Last Friday the Salem City Club had a program about Measure 118, a proposal on the November ballot that would give every Oregonian an estimated $1,600 a year by increasing the corporate minimum tax rate on revenues exceeding $25 million.
While the presenters on the pro and con sides each made good points, I came away feeling that while Measure 118 has its heart in the right place, it is too flawed to merit a Yes vote.
Measure 118 is a step in the direction of a guaranteed minimum income for Oregonians. However, it gives money to everybody in our state, including the wealthy. So much of the money raised will go to people who don't really need it. And it will reduce the money received by state government, which helps explain why Democrats and liberal organizations are opposing the measure.
Here's photos I took of the presentations by Antonio Gisbert, the chief petitioner for Measure 118, and Preston Mann, the director of political affairs for Oregon Business & Industry, the state’s largest general business association, which opposes the measure.
I've added some brief commentary following each photo.
The measure looks good at a first glance, and uncritically.
The claim is that Measure 118 is "designed" to be revenue neutral to the state's General Fund. But there's reason to question whether this will actually occur. More on that later.
In general, corporate tax rates are indeed too low. Question is whether Measure 118 is an effective way to remedy this. Again, the money raised by the measure will go to every Oregonian regardless of income, so it's likely that many high income people will save the money or spend it on things (like travel) that aren't part of the "Main Street" economy.
Some of the findings of the Legislative Revenue Office were touted by Gisbert while he pointed out some things he didn't like about the office's report.
Large corporations are opposed to Measure 118, which isn't surprising.
Turning to the opponent of Measure 118, here's photos of the slides Preston Mann showed the City Club audience.
Opponents term Measure 118 a sales tax on the television ads that are shown frequently on Oregon stations. This is technically true, since it is a 3% tax on corporate revenues exceeding $25 million. But it isn't a sales tax on retail purchases by Oregonians, so in that sense the term is misleading.
Here it is claimed that "every Oregon business and consumer indirectly taxed." This assumes that large corporations will pass on the Measure 118 tax to their customers, which could either be other businesses or consumers. Hard to tell the extent this would happen.
Yes, the 3% tax could apply at every step of the supply chain in Oregon. It just is hard to know to what extent this would happen. It's a reasonable objection to Measure 118.
Mann argued that a 2x4 piece of lumber grown, milled, and sold in Oregon would be at a price disadvantage to a 2x4 brought in from out of state due to the various stages Measure 118 could tax this item.
If the Measure 118 tax was passed on to consumers, it could mean higher prices for Oregonians.
The same applies to small businesses, goes the anti-Measure 118 argument.
Since Measure 118 would be a statutory change, not a constitutional change, the Oregon legislature could fiddle with Measure 118, raising the fear of politicians having a "blank check." Ooh, scary! (Especially to Republicans.)
Opposition to Measure 118 includes people and organizations who usually aren't on the same side of a political issue.
This is a longer list of Measure 118 opponents.
Places to go if you want to learn more the reasons to oppose Measure 118.
Mann mentioned the Oregon Center for Public Policy as an organization that usually leans liberal but has serious concerns about Measure 118. Check out the center's "What Measure 118 gets right and what it doesn't." Here's some excerpts that helped convince me that I'll be a No vote on the measure.
Juan Carlos: So is this a good idea? What’s your bottom line assessment of Measure 118?
Daniel: To answer that, we need to step back a little bit and understand the context of what measure 118 fits into. We’ve spent decades, centuries in creating a tax and revenue system here in Oregon. And Measure 118 is going to come in and shake a lot of that up.
But first, we have to also understand that big corporations should pay more in taxes. In 2017, Congress passed an enormous package of tax cuts. And as part of that, they cut the corporate tax rate and they created all sorts of new opportunities for corporations to avoid paying their fair share.
And the corporate tax rate, even that only applies to the profits a company actually reports after they apply their other tax shielding opportunities and, you know, tuck money away in tax havens overseas and things like that. So to give you one example, U.S. corporations parked about 45% of their profits in tax havens where they only had less than 2% of their employees. So 45% of the profits is marked up in these, where less than 2% of their employees are located. So a profit sitting in Singapore is a profit not properly taxed here in Oregon. So corporations, they’ve had their rates cuts. They’ve had plenty of opportunities to shield their profits from being taxed at all. And it’s really clear that corporations should pay more in taxes in Oregon and and nationally.
And we also know that giving cash to struggling families is a good policy. It’s an effective way to make families more economically secure. There are dozens of studies on cash programs, from guaranteed income pilots in communities across the nation, including here in Oregon, to research on the impacts of cash tax refunds like the Earned Income Tax Credit in the Child Tax Credit.
And they all point to the same general truth. If you give a family money to spend on their priorities, they spend it on meeting their basic needs. A safe room to sleep in, warm food for dinner, the ability to get around their community, getting to school or work. It also sets a family up to invest in starting a business, buying a home or getting a degree.
