Our Oregon is proposing Initiative Petition 28, designed to tax sales of large corporations doing business in Oregon. It has the potential to raise more than $5 billion every biennium, increasing Oregon’s General Fund budget by 26 percent. The measure would impose a 2.5 percent gross receipts tax on most corporate sales above $25 million within the state — on top of other business taxes currently in place. Does Oregon really need this much money in its coffers?
Our Oregon is a political organization funded in part by the Oregon Education Foundation and several public employee unions. Its stated mission is ‘fighting for economic and social fairness for all Oregonians.’ The coalition represents organizations and individuals who focus on increasing funding for schools and critical services, fighting for equality and access to justice and protecting the environment.
The group led the coalition that helped pass Measures 66 & 67 which increased taxes on corporations and on households making $250,000 and individuals making $125,000. Measures 66 and 67 have hampered Oregon’s business climate by instituting one of the highest personal income tax in America and establishing a corporate sales tax based on the volume of business sales, regardless of the profitability of the company. Oregon’s high income tax and regulatory environment have been contributing factors to Oregon’s higher-than-national-average unemployment rate during the Recession.
In November 2012 Our Oregon successfully reformed the corporate kicker tax loophole and re-directed millions of dollars to education.
Our Oregon is also part of the Fair Shot coalition that is calling for a substantial increase to the minimum wage.
Now the group is proposing Initiative Petition 28, designed to tax sales of large corporations doing business in Oregon. It has the potential to raise more than $5 billion every biennium, increasing Oregon’s General Fund budget by 26 percent. The measure would impose a 2.5 percent gross receipts tax on most corporate sales above $25 million within the state — on top of other business taxes currently in place.
A first look might make you believe that this is a way to capture some of the believed outlandish profits of large corporations. But the result may be much more dramatic than filling state coffers.
First, does the State of Oregon really need an addition $2.5 billion a year to fund state departments and programs? Without even offering details, voters must know that there are so many areas of government in Oregon that are wasteful. And then there’s the Kicker. Oregon State economists recently reported a projected $402 million Kicker due to a healthy revenue forecast. The estimated median rebate under Oregon’s Kicker law will be $124, though the value varies significantly based on income. The average Kicker refund will be $244– but not a check you can actually spend, but as an income tax credit. The top 1 percent of wage earners would receive an average tax credit of $4,600 and the bottom 20 percent will get $10.
Tax increases from 2013 and the economic recovery helped Oregon generate about 3 percent more than anticipated in personal income taxes. Oregon’s unique Kicker is triggered when tax collections exceed expectations by at least 2 percent. The additional revenue is kicked back to taxpaying Oregonians. The last time it happened was 2007 when taxpayers got the largest checks in Oregon history: $600 for the average wage earner.
If the state is reporting a healthy revenue and taxpayers are getting a refund of sort, then why do we need an additional $2.5 billion in revenue?
Second, where would the money actually come from? Corporate income is derived from selling something to consumers. According to a report from the Tax Foundation a gross receipts tax appears to be roughly as stable as a retail sales tax. Its variations do not contribute to the overall stability of total state revenue because its fluctuations follow generally the same pattern as other major taxes.
Further a gross receipts tax interferes with private market decisions. Its pyramiding creates a haphazard pattern of incentives and disincentives for business operations. A gross receipts tax does not treat equally situated businesses the same. Firms with the same net income will face radically different effective tax rates on that income, depending on their profit margins. Many new and expanding firms like we have in Central Oregon have low margins and the gross receipts tax reduces the chance that these firms will survive.
According to a 2013 Reason-Rupe Poll the actual median and mean profit margins of 212 industries nationwide are 6.5 to 7.5 percent respectively.
So, imposing a 2.5 percent tax on gross sales actually represents at least one-third of the average company’s profit margin. It’s closer to 80 percent of the profit margin of that big company.
The clear result of a tax like this is that corporations will be forced to decrease expenses by lowering wages and benefits or eliminating employees and raising prices on consumer goods.
However, while this new initiative doesn’t look like an answer to increasing the fair share of corporate taxes, it is an outrage that there are large, profitable corporations paying nothing in federal income taxes. A recent Citizens for Tax Justice report illustrates how profitable Fortune 500 companies in a range of sectors of the U.S. economy have been remarkably successful in manipulating the tax system to avoid paying even a dime in tax on billions of dollars in U.S. profits.
These 15 corporations’ tax situations shed light on the widespread nature of corporate tax avoidance. As a group, the 15 companies paid no federal income tax on $23 billion in profits in 2014 and they paid almost no federal income tax on $107 billion in profits over the past five years. All but two received federal tax rebates in 2014 and almost all paid exceedingly low rates over five years.
Proponents of tax increases could direct their energies to making sure that all corporations are paying their fair share of current taxes.
