How Oregon can counter corporate tax avoidance

Commentary Photo by PnP!

Photo by PnP!

January 23, 2019

[This commentary first appeared in The Oregonian].

by Daniel Hauser and Charlie Fisher*

When it comes to tax avoidance, Nike lives by its slogan “Just Do It.” The Oregonian recently reported that “Nike funneled $12.2 billion in earnings offshore” in a recent six-year period. The company’s tax rate plummeted, even as profits soared. Nike, of course, is not the only multinational corporation with a “small army” of lawyers and accountants working dutifully to game the tax system. For example, Google shifted nearly $23 billion to a Bermuda subsidiary without any employees in 2017, according to news reports.

When corporations shift profits overseas to avoid taxes, it hurts all Oregonians. It undermines the ability to fund schools, health care, and many other services that Oregonians count on. And it tilts the playing field against small business owners, who lack foreign subsidiaries and often end up paying higher taxes than they otherwise might.

This legislative session, Oregon can make it harder for corporations to engage in such tax avoidance through a simple fix to our state’s tax code. That change is to reinstate “complete reporting,” a law that Oregon had on its books until 1984.

Complete reporting requires corporations to account for all their profits so that Oregon can tax its fair share. If Oregon accounted for 5 percent of a multinational corporation’s global sales, for example, Oregon would tax 5 percent of the company’s global profits.

Recently, the Oregon Center for Public Policy and Oregon State Public Interest Research Group estimated that enacting complete reporting would bring in $350 million to $376 million in additional tax revenue each budget period that would otherwise be stashed in offshore tax havens. Instead of further inflating the accounts of corporations that already sit on piles of cash, these resources could be used to increase access to affordable housing, add teachers to classrooms, help publicly fund our elections, or even lower taxes for low- or middle-income Oregonians.

It also can’t be stressed enough that this would be revenue raised exclusively from big multinational corporations, which were some of the biggest winners from the massive corporate tax cuts rushed through Congress in late 2017. It would not affect – indeed, it would be to the benefit – of the family-owned coffee shop, locally-owned brewery, or mechanic on Main Street.

Ultimately, the tax would be paid by the shareholders of these corporations – generally well-off investors who reside outside of Oregon, including abroad. This is also a remarkably progressive tax policy. Of those impacted in Oregon, the top 1 percent are estimated to pay an additional $464 per year. At a time when income inequality stands at historic levels, a policy that increases taxes almost explicitly on the highest-earning taxpayers is even more important.

Complete reporting would make it hard for corporations to artificially shield their profits from taxes, improve the fairness of Oregon’s business taxes, and tax rich, non-Oregonians. Legislators who believe in acting in the interest of Oregonians should pinch themselves to make sure they are not dreaming. And once they realize they’ve been awake this whole time, they too should just do it and pass complete reporting.

*Daniel Hauser is a tax policy analyst with Oregon Center for Public Policy. Charlie Fisher is state director of Oregon State Public Interest Research Group.