somewhat of a penalty for staying here and can argue that taxes are too high reasonably.
9:48 p.m.
Mar 29, '05
In his recent speech at the City Club, Metro President David Bragdon made an excellent point. He was talking about the supply of cheap land as well as taxes. He pointed out that if we're going to try and compete on the basis of having the cheapest land around, well, we're going to lose everytime to Mongolia, Lapland, and even Alabama.
He also pointed out that a Swan Island business recently left Portland for... Sweden. Obviously, it wasn't for the tax rate.
Clearly, as Chuck pointed out in the Milk Matters post, there are are others that people do business in Oregon.
Steve, are you suggesting that we should race to the bottom and attempt to compete on the basis of having the cheapest land and the lowest taxes?
If not, and you're going to argue that there's a "right" level of taxes - what is that "right" level in your mind? How low is low enough?
9:54 p.m.
Mar 29, '05
Steve,
What is the penalty that Intel is paying? We have the lowest business tax burden in the West, and one of the lowest in the nation. See Oregon's Business Tax Burden: Lowest in the Nation? And the corporate income tax is being reduced significantly for Intel and others who primarily sell their products out of state but have significant payroll and property here. Come 2008, Intel's tax on its profits will only be based on its Oregon sales, not its property and payroll. And you say Intel is paying a penalty for staying?
I have NEVER argued that Intel is not important to Oregon's economy - so don't try to deamonize me. Its just that as a business I believe it has an obligation to pay its fair share of taxes, too. Citing all the taxes that its employees pay doesn't excuse Intel from paying its fair share for our courts (where Intel cases have a lot more "value" attached to them than individual's civil matters), our justice system, our schools, safe havens for children and elderly and disabled Oregonians, and the like.
I don't know if I'll give you righteous indignation, but here's some funds diverted from education and public safety: As taxpayers, we are paying Intel to do research and development (R&D tax credits). Now, if Intel didn't do R&D, they'd lose market share or go out of business. So, why should I as a taxpayer contribute money to Intel to do something they must do anyway?
Last, things that don't depend on government are not suspect in my eyes...its just that Intel is more dependent on government than you (and they) are willing to admit. And that's the point of this post: Intel can't have it both ways: tax cuts and demands for more spending on education. It doesn't compute.
Mar 30, '05
Intel also hires huge numbers of H1-B workers. All the hi-tech companies do. Though I am certainly not anti-immigrant it is disconcerting to be unemployed for a year at a stretch. Hi-tech companies do not seem particularly interested in hiring Americans.
12:27 a.m.
Mar 30, '05
As a recent graduate from the PSU school of business, I know very well that Intel supports education. They have paid for a lot of resources there within the school. So maybe Intel doesn't pay indirectly with tax revenues, but they pay. Could they pay more? Perhaps, but we could also push kids harder in this country. Remember, it doesn't cost a dime to give kids three hours of homework instead of two.
Mar 30, '05
Jenson -- "Remember, it doesn't cost a dime to give kids three hours of homework instead of two."
It may not cost you a dime, but somebody's gotta grade 50% more homework, right? <nobr>;-)</nobr>
7:08 a.m.
Mar 30, '05
David touches on a good point - and its related to Baumol's cost disease. See link explaining the disease in this prior post.
Jenson, some of the contributions by Intel to schools you and I pay for due to the tax deductions and credits Intel takes when Intel makes the contribution. And until Intel discloses its tax liabilities and payments, you don't have any information to compare their contributions to taxes or a basis for saying "paid a lot of resources" - "a lot" compared what? Their tax liability is dropping as Oregon moves to single sales. Show me the numbers before you defend Intel.
Mar 30, '05
Kari / Chuck
One point I disagree on is that in the real world there are plenty of other Intel sites that would like the jobs and benefits that Intel brings to Oregon. I am not crazy about squeezing someone untill they leave and then it is too late.
If we make it expensive for them, then they will build new developments outside of Oregon. This will reduce the tax base and lose a lot of potential good high tech jobs. Oregon cannot afford to lose these jobs.
I think by the time you reach the bottom line, Intel contributes a lot more to the local economy than any government employment ever will. Tell me how Intel takes more than it gives specifically.
