Washington County commissioners are proposing to sign a new “Strategic Investment Program” tax break agreement with Intel. In response to Intel’s thinly veiled threats to abandon Oregon, the commissioners are planning to give away $579 million of property taxes that are dedicated to funding public services.

Washington County commissioners currently believe Intel’s threat that absent this new tax cut, Intel will not make new equipment investments, eventually leading the company to pull out of Washington County as their technology becomes outdated.

Even though the statutory purpose of the tax break is to “improve” employment, the County readily admits “significant new employment is not anticipated” from the tax break. There’s no assurance that the new tax break will return Intel to its highpoint of 16,000 employees.

Let’s assume that Washington County instead chooses the high road of preserving funding for schools and other public services, calls Intel on their bluff, and doesn’t give Intel the new tax break.

If Intel stays and makes the investments anyway their property tax liability would go up by $39 million per year over 15 years. Because property taxes are deductible from the 35% federal corporate income tax, Intel’s actual additional out-of-pocket costs without the tax break would be $25 million per year.

Intel had about $34 billion in worldwide sales in 2004; its worldwide expenses were about $24 billion. Intel boasts that Oregon is the company’s largest and most comprehensive site in the world, with the largest concentration of Intel talent, and Intel’s most advanced manufacturing and research and development facilities.

How likely is it that a company with $24 billion in annual expenses would disrupt the mainstay of its worldwide operations in any way, shape, or form over a property tax bill that’s one-tenth of one percent of its annual expenses? How likely is it that a company that paid its Oregon employees $1.5 billion in 2002 is going to abandon that trained and talented workforce over a relatively small expense?

Not likely. Intel may pull out if Oregon’s education system continues not to live up to the company’s expectations. Financially, however, it would make no sense for Intel to abandon its largest and most comprehensive site in the world over a county property tax bill.

Washington County commissioners apparently think Intel will be paying additional corporate income taxes that will offset the negative consequences of their giving Intel a $579 million property tax break. But they’re wrong.

Since the Strategic Investment Program law was passed 12 years ago, the Legislature passed a new corporate income tax scheme that lowers the taxes of multi-state corporations like Intel that have significant capital investments and payroll, and few in-state sales. When fully implemented in 2008, this new scheme will make it impossible for Intel to live up to its reputation as Oregon’s best corporate income taxpayer.

Under the new scheme, Intel’s investments in people and property in Oregon will no longer count in calculating the percentage of Intel’s US profits subject to Oregon’s corporate income tax. Capital investments such as those the commissioners are praying for under the SIP will no longer increase Intel’s Oregon corporate income tax.

The 2003 Legislature gave Intel a 50 percent increase in the research and development tax credit loophole. Add that to the new corporate income tax scheme and by the end of this decade Intel will probably be paying close to $10 in corporate income taxes each year, thanks to Oregon’s mighty minimum corporate income tax.

How likely is it that Intel will abandon its flagship site if Washington County takes the high road, backs away from the new property tax break, and leaves Intel facing a $10 corporate income tax and only $25 million a year in additional property taxes?

Not likely. And if they did, Intel stockholders should sue.