The tax measure known as Initiative Petition 28 (IP28) would be the largest tax increase in Oregon history and would have damaging effects on the economy. As a union-backed initiative petition, it easily made the ballot and voters need to pay close attention to its ramifications.
Governor Kate Brown, as an elected official closely supported by the public unions in the state, is treading only somewhat lightly. While not endorsing the measure outright, she is offering changes suggested to changes once it passes. But it should never be allowed to pass and the Governor should listen closely to what the Legislative Revenue Office and the business community are saying.
Representative Knute Buehler issued the following statement regarding the measure: “We learned from trusted, independent analysis that IP28 is a highly regressive, job killing tax increase. This ill-conceived and unnecessary $6 billion tax hike will cost middle income families more than $600 a year and will kill more than 38,000 private sector jobs. It’s a terrible idea for Oregon’s economy, families and businesses,” said Rep. Knute Buehler.
House Republican Leader Mike McLane (R-Powell Butte) added “Not only would this $6 billion tax on Oregon sales result in tens of thousands of lost jobs, the regressive nature of the measure would result in working families all across Oregon experiencing significant increases in the prices of everyday goods like food and medicine.
“Come November, Oregonians will see IP28 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.”
For months, state economists in the nonpartisan Legislative Revenue Office pulled figures through complex modeling to predict what impact a sales tax on big businesses might have on employment, revenue and other economic factors.
Prepared by a collection of public employee unions known as Our Oregon the measure would bring in an estimated $5 billion or more for every two-year budget as the state approaches a budget cycle that has a $1.3 billion shortfall (largely due to PERS shortfalls).
Our Oregon is proposing a 2.5 percent tax on sales above $25 million. Only 3 percent of businesses in Oregon hit that threshold in 2012, the latest full corporate tax year available. But those 995 businesses accounted for over 75 percent of all sales in Oregon that year.
When economists this year studied the effects of a 0.4 percent tax — six times smaller than the one proposed in IP28 — they predicted the state would gain $1 billion in new taxes annually but lose 9,000 jobs. That tax would have applied to businesses with sales over $1 million and would have been paid by tens of thousands of companies.
Sen. Mark Hass, D-Beaverton says that efforts to defeat or win approval for the measure will be the most contentious campaign in history. “Both sides are just stacking up bags of money. Businesses say they’re going to raise $20 million. Unions say they’ll spend $10 million. I’m in this business and I can tell you that will buy a lot of noise,” he said. “It’s out of that toxic environment that Oregonians are supposed to set public policy? That is no way to run a state.”
Economists say the so-called gross receipts tax has a cascading effect. Because the tax in IP28 would apply to all businesses with sales above $25 million, it could apply along multiple steps in a production line, potentially adding cost every step of the way that economists say will reach the consumer at the end.
The cascade effect gives an advantage to companies that are vertically integrated and control multiple steps of production and the measure threatens businesses with high sales but low margins, such as grocery stores, liquor stores and car dealers.
Statement on Legislative Revenue Office Research Report #3-16
From Ryan Deckert, President of the Oregon Business Association
The nonpartisan Legislative Revenue Office (LRO) released a report on IP28. A few initial details stand out.
The measure would cost Oregonians more than $6 billion per biennium. It was previously estimated that IP28 would generate about $5 billion. The report estimates the measure would increase taxes in Oregon by more than $6 billion per biennium, by far the largest tax increase in Oregon history.
The impact on the Oregon economy would be staggering. The report estimates that more than 38,000 private sector jobs would be lost as a result of this measure. The report states, “Our economic simulation shows that if IP28 becomes law it will dampen income, employment and population growth over the next five years.”
The report confirms that IP28 would especially hurt lower income Oregonians. The LRO report confirms that most of money raised by IP28, if passed, would come out of the pockets of Oregon consumers, as well as Oregon small and medium-sized businesses, in the form of higher prices for almost everything we buy. “The impact of IP28 on consumer prices means that the marginal impact of the tax will be regressive.” According to the report, Oregonians hit hardest by the tax would be those earning less than $21,000 a year.
IP28 would be a multi-billion dollar blank check for state lawmakers to spend with no plan or accountability for how the billions in new tax revenues would be used.