For now, the gross receipts tax appears to be only plan in play
The governor and Legislature are battling on two fronts to balance the state budget for the next biennium. On the first, the government has no choice but to curb spending.
The Oregon Constitution requires the state to balance its budget ever two years to prevent the kind of out-of-control debt and spending we see at the federal level. Accordingly, Gov. Kate Brown released a three-point plan last week to help cut a $1.6 billion deficit by pruning expenditures.
Brown proposed a task force to identify elements that can be privatized or leveraged, impose market-driven compensation for salaries and crack down on unpaid tax obligations to the general fund, currently running half to three-quarters of a billion.
Many won’t like the resulting cuts to services and grants, but they are essential. A bipartisan letter from the Ways and Means co-chairs said as much, noting, “Without action to contain the growing costs of state government now, the structural imbalance will cause even greater deficits in future years.”
But over the long haul, cuts won’t be enough. Changes to the tax code are needed in order to raise additional funds more efficiently.
Legislators seem set on a corporate gross receipts tax of 0.25 percent to 1.0 percent. And either would be much easier to swallow than that outlandish 2.5 percent written into last year’s failed Measure 97.
Oregon’s current corporate income tax is abused by large corporations. There are myriad methods they can use to dodge net income numbers and take advantage of tax credits, thus incurring a smaller tax payment than warranted.
A gross receipts tax is much easier to manage on the state side and much more difficult to abuse on the business side. However, research shows corporate activities taxes tend to translate into higher prices for consumers. Ultimately, the company is able to pass on much of the burden.
That’s particularly true of retailers with the capital to produce their own ingredients and create their own products — companies like WinCo, Safeway and Walmart. They enjoy a huge advantage over smaller, locally rooted businesses in passing costs along.
Secondly, a receipts tax can prove devastating for mid-range businesses, which may easily log $5 million to $10 million in sales without finishing the year in the black. They could be tagged with tax bills of $50,000, $100,000 or more despite turning no profit.
Unfortunately, there seem to be few alternatives on the horizon. As Sen. Mark Hass told The Oregonian: “If anyone has a better plan to look at how to reform and modernize corporate taxes, bring it forward.”
For the sake of a healthy and diverse business community, we’d like to see something new emerge. In the meantime, it appears we’re stuck with this one.