Commentary
Page 12
Street Roots • May 12-18, 2017
On taxes, corporations win, Oregonians lose - again
BY ROBIN HAHNEL
Robin H a h n el is a
professor o f economics
emeritus at Am erican
University in
Washington, D .C ., faculty
affiliate at Portland State
University, a n d co-director
o f economics fo r Equity
a nd the Environm ent.
C O N T R IB U T IN G C O L U M N IS T
n the aftermath of the defeat of Measure
97,1 wrote “Oregon has to face facts and
overhaul our tax system” in the March
24-30 edition of Street Roots, where I
explained how corporations are smart as
whips when it comes to understanding their
self-interest regarding taxes, while the rest of
us are invariably bamboozled.
Guess what! Business not only won Round
1 when they defeated Measure 97 by spending
a record $28 million in deceptive advertising;
they now appear to have won Round 2, as
well. The proposal just released by the
Oregon Legislature’s Joint Committee on Tax
Reform could not be more corporate friendly.
Here is the bottom line:
Measure 97 would have raised an additional
$3 billion annually from large corporations in
a way that would have prevented them from
being able to pass this expense on to
consumers by raising prices.
The joint committee proposal would raise
an additional $1.5 billion annually from a gross
receipts tax, or GRT, which corporations can
easily pass on to consumers, and would gift
corporations $600 million annually by
eliminating all corporate income taxes in the
state.
Notice the difference: Measure 97 would
have forced only the largest corporations
operating in the state to increase their
contribution to state revenues by $3 billion a
year. The current joint committee proposal
would reduce corporate contributions to state
revenues by $600 million a year.
Corporations in Oregon already contribute
less to state revenues than in any other state.
The joint committee proposal would reduce
that contribution nearly to zero.
I
Broad vs. narrow tax
Of course, this is not what the business
associations, the mainstream media and many
of your elected representatives will tell you.
They are portraying the joint committee
proposal as a bipartisan, balanced
improvement in how we collect revenue from
corporations. To understand the deception,
you need to understand some nuances about
how a gross receipts tax works. I can promise
Street Sm art Econom ics is a periodic series
written fo r Street Roots by professors emeriti in
economics.
you that the business community figured this
out, which is why they fought against the kind
of GRT that was in Measure 97 tooth and nail,
and why they are secretly pleased as punch
with the kind of GRT in the Joint Committee
proposal even as they continue to whine and
complain about paying any taxes at all.
For other kinds of taxes, such as income
taxes or property taxes, it is better if they are
applied broadly, that is, if everyone pays and
few are exempted, because that is more fair,
and because then the rate can be kept lower
for everyone. But the exact opposite is the
case for a gross receipts tax - a tax equal to a
percentage of the price something sells for.
The reason is competition. If a GRT is applied
broadly to all sellers in an industry, no seller
need fear it would lose customers to
competitors if it raises its price to cover the
extra cost of the tax because all of its
competitors will also be raising prices to cover
their extra cost.
Result: A broad GRT will be passed on to
consumers. In that respect, a broad GRT is
like a sales tax and equally as regressive since
lower-income people spend a higher
percentage of their income than higher-
income people, who save more. However,
unlike a sales tax, where consumers can see
that they are paying the tax because it is
printed on their receipt at checkout,
consumers are unaware that they are actually
paying a broad-based GRT - making a broad
GRT a regressive “stealth” tax.
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The only kind of gross receipts tax that will
not be passed on to consumers behind their
backs is one that is narrow, that is, one that
applies only to a small percentage of sellers in
an industry. And that is what made Measure
97 unique, and so different from the kind of
broad GRTs in Ohio, Texas and Washington
state.
Only 1,000 corporations have more than
$25 million in annual sales in Oregon, and
Measure 97 would only have increased the tax
on sales in excess of $25 million. In every
market category, the sales of firms affected by
Measure 97 were less than 50 percent of all
sales, and in most markets, far below 50
percent. And that is why it would have been
difficult for the affected firms to increase
their prices and pass on the extra cost of the
tax. If they did, they would have lost
customers to all the firms whose taxes did not
rise.
Moreover, since the 1,000 firms affected by
Measure 97 were the biggest tax freeloaders
in the state, setting the tax high on them was
fully warranted and sufficient to cover a $1.6
billion budget shortfall and pay for an
additional $3 billion annually to save public
education, health care and elder care from
further deterioration. In other words,
Measure 97 was carefully designed to raise
revenues significantly and by unleashing the
forces of competition to avoid the negative
outcomes from broad GRTs in Ohio, Texas
and Washington.
Ruthless and deceptive
Not only will the Joint Committee on Tax
Reform’s proposal - 0.95 percent GRT on a
business’ annual in-state sales in excess of $5
million - be paid for almost entirely by
consumers, as a “new tax on business”; it is
also being cited as an excuse to eliminate the
corporate income tax.
Because corporations have become so
adept at hiding profits to avoid taxation,
corporate income taxes have become a less
effective way to raise revenues - which is why
Measure 97 proposed a new, innovative
strategy to make it much harder for large
businesses to avoid paying their fair share of
taxes. Nonetheless, Oregon does collect $600
million annually in corporate income taxes
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from businesses. Rather than gifting the
business community $600 million annually
when we are desperately short of revenue, we
should be plugging some of the most grievous
loopholes in Oregon’s corporate income tax
system that corporations take advantage of.
The major loophole is a gift to some of our
largest corporations. Most states decide how
much of a company’s income to tax by taking
three factors into account: How much of its
payroll, how much of its property holdings and
what share of its sales were in that state? But
Oregon switched to basing the decision on just
one factor: the proportion of a company’s U.S.
sales that take place in Oregon. This means
huge employers with a big footprint in Oregon
who sell most of their products out of state -
companies like Intel, Nike, Greenbrier and
Columbia Sportswear - now pay very little
corporate income tax in Oregon, which is the
main reason Oregon collects less of its tax
revenues from corporations than any other
state.
The truth is that we, and our elected
legislators, find ourselves in a very bad
situation. We desperately need to raise
significant new revenue. The joint committee’s
proposal is correct when it says that another
Band-Aid that fails to increase revenues
substantially would be a tragic mistake
because public education in Oregon needs a
big spending increase before it is too late. But
we need to recognize that we are in this
situation because the business community in
Oregon simply refuses to pay its fair share of
taxes. In effect, it is holding education in the
state hostage: Revenue cannot be increased in
any way that requires these businesses to pay
more.
Adding a regressive stealth tax on
consumers, which is what the deceptively
labeled “corporate activity tax” proposed by
the Joint Committee on Tax Reform actually
is, while eliminating corporate income taxes is
not the kind of tax “reform” Oregonians want
or need. Instead, it is the kind of tax “reform”
corporations dream about.
I guess they are just smarter than the rest
of us because it looks like they know how to
make their dreams come true, and are
ruthless enough to engage in blackmail to get
what they want.