January 1, 2010 Volume 111 Number 1
Taxing the top tier
For the first time in a generation, Oregon voters will decide whether corporations and the rich should pay more
By DON McINTOSH, Associate Editor
On Jan. 26, Oregon voters will decide a question of tax fairness: Should large and profitable corporations and very-high-income individuals pay a higher share of state taxes?
The Oregon Legislature answered yes to this question in June 2009, but business groups spent $960,000 on a signature-gathering effort to put the tax increases before voters. In the depths of a severe recession, they seek to repeal very modest and mostly temporary increases in the income taxes paid by corporations and high-income individuals.
Measure 66 raises tax rates on the top 3 percent of income tax payers — and lowers taxes on 15 percent of income tax payers — those who collected unemployment benefits in 2009. Measure 67 raises the corporate minimum tax, and increases the tax rate corporations pay on their declared profits.
The tax increases are forecasted to raise $730 million in two years, helping fill a recession-caused hole in the state’s General Fund. Because the money is already budgeted, for voters to reject either measure would force significant cuts in education, public safety, and social services.
“This is a very clear vote,” says Chuck Sheketoff, executive director of Oregon Center for Public Policy, a non-profit group that researches tax and budget issues. “The only way to turn that around,” Sheketoff said, “is to scare people or mislead them.”
And that’s exactly what the business-backed group Oregonians Against Job-Killing Taxes is doing, says Scott Moore, spokesperson for Vote Yes for Oregon, the labor and community coalition that is defending the increases. Since Sept. 25, when Oregonians Against Job-Killing Taxes turned in signatures, the group has spent another $1 million on a direct mail and media campaign arguing that the tax increases target small businesses, and will lead to major job losses.
Both claims are demonstrably false. To understand why, you have to know more about the measures.
Measure 66 raises income tax rates on taxable income above $250,000 for joint filers ($125,000 for single filers). Taxable income is the income after you take deductions. All taxable income above $15,200 a year for joint filers and $7,600 for single filers is currently taxed by the State of Oregon at 9 percent. Measure 66 would temporarily hike that to 10.8 percent on taxable income between $250,000 and $500,000 a year for joint filers (half that for single filers); and to 11 percent on taxable income above that. Starting in 2012, those rates would drop to 9.9 percent on all income above $250,000 for joint filers ($125,000 for single filers.) The measure also eliminates income tax on the first $2,400 of unemployment insurance benefits received in 2009.
Opponents of Measures 66 and 67 point out that with most small businesses, profits are taxed as personal income. But that also means all business expenses are deducted from income, for tax purposes. So lets say a mom-and-pop business has $1 million in annual revenue, but $800,000 in expenses —rent, supplies, payroll, a car used for business purposes, equipment that depreciates in value. Assuming no other income, they clear $200,000, and don’t pay a penny extra under Measure 66.
On the other hand, a small business owner who netted $300,000 — that’s $25,000 a month — would pay an extra $900 a year in taxes for two years, and then $450 a year after that.
“Somebody who is making $300,000, in this economy, is doing pretty well, and asking them to pay a little bit more to protect critical services makes sense,” says Speaker Dave Hunt (D-Clackamas), who led passage of the tax measures in the Oregon House of Representatives. Hunt says lawmakers rejected calls from the business community for an across-the-board income tax increase, and instead crafted both measures specifically to avoid burdening small businesses or working people.
Measure 67 applies to the corporate income tax. Since 1931, corporations whose books don’t show taxable income have paid a corporate minimum income tax of $10 a year. Measure 67 raises that to $150 a year, except for corporations with more than $500,000 in Oregon sales, which would pay about 0.1 percent of their revenue. Corporations with over $100 million in Oregon revenue would pay $100,000.
Opponents say it’s unfair to raise the minimum, because corporations only pay it when they’re not profitable. That’s not accurate, Sheketoff points out. They pay it when their books show no taxable income from Oregon activities. Many things can reduce taxable income, including losses in previous years, which can be rolled forward.
“This is why they have accountants,” said Moore, the Vote Yes spokesperson. “Their accountants are employed to make sure they get out of paying taxes.”
The accountants earn their keep. The corporate minimum is all the income tax paid by two-thirds of the corporations doing business in Oregon. In fact, according to the Oregon Department of Revenue, 104 companies that have over $100 million a year in Oregon sales have been paying $10 a year in taxes. And 77 of those are headquartered out of state.
Measure 67 also raises the tax rate on corporations that do report taxable income. Those profits are currently taxed at 6.6 percent in Oregon. Measure 67 raises that to 7.9 percent on corporate profits over $250,000 — in 2009 and 2010; lowers it to 7.6 percent in 2011 and 2012; and returns it to 6.6 percent after 2012, for all corporate profits below $10 million. Above $10 million, profit would be taxed at 7.6 percent, with all revenue generated by that extra 1 percent above the current rate dedicated to the state rainy day fund.
Now you know the basics of the two measures.
