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My View: Initiative costs more than sales tax

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An economist with the Center for State Tax Policy at the Tax Foundation says consumers would bear the true costs of Measure 97

Proponents of Measure 97 argue that this tax will ensure that large, out-of-state businesses “pay their fair share,” but economic analysis finds that consumers, wage earners and shareholders would bear the true economic cost of the tax.

By 2022, Oregon’s Legislative Revenue Office predicts that prices would increase by 0.9 percent.

In the abstract, that increase might seem small, but an increase of 0.9 percent represents almost $2 billion in additional consumer costs per year. Higher prices present challenges for consumers as they face greater difficulties purchasing the same products as before, given the same budget.

Increasing prices, particularly for necessities, puts pressure on households to either decrease or delay purchases. It also can impact retailers as their customers scale back their purchasing patterns.

The Legislative Revenue Office report also may understate the increase in prices for certain industries. Gross receipts taxes, such as Measure 97, disproportionately affect firms or industries with longer production chains, as the tax compounds multiple times, a problem inherent in gross receipts taxes known as “tax pyramiding.”

Industries like retail or wholesale trade, which involves multiple production steps, could see prices rise considerably higher than the median of 0.9 percent.

The LRO stated that “industries vary greatly in the number of transactions that occur; the effective tax rates can be considerably higher for those industries with multiple transactions compared to those with very few.”

That means consumers at retail establishments, such as grocery stores, could see even higher prices, forcing even greater adjustments to household buying patterns.

The LRO’s results match those of academic economic literature, which also finds that gross receipts taxes result in higher prices. Unlike a sales tax that is only charged on the final sale of a good or service, gross receipts taxes are charged at every level of production.

Under a sales tax, a gallon of milk is taxed just once, when the consumer buys it. The sales among the dairy, packager, distributor and grocer are not taxed under a traditional sales tax.

A gross receipts tax is worse than a sales tax because it is charged on every step of the production cycle. The tax repeats this process multiple times, so the farm, the packager, the distributor and the grocer must pay a tax based on their sales.

When the consumer finally purchases the product, the price is higher than it otherwise would have been due to the previous taxes paid. Each tax results in a slightly higher price. By the consumer’s final sale, the price has increased due to the previously assessed taxes.

If Measure 97 is adopted in November, Oregonians should prepare to pay more for everything they purchase, including necessities like food, electricity, and water.

Nicole Kaeding is an economist with the Center for State Tax Policy at the Tax Foundation. Email: This email address is being protected from spambots. You need JavaScript enabled to view it.