Business, lawmakers worry about corporate tax 'pyramiding'
PSU economist says gross reciepts tax plan 'like a sales tax on steroids'
The type of corporate tax proposed for a November ballot initiative by the union-backed group Our Oregon would be like a sales tax on steroids, former state economist Tom Potiowsky said during a presentation last week.
Potiowskymade the comment in response to an audience members question about the tax initiative, during an economic presentation at a construction industry nonprofit in Tigard Thursday, March 17. The type of tax in question, known as a gross receipts tax, is levied on the company selling goods or services. Our Oregons initiative would tax certain corporations 2.5 percent on their annual Oregon sales above $25 million.
Potiowsky stressed that he wasnt characterizing the specifics of the ballot initiative, but, rather, the multiplying effect of tax being proposed. In my attempt to be colorful in explaining a gross receipts tax, I said that it was like a sales tax on steroids, Potiowsky wrote in an email on Friday, March 18. That is, all transactions (through the supply chain) are assessed the tax, not just the final transaction (sale) to the customer.
Economists refer to this phenomenon as pyramiding and it is one of the reasons some business people at Potiowskys March 17 talk are worried about the corporate tax initiative.
Its very easy to get a 10, 12, even higher percentage added onto the cost of building something because of the way this thing is set up, said Neil OConnor, director of labor relations and a senior project manager at Western Partitions Inc. in Tigard. OConnor said the company, a drywall and interior finishes contractor, employees roughly 500 people in Oregon and virtually all our field employees are union members.
Economic analysis findings
Potiowsky has unique insight into how Our Oregons proposed tax initiative could affect the states economy, because he worked on an analysis of the potential economic impact of the measure. Our Oregon contracted with Portland State Universitys Northwest Economic Research Center, of which Potiowsky is the director, to conduct the analysis, The Portland Business Journal reported last year.
Ben Unger, executive director of Our Oregon and the initiatives chief petitioner, has so far declined to provide the findings of the economic analysis. Im not going to tell you what our economic analysis found, Unger said in January. I dont think that is all that relevant.
Unger did not respond to a request for comment March 18 regarding whether Our Oregon would release the findings of the analysis, and a spokeswoman for the ballot measure campaign declined to comment.
State Sen. Mark Hass, D-Beaverton, has been trying for months to get labor unions, business interests and elected officials to negotiate an alternative to Our Oregons initiative. Hass said he would like to see Potiowskys findings on how Our Oregons proposal could affect the states economy. Hes very good, Hass said of Potiowsky. Id love to see his work on this.
State economists in the Legislative Revenue Office are conducting a similar economic impact analysis for the corporate tax measure, but the Legislature kept them busy during the 35-day session that ended earlier this month and they have yet to complete the work. The state economists might not be ready to present their findings until interim legislative meetings in May, but Hass and other lawmakers are lobbying for them to finish the work sooner.
Im trying to be respectful of their time, Hass said. But they know theres some pressure to get this out sooner rather than later.
Not a value judgment
Western Partitions OConnor said it could be difficult for construction companies to pass the cost of the corporate tax on to customers. Were already struggling, dealing with, dealing with non-union competition, OConnor said, and many Western Partitionss competitors could avoid the tax simply because they have different corporate structures. So they all of a sudden gain a 2.5 percent advantage on us again.
Since the company often bids on projects a couple years in advance, those prices are already set and the company could not pass on the cost of the tax to those customers for a couple years, OConnor said. Were a company that keeps a lot of people working. We pay our taxes, we pay our wages, pay bennies. But we are one of the companies that will probably get significantly impacted by this thing if it passes.
Potiowsky wrote in an email that he did not intend to provide commentary on Our Oregon's initiative, known as IP 28.
So my comment was not a value judgment on gross receipts taxes or IP 28, that is, not making a statement as to whether IP 28 is either good or bad policy, Potiowsky wrote. Very briefly, I said that much more research is needed on the likely net impacts to the economy from IP 28, and that the issue is quite complicated. I am sure that in the next months, we will see IP 28 getting a lot of medical attention from spin doctors.