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4 reasons why you should disregard the latest tax report from the Oregon big business lobby

Commentary Photo by Frank Gruber, flickr.com

Photo by Frank Gruber, flickr.com

So massive are the property tax breaks that Intel enjoys in Oregon that no school district in the nation lost more money to tax abatements than the Hillsboro school district, The Oregonian reported a couple of years back. On top of that, when you add up all income taxes paid by Intel across all states, its effective tax rate hovered just above zero for several years running.

Intel is not alone, of course; corporate tax avoidance is rampant. Yet the big business lobby in Oregon that counts Intel as one of its Board members, Oregon Business & Industry (OBI), would have you believe that Oregon’s business taxes are too high. A report by OBI argues that recent changes at both the state and local level have pushed Oregon’s “Total Effective Business Tax Rate” — defined as the ratio of total business taxes compared to the size of Oregon’s economy — from below the U.S. average to above average. OBI presented its report to a committee of the Oregon Senate last week, and will present to a committee of the Oregon House this Friday.

At a time when Oregon needs to invest more resources to improve the lives of all Oregonians, the OBI report seems like an attempt to deter any efforts to require big corporations and rich business owners to contribute more to the common good. Here are four reasons why you should disregard the OBI report.

1. OBI ignores what Oregonians and businesses get from the revenue raised from business taxes

An educated, healthy workforce. A transportation infrastructure to carry goods to customers and from factories. A court system that resolves business disputes. The tax system, including business taxes, pays for the many public services that create quality of life for all Oregonians. Some of these services directly benefit businesses, while others strengthen the state’s economy, allowing businesses to flourish.

The OBI report says not a word about the benefits that come from public investments. For instance, all of the revenue generated by the newly established Corporate Activity Tax — the largest tax change for businesses cited in the report — is dedicated to Oregon K-12 schools and preschools. This investment in education not only benefits Oregon’s children, it leads a more productive and skilled workforce in the years to come.

Ultimately, a race-to-the-bottom logic underlies the OBI report. The report equates “competitiveness” to low taxes on businesses: the more a state shrinks business taxes, the better the state ranks. So, the better a state appears under this formula, the fewer resources it has to invest in schools and other essential services, unless families are taxed to make up the difference. That’s a race to the bottom — to a bleak future.

2. The report ignores the long-term decline of big business taxation

The report ignores the ways overall business taxation in Oregon has declined over the decades — the result of corporations and special interests gaming the tax system.

The share of Oregon income taxes paid by C-corporations, those that pay income tax at the corporate entity level, is a fraction of what it used to be. This is also the case nationally. Much of this is the result of corporations artificially shifting profits to offshore tax havens and convincing Congress and the Oregon legislature to award them new tax loopholes and subsidies.

The other big driver of declining business taxation is the rise of new corporate forms that don’t pay an entity-level tax, a trend that picked up steam in the mid-1980s. Much of the profits that once flowed through C-corporations now move through S-corporations and partnerships largely owned by the richest 1 percent. Nationally at least, the profits passing through these new corporate forms — partnerships in particular — are taxed at much lower effective rates than profits from C-corporations. In 2013, some owners of S-corporations and partnerships got a special tax break from the Oregon legislature — lower tax rates than their employees often pay. About 70 percent of the tax benefits flow to business owners making more than half-a-million dollars a year.

And in recent years, corporations and pass-through businesses have received huge tax cuts. Corporations won massive tax cuts from the so-called Tax Cuts and Jobs Act of 2017. Pass-through business owners received their own 20 percent tax cut from the same legislation. Corporations and rich business owners then got even more tax breaks stuffed into the one of the federal pandemic legislation enacted in March of this year.

3. The report overstates how much businesses will pay

The report inflates how much business will pay in some forms of taxes, leading to a higher Total Effective Business Tax Rate than warranted. One example is the Corporate Activity Tax (CAT), the largest tax increase cited in the report. The report assumes the CAT will generate $1.1 billion in the 2019 fiscal year, a figure based on pre-pandemic estimates. However, the most recent official forecast puts the figure at hundreds of millions of dollars less than included in the OBI study.

Another inflated figure is the report’s estimate of how much businesses will pay to the Paid Family Medical Leave (PFML) program — landmark legislation allowing Oregonians to take some paid time off to care for a new baby, or care for family member who has fallen ill. PFML is the second largest tax increase cited in the report. The report assigns to business 40 percent of the total cost of PFML, which it estimates as 1 percent of all wages and income in Oregon. Yet, the law exempts employers with 25 or fewer employees, as well as federal and tribal governments. Also, the OBI estimate incorrectly includes a share of the costs of PFML that will be covered by state and local governments and non-profit employers, thus significantly inflating the tax impact on businesses. By including employers that aren’t businesses or don’t actually pay the tax, the report overstates the amount businesses will pay by more than a hundred million dollars – a conservative estimate.

These are just two obvious errors. Much of the report is encased in a black box that prevents us from a more detailed evaluation of the methodology, requiring Oregonians to just trust the calculations in this big-business funded study.

4. Prove it — big corporations should make their taxes public

Rather than rely on the claims of a corporate-funded study, Oregon should require big corporations to disclose how much they actually pay in taxes. How much do Nike, Intel or Boeing pay in income taxes to the state of Oregon? We don’t know, because the information is not public. If OBI members truly believe they are paying too much in taxes, then they should not object to making their tax information public.