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Citizen's View: IP 28 is a reckless experiment that will hurt Oregon families

Oregon is in a budgetary crisis. PERS and other obligations are driving up the cost of government. Many readers are likely already aware of the proposed response by some interest groups, one that is likely heading to our ballot this November: Initiative Petition 28.

IP 28 attempts to make up for the state’s current budget shortfall (and then some!) by taxing C-Corporations for sales in excess of $25 million at a 2.5-percent rate. I hope voters will carefully consider the initiative, as well as the analysis by the Legislative Revenue Office (LRO).

IP 28 is a massive, complicated and poorly designed tax increase. It is based on sales, not profits — so a business with a higher cost of production may end up paying much more, even if it is generating significantly less profit than another corporation. The LRO projects that the new tax would raise approximately $6 billion per biennium. It will ultimately function as a regressive tax similar to a sales tax (though it is less transparent), with the impact hitting all Oregonians.

The long-term financial effect is uncertain. The LRO notes that “there is very little empirical evidence on how state economies respond to such large changes, because they rarely occur at the state level.” Amazingly, just 50 corporations will account for 51 percent of the tax increase. Because of the heavy distribution on a small number of businesses, those corporations will likely have a strong incentive to take advantage of tax-planning techniques to avoid the tax.

The LRO suggests a fairly significant impact on employment by 2022: a projected increase of 17,700 public sector jobs, but an even larger reduction in private sector employment (38,200 jobs).

One of my fears about IP 28 is that it will remove an immediate incentive to responsibly reform PERS. I believe it is critical that we put the program (and our state) on a path toward long-term financial stability while honoring those already-existing obligations. If IP 28 passes, the pressure for reforms (even ones impacting only future employees, rather than current ones) will be substantially diminished. If many companies impacted by IP 28 do convert to another form of business entity or find other ways around the tax, then we will be left with an even more financially unstable PERS system. We have a responsibility not to pass this crisis on to our children.

Most importantly, the LRO states that “lower-income households will experience a higher tax burden,” with a projected decrease in after-tax household income of $500 per year for a family that makes between $21,000 and $34,000. That is because corporations will pass along the tax to consumers in the form of higher prices. This tax will have a large, negative impact on the well-being of families and the most vulnerable Oregonians.

IP 28 will be voted on by citizens, but our citizens deserve to know where our legislators stand on an initiative of such magnitude. When interest groups launch an initiative that would amount to a reckless economic experiment, I believe our representatives should speak out and advocate a responsible fiscal policy. We deserve to have them fight for us.

Will my opponent, Rep. Ann Lininger, speak out on IP 28? The residents of Lake Oswego and Southwest Portland deserve to know where she stands.

Patrick De Klotz, the Republican candidate for House District 38, formerly served as an attorney with the U.S. Department of Justice and now works as a business attorney. Learn more about his campaign at .>www.patrickdeklotz.com.