By Eric Fruits, Ph.D.
Many Oregon businesses are looking forward toward May 15. That’s the day the state expects to ease some of Governor Kate Brown’s COVID-19 “Stay Home, Stay Safe” order.
But, many businesses are considering whether they should they re-open at all. Dakine is closing its Hood River office and moving the outdoor gear company’s headquarters to Southern California. Nordstrom announced it is closing its Clackamas Town Center store. World of Speed motorsport museum in Wilsonville is permanently shutting down and sending its exhibits to schools and other museums.
As the state slowly re-opens, some businesses will be facing a seemingly insurmountable debt burden: delayed rent and utility payments will come due, Paycheck Protection Program loans may have to be repaid, lines of credit will have to be restored, and deferred taxes will have to be paid.
Coronavirus is only one of many new challenges facing Oregon businesses. Leading up to the pandemic, Oregon business owners were sweating the state’s new Corporate Activities Tax. Last year, in anticipation of the CAT and other new taxes, Stimson Lumber laid off 40% of its workforce in Forest Grove and moved some of the operations to Idaho and Montana.
While the rules governing this new gross receipts tax won’t be finalized until sometime in June, the first quarterly payments were due on April 30. Because it’s a tax on sales, the tax is due even if the business is losing money.
Portland’s Chown Hardware claims its first quarterly payment was approximately $30,000. Because of the combination of coronavirus and the new tax, the owner laid off 25 of his 100 employees. Facing a $10,000 quarterly tax bill, a pharmacist in the small town of Banks shut down his pharmacy and laid off his six employees.
In the middle of the pandemic, Multnomah County commissioners approved a steep increase in the county’s Business Income Tax, from 1.45% to 2%. The county expects the hike to increase business income tax revenues by one-third, or $900-$1,000 per affected business. These new taxes are on top of Portland’s 1% tax on the sales of large retailers which went into effect last year, with the money earmarked for so-called “clean energy” projects.
As if that’s not enough, the May 2020 ballot has Metro Measure 26-210. This measure imposes two new income taxes: one on businesses with more than $5 million in sales, and another on households with more than $125,000 in income ($200,000 if filing jointly). Business owners who earn pass-through income—many small and medium sized businesses—will be taxed twice under Metro’s measure.
Consider a pass-through business with income of $150,000 on just over $5 million in sales (that’s a 3% profit rate). The owner will be looking at more than $17,000 in new taxes this year:
|Corporate Activities Tax||$15,000|
|Multnomah County Business Income Tax||800|
|Metro business income tax||1,500|
|Metro personal income tax||75|
That’s the increase in taxes relative to last year, and it amounts to more than one month’s work—just to pay the new taxes.
As the economy slowly re-opens, business owners are going to go through the same calculus as Chown and the Banks pharmacist and ask themselves: “What’s the point?” Their businesses have been wiped out, they’ve racked up debt with unpaid rent and other bills, and to make matters worse they’re staring down steep new tax bills.
State and local politicians blandly remind us, “We’re all in this together.” But we’re not. You’re on your own. For business owners, your job is to toe the line on the state’s shutdown orders and cut checks to feed the government bureaucracies that got bloated during the boom times. No matter how much your taxes increase, they’ll keep saying your business doesn’t pay its fair share.
Someday, and that day may come soon, business owners will look at their financials and come to the conclusion that it’s easier to run a bookstore in Boise, open a restaurant in Reno, or a be financial adviser in Vancouver. Portland doesn’t have a monopoly on livability.
COVID is already killing the economy. We cannot let tax increases bayonet the wounded.
Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization.
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By Rachel Dawson
“The vast disparity between the rich and the poor is, in large part, designed by the disparity between those who have electricity and those who scrape by on small quantities of juice or none at all.”
– Robert Bryce
Electricity is at the epicenter of modern life, yet rarely does the average person consider the complexities behind the power grid when a light is turned on. The advent of technology, fueled by electricity, has created an era of human prosperity unseen throughout the history of mankind. We can pick up our smartphones and call friends from across the world, cook meals on a stovetop, and pay for goods and services with electronic banking without a second thought.
Electricity has proven to be especially important during the COVID-19 outbreak. Governor Kate Brown issued an executive order on March 23, 2020 that directs Oregonians to stay at home, closing many businesses and requiring social distancing measures. Many who did not suddenly find themselves out of a job were forced to work remotely. These workers rely on the grid to power their computers and connect them to distant coworkers via video conferencing websites. If communities in Oregon were to face a major electricity blackout that lasted 3-4 days, the state would be paralyzed.
We take for granted the access we have to the cheap and abundant electricity available here in the United States, especially in the Northwest with hydroelectric dams. While we can study, work, and play at all hours of the day, millions around the world continue to live in the dark. Their lack of electricity inhibits children’s abilities to study at night and further their education. It threatens people’s health due to unclean water and cooking on open fires in homes.
Unfortunately, our access to cheap and reliable energy in the Northwest is at risk. Oregon’s only coal-fired power plant, located at Boardman, will be decommissioned at the end of 2020 due to an environmental lawsuit settled a decade ago. A second coal plant located in Centralia, Washington will also go dark this year; and a total of 4,800 MW of coal power will be taken off the Western Interconnection (the power grid that connects most western states with British Columbia and Alberta) over the next several years. Unfortunately, utilities seem to have no real plans for replacing those megawatts with firm power.
Former Bonneville Power Administration (BPA) Administrator Steve Wright stated that this “is pretty much unprecedented” and that “we are quite concerned about whether we have enough time to address this issue.”
Wright himself has experience dealing with inadequate electricity resources. He was in charge of BPA during the 2001 energy crisis when a drought significantly reduced power from hydroelectric dams and threatened rolling blackouts in the Northwest. To conserve power, BPA took back electricity previously sold to the aluminum industry. In doing so, BPA essentially shut down the aluminum industry in Oregon, putting 5,000 aluminum employees out of work.
This isn’t a future problem for our region: Oregon’s grid is at risk right now. Frank Afranji, the President of the Northwest Power Pool, stated in an Oregon House Interim Committee on Energy and Environment that brownouts in Oregon could occur starting in 2020 and “we have an urgent situation because of the capacity deficit. We really need to move expeditiously and come up with a solution.”
Afranji also stated that battery storage technology cannot bridge the gap between supply and demand.
The Power Pool is a voluntary organization that includes electric utilities from the Pacific Northwest, Alberta, and British Columbia, and it is focused on power planning in the Northwest. The Power Pool published a report on resource adequacy in 2019 that concluded:
- The region may begin to experience power shortages as soon as this year.
- By the mid-2020s, the region may face a capacity deficit of thousands of megawatts which may result in both extreme price volatility and unacceptable loss-of-load, or blackouts.
With more employees currently working from home and communicating electronically, utilities must ensure that our region has enough reliable electricity to meet current and future demand. State policymakers and utilities can, and should, do a number of things to prevent another crisis, including:
- Delaying the decommissioning of the Boardman Coal Plant until its principal owner, PGE, can replace the lost megawatts with reliable power; and
- Removing the state moratorium on nuclear power to allow Oregon to invest in reliable and carbon-free power.
The Northwest Power and Conservation Council stated that the 2001 crisis developed largely unnoticed over a number of years before striking the region. It is imperative that we are not caught flat-footed again.
Rachel Dawson is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.
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