Photographer: DON EMMERT/AFP/Getty Images

Vote on Record Business Tax May Make Oregon a Liberal Test Case

  • November ballot measure would increase general fund 33 percent
  • ‘Basic unfairness’ as corporations pay little, governor says

Oregon voters in November will consider the largest U.S. corporate tax increase in this millennium, a decision that may make the state a proving ground for the liberal belief that businesses are getting a free ride.

The measure would levy a 2.5 percent tax on in-state gross sales of more than $25 million. It would swell Oregon’s budget 33 percent and steer $3 billion of corporate earnings annually toward schools, healthcare and the elderly, making it something of a Pacific Northwest welfare state.

The state would join Kansas in experimenting with a wealth redistribution on a grand scale: In 2012, Republican Governor Sam Brownback approved broad tax and spending cuts as part of a self-described Tea Party experiment that so far has failed to boost the economy. And Oregon’s proposal comes to voters as the issue of income inequality is being amplified nationally in the presidential race.

“It’s a symptom of a larger intuition that corporations are not paying their fair share of tax and that they’ve gamed the system,” said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles. “The country has gotten richer and there’s been economic growth, but there’s the correct sense that growth has been captured by a very small slice of Americans.”

Pushed by the well-funded labor union for school teachers, the proposal would increase the state’s taxes by 25 percent. Proponents say Oregon’s public schools, ranked 39th in the nation in quality by Education Week, have been shortchanged for decades while corporations enjoy some of the nation’s lowest business taxes.

Sharing Burdens

“There is a basic unfairness in our tax system that makes working families pay an increasing share for state and local services, including public schools, senior services and health care,” Governor Kate Brown, a Democrat, said in a statement. “By some measures, Oregon is among the lowest in corporate taxes, and Oregonians expect everyone to pay their fair share.”

Kate Brown

Photographer: Meg Roussos/Bloomberg

Opponents, who’ve raised $9.3 million to fend off the initiative, say it will dampen the state’s thriving economy, one of the nation’s best performing. Oregon’s non-partisan Legislative Revenue Office concluded companies would pass the cost onto consumers, saying it would "largely act as a consumption tax."

“It’s a very large, very distorting tax increase that has significant negative effects on the economy and ultimately on Oregon consumers, who will pay the bulk of the tax in higher prices and feel the loss of private-sector jobs,” said Pat McCormick, a spokesman for the Defeat the Tax on Oregon Sales campaign.

Under the measure, a company with sales in the state of $350 million or more would see its tax bill go from $100,000 a year to $8 million annually. If approved, it would be such a massive jump in state taxes that the Legislative Revenue Office said it has little historical experience with changes that large.

“Like so many job creators in Oregon, we are concerned about the impacts of Measure 97,” said Marc Farrar, a spokesman for Comcast.

Digging Deep

The tax increase would be the biggest of the millennium, said Jackson Brainerd, a policy associate at the National Conference of State Legislatures in Denver. The most notable recent business-tax increase came from Texas, which in 2006 enacted a net margins levy, another type of gross-receipts tax, bringing in about $4.5 billion in revenue in the first year, said Brainerd.

“Proportionally, Oregon’s potential $3 billion tax increase would be much larger,” he said.

The measure would increase levies on 1,051 of Oregon’s 29,475 corporate tax filers. The 274 companies with sales of more than $100 million in Oregon -- such as Portland General Electric Co. -- will pay about 85 percent of the additional money.

The levy “tends to place companies with different profit margins at severe disadvantages,” said Doug Lindholm, president at the Council on State Taxation, a Washington-based non-profit trade group representing more than 600 multi-state companies.

“For grocery stores, which operate at a very low margin and a very high volume, a 0.5 percent gross-receipts tax can tip them over into the edge of bankruptcy, and the Oregon tax is 2.5 percent,” he said.

Mixed Messages

A poll released Sept. 8 by DHM Research found that six out of 10 Oregonians support the ballot measure. Still, about half of registered voters in the same survey said Oregon should keep taxes and spending at their current level. In 2010, voters approved two ballot measures raising income taxes on households earning more than $250,000 and increased the corporate minimum tax. Combined, they added $733 million in revenue biannually.

Oregon, one of five states lacking a sales tax, caps property taxes and has few options for raising funds. The proposal is part of a broader nationwide push by some states and cities to turn to wealthy taxpayers and corporations to make up their revenue needs as efforts stall in Congress to raise the minimum wage and other programs that help low- and middle-income workers. Voters in Maine and California will consider proposals to impose higher levies on wealthy residents.

“They’ve reached this point where they would like new revenue and they don’t know where to go to get that,” said Nicole Kaeding, an economist at the Tax Foundation, a Washington-based tax-policy research group. “And so to do that, they’re looking at this type of tax.”