Disclosure - I used to work for Intel and they paid about $45K total (again no cost to taxpayers) for my BSEE and MSEE at local schools. They allowed me to buy a house and helped my 401k going in addition to all the other products I was able to buy in Oregon because of my paycheck.
9:34 a.m.
Mar 30, '05
Chuck,
I hope you are raising the heat on this single-sales factor. I have a strong feeling that this will hurt Oregon overall. And the one thing to bear in mind with property tax breaks. Some of these industries really need the tax breaks early on because they have such major cash outlays before seeing any revenues. But I would like to see the discussion turned toward the details of Intels property tax contract. There are provisions that will make Intel pay more if the reach certain benchmarks. I would just like to see the negotiators force these companies to pay more on the flipside once operations are well under way.
Tax break in the beginning. Tax makeup later on.
Mar 30, '05
Chuck,
Just read your "Milk Matters" article.
You make some good points about business leaders making investment decisions for reasons other than tax policy.
But I think you may be missing part of the point.
The question isn't entirely whether cutting the price of milk would affect your decision to have children or buy a certain car.
The question is whether, when shopping for milk, you'll buy from the store that offers it for $3.00/gallon instead of the store that charges $3.50/gallon.
Maybe you'll choose the higher-priced store, for any number of reasons. Better service, more convenient location, premium product... the various points you made in your article.
But what if the competition offers a deeply discounted price -- say $1.00/gallon -- then that changes the value proposition, does it not? The relative costs would have a much larger impact on the decision. You might still choose the higher-cost store. But that discount is a powerful draw.
And if the other store ranks reasonably close if not quite as highly on the other points -- quality, service, convenience, etc. -- it gets a lot harder to justify paying a much higher price.
How might another comparable store be able to offer such huge discounts? Perhaps they consider it a "loss leader", knowing that if they entice you into the store with a great price on milk, you're not likely to just buy the milk and leave -- you're likely to spend more on other, more expensive items while you're there.
It's fine to negotiate more favorable deals with businesses that wish to locate (or remain) in Oregon. And you make a perfectly valid point that business taxes contribute to education funding, so asking for lower taxes and more funding seems incongruous.
But if the competition is willing to do that, then what? A customer can make an unreasonable demand, if they can find another supplier to meet that demand. If no other supplier will meet the unreasonable demand, then you're pretty safe in also refusing to meet that demand.
The question is, when does a valuable customer turn into too much of a hassle to deal with?
I'd strongly suggest that Intel is nowhere near that point yet.
Mar 30, '05
David... I'm only commenting on the aspect of the question "What do we do if other localities are willing to cut their taxes to unreasonable levels to attract business from Oregon to some other locality?"
What we do is we tell that business... "Don't let the door hit you in the ass as you leave Oregon."
Portland is one of the best, most liveable cites in the world to live in. Portland doesn't have to do what Fargo, ND has to do to attract business (I use Fargo because of particularly outrageous ND low tax policies that nobody can compete with if they wanted to). People and businesses are going to come to Portland and succeed no matter what Fargo ND does. Nobody other than Ed Shultz wants to live in Fargo ND. That's why land is roughly $0.10 an acre there. I don't care if CitiBank moved their corporate HQ to Fargo ND because of said "excellent business climate" there. "Excellent business climates" don't make you feel any better when you wake up to a wind chill of 30 below and a nine foot drift of snow on your car you have to clean off before you can drive to work.
The only way to stop the process of multi-national corporations auctioning off their jobs to the lowest bidding locality is by Portland putting it's foot down and saying we aren't playing that game. Yes, some businesses will occasionally close here and open sweat shops in Fargo. Just as many will move here and use it's Portland location as incentive to attract potential employees to work for them.
Rather than playing the "tax rate auction" game, we should do the things we can do to inhance our "livability" status. Get our schools back at the top of the US charts. Improve the universites, and their status as sites for ground-breaking research. Improve the technological infrastructure. Wire the state with fiber-obtics and get broadband everywhere. Make Oregon THE place people want to live, and business more appropriate to the gorgeous surrounding will follow.
Mar 31, '05
Right on, afs!
Mar 31, '05
Heh... I can totally relate to the comments about Fargo... I spent about 4 months in Grand Forks, ND, and Fargo would have been a major improvement... gotta love that wind chill...
