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Time to end the corporate income tax

January 2, 2013

by Eric Fruits, pH.D
Oregon economist
Econ-International Blog

Gov. John Kitzhaber’s call for a rush-rush emergency session of the Legislature has succeeded in getting Oregonians to think again about their tax system. More important, it’s gotten us to think about how we tax our businesses and which ones we tax.

To most people, the purpose of corporate taxes seems obvious: to raise money to fund government. But that role is disappearing. Over time, businesses have become nimble at finding the right place and right time to make money to minimize their tax bills. As a result, states have seen corporate taxes make up a smaller share of their total tax revenues. In 2011, across the U.S. — and Oregon — corporate taxes accounted for less than 6 percent of state total tax revenues.

oregon_corporate_income_taxes_as_share_of_total_state_tax_collections

Today, corporate taxes allow politicians to play a version of Santa Claus. Businesses on the “nice” list get tax breaks paid for by everyone else. It’s not uncommon to see regular mom-and-pop businesses paying their full share of taxes while favored businesses shrink their tax bills through various tax credit schemes.

In 2010, the corporate tax increase known as Measure 67 destroyed a part of Oregon. It destroyed the part in which businesses, their owners and their employees are viewed as members of the community. The campaign cast businesses as “big” or “out of state,” and they don’t pay their “fair share.” The measure sent a loud message to businesses: We only want you for your tax dollars.

The message of Measure 67 hangs over businesses thinking about moving or expanding in Oregon. Every legislative session sends a shiver through boardrooms as business owners worry about what’s next. Some legislators are already drafting a sales tax proposal. A follow-up to Measure 67 cannot be far behind.

It should come as no surprise that Nike — and just about every other business in the state — would want to have some certainty about what its upcoming tax bill will be. At the same time, it is deeply troubling that only the biggest of Oregon’s businesses can get the governor to act.

It’s time Oregon revisit its tax policies and get rid of the state corporate income tax altogether. Even with the Measure 67 increases, corporate taxes continue their long-run decline as a share of total tax collections. The carve-outs and credits for favored businesses corrupt the system and allow politicians to play favorites. With the corporate income tax out of the picture, Oregon can say it’s open for all businesses.

  
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