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State business tax plan would raise billions, but could 'dampen' employment, growth

TRIBUNE FILE PHOTO - Some Oregon businesses could be hit with more taxes under an initiative that will be on the November general election ballot. A state analysis of the initiative found that it could raise about $6 billion for state budgets, but might 'dampen' employment and growth around the state.A proposed tax on the sales of large businesses would generate more than $6 billion in biennial state revenue starting in 2017-19, but it would also slow income, employment and population growth during the next five years, according to a state analysis of the initiative.

The report projects that the tax proposal, which will likely be on the November general election ballot, would amount to a $600 per capita increase in state taxes each year. The tax would reduce private-sector employment from what otherwise would occur, while it would increase the number of government jobs. The net reduction in employment — private and public — is projected to be about 20,000 statewide by 2022, according to the analysis.

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EO MEDIA GROUP“We don’t have any delusions. We know this won’t be the final word on it,” Legislative Revenue Officer Paul Warner said Monday morning. “We know there will be a lot more work and analysis to do, but hopefully, this will be a starting point.”

Known as Initiative Petition 28 (IP 28), the proposed gross receipts tax measure backed by public employee unions and others around the state would increase the state's corporate tax by 2.5 percent on businesses with annual sales above $25 million.

The initiative would not affect the taxes directly paid by thousands of smaller corporations in the state.

It would, however, qualify as the largest tax increase in state history.

An analysis of IP 28 by Oregon’s Legislative Revenue Office presented Monday morning to the Senate Interim Committee on Finance and Revenue in Salem, showed the measure would stabilize the state’s budget. At the same time, the costs of the tax would likely trickle down to consumers, increasing prices on daily items.

“The impact of IP 28 on consumer prices means that the marginal impact of the tax will be regressive,” the report states.

If IP 28 were approved, a household with median income of $51,075 would pay an estimated $613 in the form of higher prices and slower economic growth, the report shows. Job growth would slow by 1.6 percent in the private sector, but increase by 5.8 percent in the public sector.

According to the state analysis, “If it were in place for the 2012-13 fiscal year (the most recent year with complete state-by-state census data), IP 28 would have increased Oregon’s per capita state and local tax burden by roughly $600 to $4,501. At this level the state could have had the 20th highest per capita tax burden in that year compared to an actual rank of 28th. As a percent of income, IP 28 would have raised taxes from an actual 10.1 percent in 2012-13 to 11.6 percent. This would have moved Oregon to the ninth highest taxes as a percent of income versus an actual ranking of 26th.”

The heaviest impact from the tax would fall on wholesalers and retailers, Warner said.

Source: Legislative Revenue Office

'Pay their fair share'

The union-backed campaign Our Oregon submitted 130,000 signatures in support of the measure to the secretary of state’s office on Friday for verification. Only 88,184 are needed to qualify a measure for the November ballot.

In a statement, Our Oregon said the report shows that by stabilizing the state budget, the measure will help hire back thousands of teachers, reduce health care costs and enhance senior services.

“Oregon’s unstable revenue stream has meant that economic crises consistently put vulnerable Oregonians at risk,” the statement says. “By making large corporations pay their fair share, IP 28 will better position the state to weather a future recession without making deep cuts.”

At the same time, Our Oregon spokeswoman Katherine Driessen questioned whether the analysis gives an accurate picture of the tax’s impact.

The Legislative Revenue Office “couldn’t model IP 28, so they, instead, applied a lower rate to all businesses,” Driessen said. “Of course, what IP 28 would really do is apply a 2.5 percent rate on sales above $25 million to fewer than 1,000 corporations. We appreciate the hard work that went into the report, but I think that’s a very important distinction to note.”

Warner clarified that his office “modeled the impact of IP 28 using standard general equilibrium techniques.”

“These models do not capture the micro level details at the industry or individual company level, which is a limitation, however, we believe they do capture broad overall effects on the state economy pretty well.”

Pat McCormick, a spokesman for a coalition of 500 businesses opposing the measure, disputed Our Oregon’s claim.

“This was specifically about IP 28,” McCormick said. “We have great confidence in the capability of the LRO to accurately present information with the best possible modeling, and they spent years building this model to accurately represent the state’s economic structures.

“The impact on the economy is going to be very difficult on Oregonians, especially those who are unable to bear those costs. All of the aspects of the economic impact on those most struggling in our economy, and the impact overall on the economy, the loss of jobs and so forth, is of significant concern.”

Lawmakers in the Senate had been interested in offering an alternative to the tax measure during February’s session, but have encountered resistance from the House.

Source: Legislative Revenue Office

Changes without a fight.

Sen. Mark Hass, D-Beaverton, chairman of the interim committee hearing the analysis Monday, proposed a smaller tax on corporations in February, but his bill never gained traction.

On Monday, he renewed his call to lawmakers to offer an alternative to the tax.

“There will be potent forces at work here to keep it from passing, so that $6 billion could be zero, and yet our revenue issues will remain. When I look at this and ... the regressive nature of it, it makes me think if we can do this and guarantee revenues without that force, without that fight, why wouldn’t we do that? We can do that. I know members of this committee would like to do that without going to a world war.”

He called on House Speaker Tina Kotek, Gov. Kate Brown and lobbyists to find a way to compromise.

“We can do this and try to avoid this divisive fight in the fall. The last thing the state needs is a bitter campaign.”

Kotek, D-Portland, made it clear at the end of the session that she supports the measure. Brown has not taken a strong position on the measure or offered to negotiate an alternative. On Monday, she indicated her focus is now on making sure revenue from the tax goes to education.

“I greatly appreciate the analysis provided by the Legislative Revenue Office, which helps inform our understanding of the impacts of IP-28,” Brown said in a statement. “As I have said previously, the problem I remain focused on is how to improve our graduation rate and fund essential services while sustaining economic growth and protecting Oregon jobs. I will begin discussions with my legislative colleagues about a way forward that, should the measure pass, would safeguard new revenue for education while sustaining economic growth and protecting Oregon jobs.”

Any compromise that comes at this stage could dampen the campaign for the measure, but it would do nothing to keep the measure off the ballot. Once signatures are verified, the measure cannot be withdrawn.

Reporter Kevin Harden contributed to this story.