The Great Tax Shift:

In today’s Oregon, the only thing more regular than rain is government budget-cutting. The price of state college tuition is up. The number of state troopers is down. The Oregon Health Plan is down to bare bones. And public school classrooms are getting more crowded — Oregon now has the second-largest class sizes in America.

Meanwhile, little noticed by Oregon residents, the state is collecting less tax revenue than it used to from its biggest corporations, and it’s even giving tax money back to businesses and individuals in the form of a “kicker.” Could there be a connection?

Based on the current estimate, the state will give a tax credit next year of $205 million to corporations and a tax refund of $461 million to individuals — even as the state’s public schools face a $160 million shortfall, and human services face a $172 million hole.

That outrages some in the union movement, like Tom Chamberlain, president of the Oregon AFL-CIO. The state labor federation has filed several ballot initiatives that would eliminate the corporate kicker, at least.

Now it appears there’s a chance the Legislature may itself act to get rid of the corporate kicker.

Oregon is the only state in the nation with a kicker law. The way it works, a state economist makes revenue projections for a two-year period, and the Legislature approves spending based on that prediction. If revenues end up being more than 2 percent above projections, the state refunds the tax money collected. Two-thirds of the corporate kicker money goes to companies headquartered outside Oregon.

The Legislature meets every two years in odd-numbered years, but may call a special session this April to deal with the budget crisis.

Chamberlain is hopeful that legislators will refer a ballot measure to voters in November that would turn the kicker into a rainy-day fund.

But it’s raining already. Schools in Multnomah County, for example, are facing a $100 million shortfall this fall.

And the kicker is only the beginning of the story.

In 1973, corporations paid 18.5 percent of the income taxes paid in Oregon. Today they pay less than 5 percent. The Oregon Center for Public Policy (OCPP), a labor-allied economic think tank, estimates that if corporate income taxpayers still paid the same share they paid in the 1970s, the state would have $900 million a year more to spend on schools, public safety and low-income senior citizens.

Today, Oregon tax law contains 49 income tax breaks for corporations. More than half of those were added in the last decade.

“No matter how you look at it, corporate taxes are way down,” says OCPP researcher Mike Leachman.

In fact, two-thirds of Oregon corporations pay just $10 a year in income tax. That’s because Oregon’s corporate income tax applies only to profits, and if a company can show that its expenses exceeded revenues, it pays only a minimum tax of $10, even though it may have hundreds of millions of dollars in income. The State of Washington, on the other hand, taxes corporations based on gross receipts. If Oregon did that, there would be no shortage of funds to pay for the government services the public wants.

In Oregon, even when companies are profitable, they don’t necessarily pay taxes. One fifth of the corporations paying just $10 a year are profitable, but the tax law allows them to “carry forward” losses from previous years.

And today, more companies are structured as “S corporations” or Limited Liability Corporations, meaning that their profits are taxed as personal income.

Even before getting to deductions and credits that reduce the corporate tax bill, the income tax rate itself is unequal. Oregon taxes corporate income at 6.6 percent, while most personal income is taxed at 9 percent. That difference prompted former Oregon AFL-CIO president Tim Nesbitt to call for corporations to pay the same rate as their employees — but the Legislature has so far been deaf to that proposal.

On the contrary, every two years, the people’s representatives meet in Salem to discuss new ways to cut corporate taxes. For the benefit of companies like Nike and Intel, recent legislatures moved to a different way to calculate corporate income, lowering the taxes on those that have sales primarily out of state, and increasing the taxes on those that sell in Oregon.

Overall, the change is costing the state about $36 million a year.

Another tax break to subsidize corporate research and development was expanded last year. That’s expected to cost $11 million a year, and most of the break will go to one company.

If it wasn’t for efforts in the Senate, the 2005 Legislature might have dug an even bigger budget hole. The Senate rejected nearly a dozen proposed tax breaks passed by the House that would have cost the state treasury nearly $290 million, according to an estimate by the union-supported tax fairness group Our Oregon. On its Web site — ouroregon.org — the group’s legislative report identifies each of those giveaways, and how lawmakers voted.

But tax breaks come in many forms. And besides the income tax, Oregon corporations also pay less in property taxes than they used to. Partly that’s because of property tax limitation measures that apply to residential property too. Assessments on commercial and industrial properties haven’t been going up as fast. It’s also the case that the shift to a service economy has lowered the share of property taxes paid by business: Oregon used to have wood products companies, for example, that owned expensive equipment that they paid property tax on. Now Oregon has more service sector companies, which don’t pay much property taxes.

Tax avoidance is also on the rise, OCPP’s Leachman says, with companies sheltering money overseas, or shifting how they account revenue from one state to another to take advantage of differences in tax treatment.