Measure 97 tax makes WSJ editorial

newspapersFrom WSJ Editorial Board
August 12, 2016

Progressives claim they can pay for their grand spending ambitions by soaking the rich, but the little guy invariably gets wet. The latest illustration is Oregon, where unions are campaigning for a gross-receipts tax on large corporations that even state budget analysts warn will drench the 99% too.

Last week Governor Kate Brown endorsed a November referendum that would impose a 2.5% tax on corporate sales exceeding $25 million. Oregon’s top income tax rate of 9.9% is the second highest in the country after California, and it hits at an income of only $125,000 for a single tax filer.

The Beaver State last raised income taxes in 2009, and state revenues have grown by nearly 30% in the last four years. But unions say the new business tax is needed to close a $1.4 billion deficit and pay for baked-in spending—the same justification for the last tax increase.

Health-care costs will rise by $1 billion in the next two-year budget thanks in part to the state’s ObamaCare Medicaid expansion. Generous new union contracts that increase worker pay and reduce their health-care premium contributions will add hundreds of millions to the fisc, while public pension costs are projected to swell by 150% to $4.5 billion by 2021.

The gross-receipts tax, which would throw off $3 billion annually and expand the budget by a third, would be a revenue gusher because of its pyramiding effect. As the Tax Foundation notes, “In effect, the tax gets built into prices and compounded as a product moves through the production process.” So low-margin businesses at the end of the supply chain—particularly retailers—get walloped.

Only five states assess a gross-receipts tax. Many including Michigan and New Jersey have dumped theirs due to its economic distortions. Oregon’s would be the highest and most onerous since it wouldn’t include deductions or differential rates to ameliorate the burden on low-margin industries. For instance, Texas allows businesses to deduct the cost of goods sold and employee compensation—and the Lone Star State has no income tax.

Businesses will respond by raising prices, reducing investment and laying off workers. The state Legislative Revenue Office estimated that the tax would cost 38,200 jobs in the private economy including 13,600 in retail trade while increasing government employment by 17,700. By 2022 state income would decline by 0.17% while prices would edge up 0.89% relative to the office’s baseline forecast.

The analysts also forecast that the measure would increase the state’s per capita tax burden by $600, and that “the marginal impact of the tax will be regressive.” Households making less than $21,000 in income would experience a 0.9% decline in after-tax income—about twice as much as those earning more than $206,000.

While the referendum is billed as a progressive tax to help fund education and health services for the poor, the real beneficiaries as usual will be public unions. Oregon’s gross-receipts tax would be one more regressive income redistribution from the private economy to the privileged government class.

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