It’s a catalyst for further economic stability. And importantly, children who grow up in economically secure homes are more likely to succeed as adults, to really thrive. Fewer crimes, more education, more income. Longer, healthier lives. And all of this, to be clear, has really immense benefits to the state and to society as a whole. So when we start from this perspective – cash is good giving struggling families money is a good thing, taxing corporations is good and needed – it’s clear that Measure 2018 gets some things right.
But unfortunately, Measure 118 is poorly designed and it triggers an array of damaging, likely unintended consequences that make it really a measure that is not a good idea as it has been drafted and proposed.
...Juan Carlos: What are those unintended consequences that you’re talking about? Can you flesh those out for us?
Daniel: Of the unintended, negative consequences that appear as part of 118 is that the measure would reduce the funds available for Oregon schools, child care, health care and other essential services that we pay for through the Oregon General Fund.
Let me explain what the Oregon General Fund is. The corporate income tax is the second largest source of funding for the general fund. And this is what people mean when they talk about the state budget. The vast majority of the general fund pays for three things: education in largely K-through-12 education, health and human services and public safety. And under Oregon’s corporate income tax, corporations pay the higher of a profits based tax or of the corporate minimum tax.
Oregon’s existing corporate minimum tax is quite small at roughly 1/10 of 1% of a corporation’s sales in Oregon. And to pay for the rebates in Measure 118, it would expand Oregon’s corporate minimum tax to 3%. So from 0.1% to 3% for corporations that have receipts in Oregon above $25 million. So as a result, many large corporations that currently pay the tax based on their profits would instead pay the corporate minimum tax.
And the taxes they pay would go instead towards the rebate, whereas before it would have gone into the general fund, would have helped fund those fundamental services. If you consider a corporation that had a $100 million in profits in one year and they had, you know, a set amount of receipts here in Oregon, sales here in Oregon, that company might be currently paying 7% on those profits. Right.
But with the new corporate minimum, because they would have such a significant amount owed due to the minimum tax because of their receipts in Oregon, they would no longer pay that tax on their profits. Instead, that money would go directly into the rebate and the general fund would get less money as a result.
Juan Carlos: So, in other words, the one of the unintended consequences is that money that otherwise would have gone into the state budget to pay for K-through-12 schools, health care and so on – some of that money will instead go to help pay for these tax rebates because of the way the measure is written. Is that a general summation of it?
Daniel: That’s right. I mean, the general fund right now gets more than a billion dollars per tax year from the corporate income and excise tax rate, from the profits based tax. And that’s projected to increase to one-and-a-half billion dollars per year. If Measure 118 passes, then a big portion of that, a significant share of that more than a billion per year, instead of going into the general fund, will now go towards the rebates.
And I don’t expect the proponents of this measure realized that they were going to be seeing that kind of an impact on the general fund. I think their intent was to raise new revenue that would go to the rebates. But unfortunately, because of how the measure was drafted, it doesn’t seem like that is what the outcome would be.
Juan Carlos: What other problems, what other unintended consequences, do you see with the measure? Because you mentioned several unintended consequences.
Daniel: Yeah, there are other consequences besides the fact that I was just describing that we could see billions of dollars over the next decade pulled out of the general fund and instead going into these rebates. Another consequence is that the measure is designed to send it equally to every Oregon resident that meets those, you know, minimal eligibility requirements. And that includes people who don’t need the money.
There are people who are able to, you know, buy a second boat or a third home or invest hundreds of millions of dollars in stocks and bonds and other investment opportunities. Not saying they shouldn’t. Good on them. But why is the state going to send them a check, when we have families that are struggling to survive, struggling to stay housed, struggling to find a way to give their children or their parents the care they need? And so one of the other real problems with the measure is that universality, because it doesn’t target the resources at the families that are in greatest need.
Now, some federal some universal programs are a good thing. Not saying that we shouldn’t have universal programs, but the challenge is, how do we fund it when we as a state do not have the fiscal flexibility of the federal government? We don’t have a Federal Reserve to lean on. We can’t spend at a deficit. We can’t build up a huge debt as a state.
We have to pay for what we spend. We have to raise the taxes and raise the fees to fund the services that we invest in. And so a program like this, where we’re taking billions of dollars of new revenue and we’re sending it out equally, including to the richest Oregonians in the state, is a real missed opportunity to focus the resources more on the Oregonians that are struggling most. To really target the resources where they could do the best.
The revenue raised could be continued to be sent out as cash payments, just focused on low income families. That would be an improvement. It could also look like taking a piece of it and investing it in affordable housing and child care and higher education, and many of the services that Oregonians depend on. We can’t really afford the luxury of giving cash rebates to those who are well-off and don’t need a rebate.
And not only is it an issue that we’re spending so much of these resources on the rich, but we also are making it really hard to raise any further taxes to invest in our schools or in other facilities that need more resources. We need to build more housing, we need to build childcare facilities, we need to staff them.
And it’s going to be really hard to raise more money beyond that $7 billion or more annual tax increase in Ballot Measure 118. It’s going to be really hard to raise more money for those services Oregonians depend on after this measure is passed. And after all of those dollars, including the piece going to the richest households, are flowing out the door.
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