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Next on the governor's list: a compromise on gross receipts tax

When it comes to the proposed gross receipts tax in Oregon, this state’s residents — and particularly their elected leaders — have a choice. They can quickly agree on a reasonable plan to raise much-needed money for schools, or they can arm themselves for a grisly ballot battle in November.

The second option would require business and labor groups to spend tens of millions of dollars in a campaign designed to drive a wedge between Oregonians. That’s why it is imperative for Gov. Kate Brown and legislative leaders to pursue the preferable alternative of thoughtful negotiation and compromise.

If they are unable to craft a solution that bolsters the state’s revenues without damaging its economy, then they will have failed a basic test of leadership.

As reported by the Pamplin Media/EO Media Capital Bureau last week, Brown has had conversations with business and labor groups about the looming fight over Initiative Petition 28 — a proposed ballot measure that would hit about 1,000 large businesses with a 2.5 percent tax on their Oregon sales.

Brown says she doesn’t plan to enter into negotiations with these groups, but she must. And business leaders must help, offering reasonable alternatives to generate meaningful revenue.

Our Oregon, the group leading the petition effort, deserves credit for bringing a proposal forward. But it goes too far. Our position is based on two premises.

First: Oregon needs significant additional revenues to fully fund K-12 education well into the future.

Second: Initiative Petition 28 represents a simplistic approach that would imperil the Oregon economy.

The tax, if approved by voters in November, is estimated to bring in more than $5.3 billion per biennium — the single largest tax increase in Oregon history. To put it into perspective, $5.3 billion every two years is equivalent to $1,320 per person in Oregon. If just half the tax is passed along to consumers — and certainly some portion will be — that would equal a $1,000 annual hit for a family of three.

As economist John Mitchell recently noted to the Portland Business Alliance, a gross receipts tax such as this can only be paid by three groups of people: the business owners, the employees of those businesses or the people who buy their products. In other words, two of those three groups are ordinary citizens (the “99 percent”) who could end up paying more for basic goods — or possibly be out of a job.

The public union-backed sponsors of Initiative Petition 28 argue that it is aimed primarily at large out-of-state corporations that do business in Oregon. You will hear a lot about Walmart during the campaign, but hundreds of Oregon-based companies will also be affected.

We agree with the sponsors that some of these corporations ought to pay more than they currently do, but a gross receipts tax of this size would function more like a consumer sales tax than a corporate income tax.

The businesses targeted by IP 28 would include the largest grocery chains, pharmacies and private utilities. That makes the tax especially regressive — because these entities, which have extremely thin profit margins, are likely to tack at least some of the 2.5 percent sales tax onto the price of their products. That’s why many states exclude these same products from sales taxes. They don’t want to tax their poorest residents on daily necessities.

Other states also have gross receipts taxes, but for the most part, they are far, far smaller than the one proposed in Oregon. A legislative solution that included a much smaller gross receipts tax coupled with other revenue-generating changes could go a long way toward fully funding the state’s K-12 school system.

The state, however, also needs some incentive for cost control. Flooding the general fund budget with an additional $5.3 billion — 29 percent more than the current general fund budget — would paper over the escalating cost of government for a while, without slowing the growth in expenses.

Earlier this month, Gov. Brown found the middle ground on the minimum wage issue, which also is the subject of proposed ballot measures. It seems that another ballot fight over the future use of coal in Oregon will be headed off by a compromise between utilities and environmentalists.

IP 28 should be next on Brown’s list. It may require a special session of the Legislature following the February annual session, but the governor should consider what’s best for Oregon. That means averting a divisive ballot fight, increasing funding for K-12 education and preserving an Oregon economy that provides the overall tax revenue for important public services.

Ben Unger, the executive director of Our Oregon, told our editorial board that he’s willing to sit down and discuss alternatives. It’s now up to the governor, lawmakers and business leaders to take him up on the offer.