But Fargo, ND is not the only place in the country with which Oregon must compete.
I believe someone mentioned that we were competing with Arizona, specifically with regard to Intel. The wind chill/snow drift argument doesn't fly there. Arizona is actually quite nice (though not as nice as Oregon). There's a reason more people retire to Arizona than to North Dakota.
Still, I understand the argument for working on improving the livability, and it sounds great. I just wonder how we're going to pay for it is all, without the tax base provided by new jobs in the first place.
And we've got to be careful not to develop a reputation for being anti-business (like Portland specifically has, whether true or not) because of an attitude of "we're so wonderful, you should be begging us to pay our taxes so you can move here." Businesses want to locate where employees want to live, sure -- but they also want to locate where they think they'll be welcomed and valued.
Again, I'm not saying we should give away the store. Just that taking a hard-line, no-tax-negotiation stance is not conducive to job creation/retention.
Mar 31, '05
Arizona... True... wind chill and snow drifts isn't a factor. However, spending 5 months a year looking at thermometers reading temperatures at 100+ doing all your grocery shopping between 2am and 6am so your milk won't be yogurt by the time you get in the fridge at home... and everyone around you having skin that looks closer to belonging in Florsheim commercials than Cover Girl commercials...and being at risk of assaulting the next person who tells you, "But it's a dry heat."
North Dakota, Arizona... basically the same thing... 5 months a year you can't leave the house.
Pardon me for not being too sympathetic to Intel and Nike. Both cases clearly prove that the Portland metro can't be too bad for the bottom line. Both companies are insanely profitable. Both companies are able to attract top employees and are among the most innovative in their fields. Portland's livability is clearly a factor in both companies being able to attract some of the brightest in their fields, and both companies benefitting from the advantages that such a talented work force brings these companies. You think Intel and Nike would attract the type of work force they get in Portland in Fargo or Phoenix? Not only no, but hell no.
Portland should absolutely take a hard-line, no-negotiation stance. Alll localities should. The big problem is the way the businesses get the whole "job auction" playing one localities bids off against other localities. Before you know it, the floor rates that the localities had set as a bottom line beyond which they refused to go below get crashed through like Hollywood stuntmen crushing prop saloon tables. By the time the auction is over, the localities are literally paying for both the corporations to be sited in the localities and stack of municipal services to the new facility, rather than vice versa. The whole problem is allowing negotiations to ever begin.
I don't want to Shanghai businesses. I believe in reasonable tax rates for business. However, once you set the business tax rate, you set it in concrete, and you refuse to play the game of multi-national corporations playing one localities off one another for new facilites. It's a suckers game. You end up with lots of services being paid for by a city in exchange for almost no new income, and all the other businesses in town screaming about why loyal business that have been paying their fair share of taxes for year/decades can't get the same sweetheart deals that the new guys in town got.
Nope. Set a reasonable rate for businesses and stick with it.
Mar 31, '05
It still seems like there are two issues people are talking about. The first is that we need be very confident in our tax system and that it isn't producing unnecessary distortions. Certainly Intel's capital is more expensive than Nike's, but how does that affect the burden on local governments (it's not real clear). Now, maybe the SIP equalizes the distortion to some degree (but it's kind of a make-shift answer and it only applies to high tech stuff. Plus, does the SIP actually get them down to their fair share or further than that?)
So then it seems we have tax system that people do not trust. This needs to be fixed or else we will be consistently having problems where people do not believe the system is fair.
The second issue is the political one. If we know the tax system isn't changing anytime soon, we need to keep the companies supportive of our public services. That means we need them to realize that the services don't get any better with them out there trying to take advantage of weaknesses in the tax system. If we had a strong tax system, it would stand up to attempts to avoid responsibility and make sure other’s are not over-burdened. But, we apparently do not have this kind of system and need to have some public and private watchdogs to keep things fair.
Mar 31, '05
One last thing on the warmer climates issue... being a good place to retire has little to do with being a good site to do business.
Warmer climates are attractive to older folks because of circulation problems prevalent among the elderly. Older folks quite literally are more prone to feeling more cold than younger folks because blood circulates more poorly as you get older. This is a case of what's good for Grandma being an instrument of torture for those significantly younger.
