Corporate-Funded Study Says Oregon Business Taxes Are the Lowest and Deliver Biggest Bang for Buck

News Release
April 6, 2010 Download PDF

A newly released study by a corporate lobby group found that Oregon tied for the lowest state and local business taxes in the country in fiscal year 2009. It also said that Oregon tied for first place in terms of providing “value” to businesses from the taxes they pay.

The study (PDF) said that in 2009 Oregon, along with Delaware and North Carolina, had the lowest combined state and local business taxes as a share of the economy among all the states.

The Council On State Taxation (COST), an association of multistate and multinational corporations that lobbies on state tax policy, bankrolled the study conducted by the accounting firm Ernst & Young. COST represents about 600 corporations, including major Oregon employers (PDF) such as Nike, Intel, Hewlett-Packard, US Bank and Xerox.

Based on its review of the study, the Oregon Center for Public Policy (OCPP) estimated that to achieve the national average for business taxes as a share of the economy in 2009, Oregon would have had to collect $1.7 billion more from businesses than it actually did.

“The data confirm that Oregon voters and the legislature were right in asking businesses to chip in a bit more to address Oregon’s revenue shortfall,” said OCPP analyst Steve Robinson. “Throughout the recent campaign on Measures 66 and 67, OCPP said business taxes were low in Oregon. This corporate-funded study reaffirms that we were correct.”

In the run-up to the January election, OCPP and other supporters of Measures 66 and 67, as well as the Legislative Revenue Office, often cited an earlier COST study. That earlier version also found that Oregon’s business taxes were near the bottom nationally.

The COST studies are based on actual tax receipts in the fiscal year ending June 30, so this most recent study estimating business taxes paid in fiscal year 2009 does not include the impact of the two tax measures. Next year’s COST study will begin to pick up the impacts of the new tax measures.

Using a methodology developed by economists at the Federal Reserve Bank of Chicago, the COST study also purported to calculate the extent to which a state’s spending benefits businesses and compared the spending to the total taxes businesses paid.

When COST assumed that 50 percent of education spending benefits businesses, Oregon tied with Virginia and Maryland for providing the greatest benefit for every tax dollar. If only 25 percent of education dollars were assumed to benefit businesses, the COST study showed Oregon still came out on top, tied with Maryland. Oregon placed third, behind Maryland and Nevada, when the COST researchers assumed education spending has no benefit for businesses. OCPP said that the business community’s support for education “belies such an extreme assumption.”

“The COST study calculates that businesses in Oregon are getting the best deal for their taxes,” said Robinson. “While we at OCPP don’t think tax systems should be designed around just a cost-benefit comparison, the comparison provides information that helps inform policy choices,” he added.

Robinson cautioned that the sponsors and authors of the COST study aim to show that business taxes are too high, which colors their results. He noted, for example, that the study includes unemployment insurance taxes among business taxes but fails to include unemployment insurance payments among the public services that benefit business.

“Unemployment insurance payments help both workers and businesses, as they are designed in part to allow businesses to maintain their workforce,” said Robinson.

Yet the COST study’s acknowledgement that businesses benefit from public services is “important,” according to Robinson. “Strong public structures — good schools, roads and a judicial system, for example — are the essential backbone of a healthy business environment,” he said.

The Oregon Center for Public Policy is a non-partisan research institute that does in-depth research and analysis on budget, tax and economic issues. The Center’s goal is to improve decision making and generate more opportunities for all Oregonians.