Who ya taxin'?
It's high time we weighed in on Measure 67, the business tax increase referendum that we Oregon voters will be passing judgment on quite shortly. Measure 67 is the companion to Measure 66, which would raise income taxes on wealthy individuals living and working in the state. Proponents and opponents have lumped the two issues together for cheers or brickbats, but in our opinion, they're really different and ought to be considered separately. We blogged a bit about 66 here; now let's take up 67.
There's a lot not to like about this measure, and not a whole lot to like. One of the worst aspects of 67 is that, like 66, it's retroactive. Do you realize that we're voting now to raise taxes on money that businesses received more than a year ago? Taxes for the year 2009 should have been settled by the summer of 2008; instead, we're piling them on in 2010, in retrospect. Nothing turns business people off more than this sort of shenanigans. Taxpayers have a right to know where they stand before they make their investments and do their work. To wait until the year is over and then decide how much to tax people -- well, the legislature ought to hang its head in shame for such lawless conduct. Even a retroactive tax increase of a month or two is unfair -- but 13 months? Pool doesn't get any dirtier than that.
Another minus this measure has going against it is complexity. Among the things it does is treat partnerships, limited liability companies, and S corporations as taxable entities, whereas federal tax law ignores them. The more Oregon law deviates from the federal rules, the more complicated and confusing things become. Moreover, most small businesses in these categories are about to be taxed by Oregon for the first time. Granted, it's only $150 a year -- for now -- but it's a bad symbol, if nothing else. Not only are the owners of profitable companies taxed -- that's always been the rule, and nothing in 67 will change it -- but now the firms themselves would also have to pay a tax.
By far the worst part of Measure 67 is its regressive nature. The proponents are pontificating on our TV screens about how "banks and credit card companies" are going to bear the brunt of the new taxes -- making it sound as though we're voting to tax someone else. But people, business taxes are passed on to consumers and employees. The owners don't pay the taxes and then somehow neglect to pass them along.
Measure 67 is supposed to raise $255 million. Divided by the state's 3.4 million people, that's $75 for the average consumer or employee. And it's like a sales tax -- there's no graduated rate structure. The prices of goods and services are going to go up, and everyone who buys a unit of the goods and services will pay the same passed-on tax.
Unlike 66, this is not a tax on somebody else. Oregon consumers and workers are going to wind up paying whatever 67 raises. And it isn't going to be just the customers and employees of the banks and credit card companies -- it will be the customers and employees of pretty much every business in the state.
And it is not going to be cheap. For profitable companies, the top income tax rate goes up from 6.6% to 7.9% for 2009-2010. That's about a 20% increase in tax dollars charged.
One of the "parade of horribles" being wheeled out to show what will happen if 67 fails is the prediction that the state's credit rating will go down; without 67, we're told, the government won't be able to borrow as much money as it would if the measure passes. If ever there was a reason to vote against a measure, that's it, in our book! Government at all levels is immorally plunging our kids deeper and deeper into debt. It needs to stop. If failure of 67 contributes to cutting up the credit cards in Salem, that alone would be worth the inconvenience.
The prospect of taxing some corporations on their gross receipts, even if they're having a losing year, has definitely got the opponents' dander up. Under 67, corporations will have to pay the greater of their regular income tax (imposed only on profits) or a minimum tax based on their gross receipts. The minimum tax rate would be roughly 0.1% of Oregon sales. For a company with gross receipts from Oregon of $100 million, that's $100,000.
We don't find that aspect of the measure too troubling. Corporations play so many games with their deductions that the U.S. corporate income tax has become a bit of a laughingstock around the world. Companies who are making their shareholders and executives quite rich have figured out many devious ways to look as though they're losing money when the tax man shows up. For the government to have a gross receipts tax as a backup makes pretty good sense. Our neighbor to the north, the State of Washington, has had a gross receipts tax forever, and it seems to work just fine. Certainly nobody up there has died from it.
We'll leave aside, for now, some of the heavy-handed tactics that have been used to sell Measure 67. They're worthy of another post. But even if the proponents were behaving like angels, the product they're pitching doesn't impress us.
About the only argument in favor of 67 that we find appealing -- aside from the fact that state is desperate for money right now -- is the idea that the owners of business entities receive an enormous economic advantage from state corporate laws that limit owner liability. If harm is done to an innocent bystander by a corporation or a limited liability company, for example, the owners generally don't have to pay for the damage; only the company itself is liable. That's quite a privilege, and the state is well justified in exacting a pound of flesh for it. Even for an unprofitable company, $150 a year isn't a lot to ask.
In the end, though, we'll be hard pressed to vote for Measure 67. Disguised as a tax on the bad guys, it's essentially a tax increase on everyone who lives or shops in Oregon. Right now, we can't afford it.