Sheketoff has been playing a merry game of whack-a-mole debunking examples of small business owners who would supposedly be hurt by the measure. The Eastern Oregon rancher who told a newspaper he was all set to move to Idaho learned from Sheketoff that in fact he’d pay just $150 a year extra under the measure. The Ethiopian restaurant owner pictured in an Associated Oregon Industries newsletter as someone who would “feel the pinch” turned out to be pinched only $150, and he told Sheketoff he’s proud to pay taxes, and angry his picture had been used without his knowledge.
Then there’s Tillamook dairy farmer Carol Marie Leuthold. You may remember getting a letter from her in late November. Hand-signed, it was mailed out to 960,000 Oregon registered voters. In it, she said she was worried that Measures 66 and 67 would hurt her farm and the families it supports. Leuthold admitted to the Oregonian that her farm operation would pay just $150 extra under Measure 67, but said Measure 66’s personal income tax increase would affect her, because she had income from activities unrelated to the farm. In other words, she’s not the struggling farmer the letter portrays: Her household’s taxable income of over a quarter million dollars puts her in the top 3 percent of Oregonians.
“The claim that small businesses are going to pay this is not grounded in reality,” Sheketoff said.
You don’t have to be Sheketoff to play bunk-busters. Anyone familiar with the measures can do it with opposing arguments in the Voters’ Pamphlet that was mailed out this week.
Associated General Contractors (AGC) Oregon-Columbia Chapter, whose members frequently employ union building trades workers, wrote in the Voter’ Pamphlet that 86 percent of its 1,100 members are small family-run businesses with 10 or fewer employees, and virtually all are suffering losses in the recession. But then it says that Measures 66 and 67 require its members to pay up to $100,000 even when they are losing money. The taxes “will leave many of our members little choice but to curtail benefits, consider additional layoffs, or sadly, close down entirely.”
It doesn’t add up. Under the measures, if a small business is losing money, it won’t have profits to tax as personal income, and its minimum tax will be $150. The $100,000 tax bill AGC mentions is on companies with over $100 million a year in Oregon sales. Those are not small, family-run businesses.
John Mohlis, executive secretary-treasurer of the Columbia Pacific Building and Construction Trades Council, is skeptical that the tax increase would lead to job cuts. “Whether there are jobs has to do with the volume of work, not the size of the tax bill,” Mohlis said. “Right now, there’s just not much construction work.”
Oregonians Against Job-Killing Taxes continues to repeat its argument that the tax increases will hurt small business and ordinary people, but their real impact is on large corporations and wealthy individuals like the ones funding Oregonians Against Job-Killing Taxes. Of the close to a million dollars raised during the campaign’s signature gathering phase, contributions of less than $100 totaled less than $1,500. The donors list is almost entirely business groups, big corporations, and millionaires. The Oregon Bankers Association gave $100,000. Associated Oregon Industries gave $125,300. AGC gave $38,497. Weyerhauser gave $51,194. Plaid Pantry chipped in $10,000. Loren Parks, long-time funder to union foe Bill Sizemore, gave $75,000. Timothy Boyle, who made $800,000 as CEO of Columbia Sportswear in 2008 (and $1.7 million the year before), gave $10,000. Nike founder Phil Knight, whose personal net worth is estimated to be $8.2 billion, gave $50,000.
It wouldn’t serve their cause to put Knight on a flier complaining about the 2 percent more he would pay on earnings from the $150 million in Nike stock he reportedly sold in October. So Oregonians Against Job-Killing Taxes makes “jobs” the heart of its campaign. They claim “economists” say the measures will cause 70,000 jobs to be lost — a figure repeated in 28 separate statements in the Voters’ Pamphlet.
[See Lying by Numbers for how they came up with the number.]
“Their job loss claim,” Sheketoff said, “isn’t worth the paper it’s printed on.”
But Speaker Hunt says they’re ignoring the real, countable jobs the measures create in the public sector, by funding teachers, in-home caregivers, and construction workers on state projects. About 51 percent of the revenues raised go to schools (K-12, community college, and state universities); 27 percent pays for services, including health insurance for children, seniors, and the disabled, with matching federal dollars; 18 percent pays for public safety (prisons, jails, and courts); and 4 percent funds other programs, including business regulation.
To defend the measures, Vote Yes for Oregon has assembled a broad coalition. They are raising money and turning out volunteers to get facts out to voters.
“We’re letting people know if your family doesn’t make $250,000 a year, you’re not going to see a tax increase,” said Elana Guiney, spokesperson for the Oregon AFL-CIO. “Right now, two-thirds of corporations pay $10 a year in taxes, while the average family pays $3,100 a year. When people find out what’s really going on, most say they’ll vote yes.”
On Sunday, Jan. 3,union members will meet for a canvass. Call 503-224-3169 for details.
Ballots go out Jan. 8. A “yes” vote is a vote for the tax increases.
© Oregon Labor Press Publishing Co. Inc.