Does Oregon Rank Dead Last in Corporate Taxes? NO

By Steve Buckstein

Trying to sell voters on the largest tax increase in Oregon history, Measure 97 proponents claim that “Oregon ranks dead last in corporate taxes.” But the nation’s leading independent tax policy research organization, The Tax Foundation, says this claim is misleading. It looked at three ways to rate corporate taxes and found:

  • Oregon’s top marginal corporate income tax rate is the 18th highest in the nation.
  • On a revenue per capita basis, Oregon’s corporate income tax is the 28th highest.
  • The Foundation’s State Business Tax Climate Index ranks Oregon 37th nationally for overall corporate income tax structure.

The “dead last” corporate tax claim relies on two national reports (AEGCOST) that look at total business tax burdens, not just the tax burdens of large C corporations, the only entities directly targeted by Measure 97. Even so, both these reports make clear that they rate Oregon’s business tax burden low not because corporate taxes are low, but rather because Oregon doesn’t have a sales tax.

As the COST report notes, “If sales tax revenue is excluded…[Oregon] moves from the lowest…to the 20th-lowest rate.”

Misleading voters about Oregon’s corporate tax structure may simply be a tactic to keep us from focusing on the fact that Measure 97 is really a hidden sales tax on steroids that will hit every Oregonian. When we realize that, Measure 97 should suffer the same fate as every other statewide sales tax measure—defeat.

Read much more about Measure 97 and why you should vote against it on Cascade’s Measure 97 webpage.

A Sales Tax by Any Other Name…

Public employee union backers of Initiative Petition 28 have turned in more than enough signatures to place their massive 2.5 percent gross receipts tax measure on Oregon’s November ballot.

While supposedly dedicating most of the $6 billion per biennium additional tax revenue to public education, health care, and senior services, in reality legislators would be under pressure from powerful lobbyists in the Capitol to substitute at least some of this new revenue for money they would otherwise dedicate to those services. In short, the loudest voices in Salem, not voters, will ultimately control where this extra tax money goes.

While the unions portray their measure as making large, out-of-state corporations pay their fair share of Oregon taxes, the nonpartisan Legislative Revenue Office has released a detailed report giving a much more balanced perspective, which includes:

■ IP 28 will increase state and local taxes by $600 per year on average for every man, woman, and child in Oregon, totaling over $6 billion each full biennium.

■ IP 28 will dampen income, employment, and population growth over the next 5 years. In fact, it is expected to reduce employment growth by more than 20,000 jobs over the next five years, with private sector job growth slowing while public sector job growth accelerates in order to spend all that new tax money.

■ IP 28 will hit lower- and middle-income Oregonians harder than it will affect high-income earners. In other words, it is a regressive tax.

Perhaps most telling, the Legislative Revenue Office concludes that IP 28 will act largely like a consumption tax. It estimates that roughly two-thirds of that $6 billion per biennium tax increase will be passed on to Oregon consumers in the form of higher prices. Another name for a consumption tax is a sales tax.

The reality that IP 28 would effectively be a sales tax should be a lesson for all Oregonians that businesses generally don’t pay taxes, people do. Even the largest corporations are made up of people, namely employees, and sell their goods and services to other people, namely customers. It is largely these two groups of people who pay so-called business taxes like the one that IP 28 would impose.

The backers of IP 28 certainly understand that it is really a tax on people, not corporations. But, it is harder to get voters to approve a tax measure when they think it will hit them with rising prices at the store and fewer job opportunities. Better to promote the fiction that big faceless corporations have some magic pots of money that they will simply hand over to state government and public employees without any consequences for the rest of us.

Public employee unions back IP 28 because most of the tax revenue it would generate will go into the pockets of their members. Once the rest of us realize that this money will come primarily out of our pockets, we might not be too excited about voting for this massive new money grab.


A version of this article originally appeared in The Coos Bay World on June 1, 2016.

Meet the New Tax Reform…Same as the Old Tax Reform

Oregon Governor John Kitzhaber, fresh off his early October special legislative session “Grand Bargain” success, says he will now turn his attention to tax reform. He has plenty of company in Oregon’s recent history.