Mar 31, '05
It's true, the Southwest has higher temperatures to deal with, and some people won't care for that. I lived in Las Vegas for a few years about a decade ago, and I loved the heat while others didn't.
I also loved the sun for 300+ days a year, something that was quite a shock to get used to as an Oregonian. But then, when I moved back from Vegas I sure missed that sun for a long time.
And a whole lot of people from elsewhere in the country have a hard time adjusting to our own unique (and rather damp) weather patterns. <nobr>;-)</nobr>
I guess my point would be that, having lived both in the Southwest and the Upper Midwest -- I wouldn't even consider moving to Fargo for any job. I'd absolutely consider moving to Phoenix for the right job. I'd prefer to live in Oregon with a good job.
The key is, where's the job?
Mar 31, '05
General question:
If we don't want to "play ball" with big companies who have many choices regarding where to locate their business sites, should we focus more of our efforts on promoting the creation of local small businesses instead?
Or should government not be in the business of promoting business in the first place?
Mar 31, '05
David Wright: Yes, IMHO, we should be help out small business. I'd try to aim the help toward high tech.
Mar 31, '05
(typo) "should be help out" ?!?
...should try to help out...
11:32 p.m.
Mar 31, '05
David writes The question isn't entirely whether cutting the price of milk would affect your decision to have children or buy a certain car.
The question is whether, when shopping for milk, you'll buy from the store that offers it for $3.00/gallon instead of the store that charges $3.50/gallon.
David, you are wrong. Remember, state and local business taxes are about 0.8% of costs, about the same as dairy costs are to the average familiy.
So the question is (remembering the not-so-subtle Intel et al threats) "Am I going to leave Silverton if the price of my milk and cheese doesn't go down?" That's what's being suggested by folks who keep giving tax breaks. Intel's compensation expenses in Oregon were about 29 times their corporate income tax expenses in 2001. In 1997, compensation expenses were about 12 times their corporate income tax expenses. The CIT is a small expense for Intel. And if they were as honest as Paul O'Neill they'd stop their bidding.
Take Nike. While Phil Knight is still alive, is there any chance that Nike is going to leave Oregon? Why is Nike here? Our taxes? No. Once the great idea behind the shoes took off, why did they stay? Our taxes? No. We gave Nike a HUGE tax break by moving to single sales factor apportionment and what did Oregon get in return? Nike has more money now to spend trying to avoid being annexed?
In the crime of prostitution, both the prostitute and the John are prosecuted. When it comes to corporate tax breaks, we need legislators and local government officials to stop prostituting themselves, and the Johns seeking the lowest price deals need to be held accountable, as well.
Apr 1, '05
Chuck, you make a good point. If Intel is asking for a new break without bringing anything new to the table (plant expansion, new jobs, etc.) then they are in a pretty weak bargaining position. They are not likely to pull up stakes on the massive investment that they've already got in our area.
I was under the impression that Intel was offering something new in exchange for these breaks -- i.e., that Oregon was competing with Arizona for the proposed plant expansion. Upon a more careful reading of the articles cited, I don't see what Intel's "or else" is for Oregon. So what are they really negotiating over?
In those cases where new development is on the table, though, I would still contend that since the jobs don't already exist, they could be created anywhere, and we need to be realistic about competing for other locations to get those new jobs. If that means cutting a deal on taxes that will ultimately result in a big boost to our economy, then so be it.
BTW, I think your prostitution analogy is just a little off the mark. Setting aside for a moment that when you get right down to it anybody who has ever done anything in exchange for material things has prostituted him or her self after a fashion -- I suspect your point would have been closer to having our government officials in the role of pimp rather than prostitute. <nobr>;-)</nobr>
Apr 1, '05
DOH!
3rd paragraph above, should read "competing with other locations to get those new jobs".
Apr 1, '05
When the global economy crumbles under the weight of high energy costs, the problem of runaway industry will lessen. Of course, several other problems will become more severe, such as feeding ourselves and keeping warm during the winter.
By which I mean: free markets are great at producing new products but poor at longterm adaptation of economy to society's needs.
Prescription: rebalancing the capitalist and socialist forces in society to end the era of corporate hegemony. And that's no April Fool joke.