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News / Northwest

Analysis: Oregon tax has issues

If corporate tax increase enacted, wages, costs, jobs would take hit, it says

By KRISTENA HANSEN, Associated Press
Published: May 23, 2016, 9:43pm

SALEM, Ore. — A massive $2.8 billion annual corporate tax hike is likely headed to Oregon voters in November, a move that could create the most aggressive tax climate for big business of any state in the nation.

The ballot proposal comes as raising taxes on the wealthy and large corporations is at the forefront of a national debate — especially among Democratic progressives such as Bernie Sanders and much of Oregon’s electorate– about how to close the gaping economic disparities between rich and poor in a post-Great Recession era.

The proposal’s labor-union backers are just one step from getting the measure on the ballot after submitting 130,000 signatures to state elections officials last week. They say it would tap a tiny portion of Oregon businesses while bringing a huge boost to cash-strapped public education, health care and senior services.

But a long-awaited state analysis, released Monday, found the proposed tax hike would come with major pitfalls for wages, jobs and consumers’ pocketbooks.

“Oregon would have the worst corporate tax climate in the country,” said Nicole Kaeding, an economist with the Tax Foundation, a Washington, D.C., nonprofit that has closely watched the proposal. “If you think about it on a national level, these would be similar to changes in federal revenue by 3 to 4 percent. It’s gigantic.”

Oregon is one of five states with no sales tax. But like many others, it taxes corporations based on income.

The ballot proposal would maintain the income tax, but for the biggest businesses, it would add an additional layer of what’s called a gross receipts tax. That’s a sales tax on steroids, Kaeding said. It taxes sales at each level of production rather than only when, say, consumers buy milk at the grocery.

The measure targets Oregon’s biggest corporations — roughly 1,000 by the state’s estimates, or about 4 percent of businesses. Those with $25 million in Oregon sales would pay a minimum $30,000 tax, plus 2.5 percent on anything above that threshold.

That would bring in an extra $6 billion in estimated revenue — boosting the state’s corporate income-tax collections more than five-fold — during the 2017-19 budget cycle, which has a looming shortfall.

Kaeding said the states actively looking into the wealth gap issue are mostly targeting rich individuals, not businesses. Over the years, states have moved away from a gross-receipts structure, not toward it like Oregon, she said.

Five other states have a gross receipts tax, but Oregon’s 2.5 percent would be the highest (a slightly higher rate on just one industry in Washington state is the only exception).

The state analysis found that if the proposal passes, consumer prices will rise, population will decline, and about 38,000 private-sector jobs will be lost over five years — although 18,000 public-sector jobs will be added. The state believes retailers and utilities would be among the hardest hit, which would have a harsh effect on lower income households.

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Katherine Driessen, spokeswoman for the unions, took issue with some of the state’s methodologies, but highlighted its key finding that Initiative Petition 28 would help stabilize the budget. For far too long, Oregonians have shouldered the burden of funding the state’s critical services, she said.

Unions and business are lining up for what’s been described as political World War III over the measure.

Lawmakers are mixed, and some Democrats, who control the Oregon Statehouse, are siding with the Republican opposition. On Monday, some legislators urged stakeholders to come to the negotiating table — something they tried, but failed, to do earlier this year.

If the initiative passes, working families across the state would see significant increases in the prices of everyday goods, such as food and medicine, Oregon House Republican Leader Mike McLane said.

“Come November, Oregonians will see IP 28 exactly for what it is: an ill-conceived, disingenuous measure that would have dramatic consequences for family budgets and the economic future of our state,” he said.