I live in Oregon. In the election in March we passed two new tax increases, one on people making $200,000 or so per year or more and another on all businesses. The business tax raised the minimum and also passed, for the first time in state history, a revenue (sales) tax. I contend that the business revenue tax is debilitating and will likely drive companies out of the state, particularly given that the next state over, Washington, is a 10 minute car ride from Portland.

In today’s Oregonian newspaper is an interesting article about how each state ranks from a tax burden perspective. According to the rankings by The Tax Foundation, Oregon dropped from number 8, ahead of Washington State in 2009, to number 14 for tax climate. Their ranking, available here in pdf format, takes into account corporate, individual, sales, property and unemployment taxes. Not as bad as I thought.

I still believe that the revenue tax will go down as a bad idea. I think the unintended consequences of the business revenue tax will make Oregon’s tax collection worse, not better, as it drives companies and employers away. It also puts Oregon on a different playing field from other states as it is an unusual tax for a state that has no personal sales tax rate. (Washington State has a revenue tax but they don’t have an income tax.) Infinity Softworks pays 4% more in taxes than my neighbors across the border, which isn’t a big deal until you realize we are talking about another employee ($80,000) on $2 million in revenues. And when we are losing money it is even more painful as now I have to pay the government instead of myself.

The reality, though, is that every state — and the nation as a whole — is soon going to have to re-think taxing and spending. Our governments cannot continue to support the current plethora of programs without raising taxes significantly (or vice-a-versa). Without cutting spending or raising taxes we will be dealing with much more significant problems soon enough.

This thing ain’t over. The Dow crossed 10,000 a few weeks ago? Big deal. It means nothing. Unemployment is over 10%. Commercial real estate defaults are rising. The nation’s personal debt is still sustainably high. As I wrote in July, this will be a W recession, not a standard V, and we need to batten down the hatches for that likelihood.

But this isn’t all bad as it needs to lead to a re-prioritization of government.

Here’s my philosophy: In 1980 Ronald Reagan was elected based on a great economic experiment. The experiment was that if we cut taxes on the wealthy, the money they saved and spent would go toward services and the revenues would “trickle down” to the other classes.

It didn’t work. What it did do was amass huge amounts of government debt and widen the gap between the wealthy and the poor to levels never seen before in the country. George H.W. Bush tried to reverse this, raising taxes, setting up the Clinton’s balanced budget, and contributing to the greatest economic expansion in the history of this country, all of which was reversed under George W. Bush.

Now I believe it’s time for our government to forge a new contract with the American people. The daddy state will have to be paired back, as the costs of social security and medicare will bankrupt the country. We need to reconsider our roll as military foundation for the world. As India, China, and other countries step up economically, they also need to step up militarily and do their part.

It’s time for a new conversation, one that starts with these basic issues:

• A national discussion about basic services and what we should all get and have funded out of tax dollars
• What our role in international military issues is
• How, as a government, we need to ensure open markets where everyone is working from an even playing field
• How government spending can be focused to provide the biggest bang for the buck, particularly in regards to infrastructure and education

If the U.S. has lost its edge, its that it is no longer the land of opportunity. The saying went that anyone could come to America and become wealthy, anyone could pull themselves up by their bootstraps.

Now it feels the deck is stacked against everyone who doesn’t already come from money or have the right contacts. It’s time for us to recapture the magic.

I just read a fantastic blog post by Venture Capitalist Bill Gurley on the less than free business model. What does this mean? In short, it’s when you get paid by the company instead of the company paying you. Mr. Gurley talks about this in terms of Google’s strategy, that rather than pay Google to use their services, Google will actually pay you a percentage of the revenues they make from ads.

Disruption is a major concern for every business. In the early days of Infinity Softworks it was disruption by Microsoft, who had the clout and power to knock anyone off their perch just by threatening to be in your market space.

But it wasn’t until Microsoft released Internet Explorer that this really got scary. Not only could a company beat you by charging a lower price or be a better known company, now it can kill you by offering for free what once was charged. Chris Anderson, author of Free, would argue that this is the natural evolution of the market. (I wrote about that here.)

The irony, of course, is that Google is now doing to Microsoft what Microsoft did to Netscape: killing it with free. But Google may be cannibalizing it’s own “free” business model. Instead of free, Google is gearing up to pay you to use it’s services.

So for all you entrepreneurs, how do you fend off less than free in your business? (You know, besides the obvious: pray Google buys you so you don’t have to worry about it.)

There was a great spitting contest a few weeks ago that I greatly enjoyed. It went something like this: a company named Mint, a web-based personal financial manager a la Quicken, was purchased by Intuit for $170 million. Jason Fried, a well-known bootstrap proponent who runs 37 Signals, said that it’s too bad that the investors would force Mint to sell as here was a chance for a lasting brand. A few people then shot back calling Jason bad names and saying there was no way the investors forced Mint to sell, which is true (straight from the mouth of one of the lead investors). (read here and then here)

The reality is the founder is young (under 30) and saw a chance to cash out and wanted to do it. The investors had no choice but to back him up, even though they saw much greater returns if the company waited into the future.

Tough problem, of course, for the entrepreneur. A chance to live a life without worrying about cash! (My assumption on his feelings.)

And that’s why, as has been suggested in the past, it’s time for a national exchange outside of the stock market. We need middle ground between private and public companies, a market where only qualified investors can participate, meaning that you’d have to be in an asset class to participate in angel and VC rounds of funding.

This would have allowed the Mint founder (or the investors) to pull some value out of the investment and allow a company a chance to be the enduring brand it might be destined to be.

We are about to dip into the second half of the W.

When you talk to economists, they will tell you that there are three types of recessions: U, V and W. We are very used to V recessions in this country, where we quickly go into a recession and then quickly leave it. U recessions are where we enter a recession and we slowly hit the bottom and slowly leave the bottom before we recover. W, as you can tell, is two V recessions back-to-back.

THERE IS STILL TOO MUCH DEBT. THERE ARE STILL TOO MANY WHO HAVE NOT LEARNED THEIR LESSON.

And so the second half of this recession is about to hit and our government can’t do a thing about it.

To tell you the truth, it’s about time, too, that our government learned their lesson. Everyone is in recession except our state and federal governments. As much as we may want it to, as much as we don’t want to feel the pain, we must. No amount of regulation will help us. There will be recessions again.

No amount of government spending will help us. Congress has no idea how to spend money efficiently. They just know how to spend it.

I’m going to make one more prediction here, while I am making predictions. There will be a growing backlash against both the Republican and Democratic parties that will either absorb one of them or be a third-force to be reckoned with.

It’s a group of people who believe that the biggest threat to the USA is not Iran or our educational system or our trade deficit specifically. It’s ourselves. It’s our leadership’s inability to say no, to live within it’s means, and make the hard decisions. Our government’s responsibility is to help us help ourselves and then get out of the way. And it feels like our government is moving very rapidly to nanny state instead.

Greed and recessions and over-reaching are all apart of the endeavor of capitalism. They will happen again. And that’s okay because it means the system is working. When we don’t have greed and recessions and over-reaching, that’s when we should all be worried.