Governor Barbara Roberts, concerned that property tax limitation Measure 5 which passed in 1990 would decimate state finances (it didn’t), embarked on her Conversation with Oregon to find out what the average voter might accept in the way of tax and other reforms. Thwarted by the divided legislature, she later supported legislatively referred Measure 1 in 1993, which proposed a new five percent sales tax to fund education. The referral also offered property and income tax reductions. Voters said thanks, but no thanks, with a resounding 75% No vote. It marked the ninth time in state history that voters had rejected adding any state sales tax on top of property and income taxes.

Most recently, Governor Ted Kulongoski appointed members to the legislatively created Comprehensive Revenue Restructuring Task Force in 2007, but it was clear to me (as a member of the Task Force) that no serious “restructuring” was in the cards.

Ask the average Oregonian what “tax reform” means, and they are likely to say it means “more taxes.” And, so far they’d be correct.

Before Governor Kitzhaber has even hinted at specifics of his upcoming tax reform plan, several state legislators are fleshing out their own version of “more taxes” which includes a five percent sales tax coupled with property and income tax reductions. This time, they have in hand a Legislative Revenue Office analysis that says it will create 55,405 new jobs and raise $488 million a year in net tax revenue.

So again, this latest “tax reform” discussion seems to focus on raising more money for the state, thus leaving less money for its citizens and visitors. The concept of “spending reform” doesn’t seem to be on the table, and why should it if legislators and the Governor truly believe that government spending is more important than our own family budgets?

As I’ve noted previously, “Any sales tax is dead in this state―unless coupled with elimination of another tax. Reducing other tax rates won’t sell a sales tax.” That isn’t just my prediction, it’s the expert opinion of Portland pollster Adam Davis, based on focus groups he did for Governor Kulogoski’s Task Force in 2007 and more recent quantitative analysis that convinced him that Oregonians will not accept a third tax…period.

This latest legislative proposal seems determined to make the same mistake that legislative referral Measure 1 made in 1993, blindly hoping that somehow, some way, Oregonians will believe politicians when they promise to lower other tax rates in return for creating a new third tax. But history shows that voters don’t believe such promises. Unless the property or income tax is entirely wiped off the books (I prefer eliminating the income tax), an Oregon sales tax seems destined to be soundly defeated for the tenth time since statehood in 1859.

Even if by some miracle a third tax were approved by voters, it wouldn’t solve our state’s fiscal problems. The best way to do that is to tackle “spending reform” first, finding ways to reduce the size and scope of government. Otherwise, any “tax reform” simply will mask our fiscal problems for a while by allowing government to continue to grow until once again it prices itself above our ability to pay.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Should Oregon Replace the Income Tax with a Sales Tax?

In 2007 Governor Ted Kulongoski appointed me to represent taxpayers on the legislatively created Comprehensive Revenue Restructuring Task Force. The Task Force reviewed and analyzed revenue and spending streams in the state, but did not recommend comprehensive reforms to the tax system.

At the first Task Force meeting in November 2007, Portland pollster Adam Davis presented his focus group work around tax reform. He told us that public negativity on government and politics was higher than he’d ever seen in his 30-year career.

One key finding stood out, and I believe this is an accurate paraphrase:

“Any sales tax is dead in this state―unless coupled with elimination of another tax. Reducing other tax rates won’t sell a sales tax.”

“Even when it was explained that reduced income and/or property tax rates could be locked into the Constitution, voters responded that ‘They’ll find a way to jack the rates back up.’”

Adam Davis recently told me that his firm later did more quantitative analysis which confirmed his focus group findings that Oregonians will not accept a third tax…period.

With that realization in mind, I proposed to the Task Force, and I propose now, that Oregonians should have a serious discussion about replacing our economically harmful income tax system with a less harmful sales tax system. Research finds states without an income tax have experienced higher economic and job growth than states with high income tax rates like Oregon. Last year, two economists who study this trend said:

“Every year for the past 40, the states without income taxes had faster output growth (measured on a decadal basis) than the states with the highest income taxes….

“Over the past decade, states without an income tax have seen 58% higher population growth than the national average, and more than double the growth of states with the highest income tax rates….

“The transfer of economic power and political influence from high-tax states toward low-tax, right-to-work ones is one of America’s most momentous demographic changes in decades. Liberal utopias are losing the race for capital.”*

While it seems clear that income taxes do harm our economy, sales taxes appear to do less damage, and therefore may be preferable when we cannot find voluntary ways to fund government services.

This month a state senate committee held two public hearings on bills that would impose a five percent retail sales tax while somewhat reducing income and property tax burdens. At the first hearing, Governor John Kitzhaber suggested that sales tax advocates (he among them) should first get a better sense of what voters think is wrong with the current system—and then get a “better handle on spending.”

One state senator suggested that a better handle on spending could be achieved by tying state spending to inflation and population growth, as a 2006 defeated initiative would have done. If it had passed, legislators would be sitting in Salem today with a significant budget surplus, instead of wondering how to wring more tax dollars out of a struggling economy. That may not be the kind of handle on spending the Governor had in mind, but it sure beats having no handle at all.

I testified at the second hearing, proposing that the bills (SJR 36 and SB 824) be amended so that they not only create a state sales tax, but that they prohibit income taxes in the Oregon Constitution (Article IV, section 32). If Oregon voters understand that it would be unconstitutional to tax their incomes, they might render a different verdict on a sales tax than they did when rejecting them nine times at the polls since 1933.

Eliminating the income tax completely is important for economic reasons, but also because, as focus groups and polls have shown, Oregonians simply don’t trust their elected officials to keep rates on other taxes down once a new sales tax is in place. I also believe they understand that states with so-called “three-legged tax stools” have budget problems, too, such as our neighbor to the south, California.

One of the perceived advantages of adding a sales tax to currently existing taxes appears to be that the mix of different taxes seems to reduce instability in the system. A number of people testified that budget stability is important to them, especially for local school budgets which are funded significantly from the state General Fund.

But at the hearings, I was the only person who questioned why the state budget should be more stable than our own business and family budgets. As a former and current member of the Governor’s Council of Economic Advisors wrote in 2007:

“It is not clear why government budgets should be more stable than private budgets. It is already the case, with the kicker and without any rainy day fund, that public employment in the state is 20% more stable than private employment.”**

If legislators are not careful, making state revenue more stable will make their constituents’ after-tax family budgets even less stable, and many of them will not appreciate that.

In conclusion, until we reduce the size and scope of state government, no third source of tax revenue will solve our state’s financial problems. It will simply mask them.

* “Laffer and Moore: A 50-State Tax Lesson for the President,” Arthur Laffer and Stephen Moore, Wall Street Journal, April 20, 2012.

** Excerpt from an email to then-State Senator Ryan Deckert from economist Randall Pozdena, Ph.D., dated March 6, 2007.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Cascade in the Capitol: Testimony on proposed Oregon sales tax

Testimony before the Senate Committee
on Finance and Revenue
regarding sales tax bills SJR 36 and SB 824
by Steve Buckstein

[This testimony was submitted for the April 15, 2013 hearing, but was held over for the April 17, 2013 hearing. My prepared April 17th testimony is posted at the end.]

Good afternoon, Chair Burdick, Vice-Chair George, and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland.

In 2007 I was appointed by Governor Kulongoski to represent taxpayers on the legislatively created Comprehensive Revenue Restructuring Task Force. The Task Force reviewed and analyzed revenue and spending streams in the state, but did not recommend comprehensive reforms to the tax system.

At the first Task Force meeting in November 2007, we heard from Portland pollster Adam Davis about his focus group work around tax reform. One key finding stood out, and I believe this is an accurate paraphrase:

“Any sales tax is dead in this state – unless coupled with elimination of another tax. Reducing other tax rates won’t sell a sales tax.”

“Even when it was explained that reduced income and/or property tax rates could be locked into the Constitution, voters responded that ‘They’ll find a way to jack the rates back up.’”

Mr. Davis recently told me that his firm did more quantitative analysis for two state senators which confirmed his focus group findings that Oregonians will not accept a third tax…period.

With that realization in mind, I proposed then, and I propose now, that we should have a serious discussion about replacing Oregon’s economically harmful income tax system with a less harmful sales tax system.

Research finds states without an income tax have experienced higher economic and job growth than states with high income tax rates like Oregon.

I want to be clear that I don’t like sales taxes very much either, but I’m convinced that they do less damage to the economy than do income taxes.

I suggest that SJR 36 and SB 824 be amended so that they not only create a state sales tax, but they prohibit income taxes in the Oregon Constitution (Article IV, section 32).

Once Oregon voters understand that it will be unconstitutional to tax their income, they may render a different verdict on a retail sales tax than they have nine times in the past.

If you worry that this proposal may not raise enough revenue, then you should shelve any talk of tax restructuring until the legislature and the Governor, or the people, have comprehensively restructured and reduced state spending.

I know that many of you don’t want to hear this, but simply adding a sales tax to our current income and property taxes never has been, and I believe never will be, acceptable to Oregon voters. They know that states with so-called three-legged tax stools have budget problems, too.

Until we reduce the size and scope of state government, no third source of tax revenue will solve our problems, it will simply mask them.

Thank you.
______________________________________________

April 17, 2013    Buckstein testimony on SJR 36 and SB 824

I want to highlight key points in my written testimony [above] that you already have, and respond to several issues raised here on Monday, April 15th.

First, I appreciated the Governor’s suggestion that sales tax advocates should first get a better sense of what voters think is wrong with the current system — and then get a better handle on spending.

Senator George suggested a spending limit like the one voters rejected in 2006, which would have tied state spending to inflation and population growth.  If that limit had passed, you’d be sitting here today with a significant budget surplus instead of wondering how to wring more tax dollars out of a struggling economy.

That may not be the kind of handle on spending the Governor has in mind, but it sure beats having no handle at all.

As to what voters think is wrong with the current tax system, you heard from the chair of Governor Kulongoski’s Comprehensive Revenue Restructuring Task Force.

Lane Shetterly told you that the Task Force discussed sales tax proposals, but chose not to recommend one based partly on polling data.

I was a member of that Task Force, appointed by the Governor to represent the taxpayers.

At the first Task Force meeting in November 2007, we heard from Portland pollster Adam Davis about his focus group work. He told us that public negativity on government and politics was higher than he’d ever seen in his 30 year career.

One key finding stood out, and I believe this is an accurate paraphrase:

“Any sales tax is dead in this state – unless coupled with Elimination of another tax. Reducing other tax rates won’t sell a sales tax.”

“Even when it was explained that reduced income and/or property tax rates could be locked into the Constitution, voters responded that ‘They’ll find a way to jack the rates back up.’”

These findings mirror a concern several people mentioned here on Monday — the lack of Trust in government. Voters simply won’t trust you to keep income and property taxes down once they give you a Sales Tax.

Adam Davis recently told me that his firm did more quantitative analysis later, which confirmed his focus group findings that Oregonians will not accept a third tax…period.

With that realization in mind, I proposed then, and I propose now, that we should have a serious discussion about replacing Oregon’s economically harmful income tax with a less harmful sales tax.

Research finds states without an income tax have experienced higher economic and job growth than states with high income tax rates like Oregon.

I want to be clear that I don’t like sales taxes very much either, but I’m convinced that they do less damage to the economy than do income taxes.

I suggest that SJR 36 and SB 824 be amended to PROHIBIT income taxes in the Oregon Constitution.

Once Oregon voters understand that it will be unconstitutional to tax their incomes, they may muster up enough trust to finally approve a retail sales tax.

There was quite a bit of discussion on Monday about devising a more stable source of revenue for state government. Paul ably showed you that a mix of different taxes could reduce instability in the system.

But there was no discussion about why the state budget should be more stable than our own business and family budgets. As a member of the Governor’s Council of Economic Advisors wrote then Senator Ryan Deckert in 2007:

It is not clear why government budgets should be more stable than private budgets.  It is already the case, with the kicker and without any rainy day fund, that public employment in the state is 20% more stable than private employment.”

If you’re not careful, I fear that making state revenue more stable will make your constituent’s after-tax family budgets even less stable, and I doubt many of them will appreciate that.

Finally, the last person to testify on Monday, representing the League of Women Voters, told you that she wanted to see a so-called three legged tax stool in Oregon. But as you know, states with three legged tax stools have budget problems too. Just look south to California to see why the three legged stool is no panacea.

Until we reduce the size and scope of state government, no third source of tax revenue will solve our problems, it will simply mask them.

Thank you.