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Our Opinion: Gross receipts tax would only hurt those it aims to help

A new analysis by state economists should make public employees think twice about the harm they’d do to low-income Oregonians if the unions and their backers succeed in pushing through a gross receipts tax in November.

Initiative Petition 28, which would impose a 2.5 percent tax on the sales of large companies in Oregon, is not the progressive solution its supporters claim it to be. Rather, the measure, if approved by voters, would have the exact opposite effect. The $6.1 billion it would raise each biennium would come from one of the most regressive forms of taxation. IP 28 would have its largest proportional impact on low- and medium-income families in this state.

The report from the nonpartisan and highly respected Legislative Revenue Office should give great pause to teachers and other public employees who have been asked to rally supporters in favor of IP 28. If they are looking for a balanced solution to raise more money for education and other public services, the answer is not a measure that burdens the people least able to pay. They should ditch this measure and work instead for better alternatives.

The revenue office’s report was so damaging to the cause of Initiative Petition 28 that the measure’s backers resorted to questioning the office’s methodology. Nonetheless, the report vividly demonstrates the economic impact this measure would have. In total, it would be the equivalent of an average $600 annual increase in taxes on every person in Oregon. Backers claim those taxes would be paid by the state’s largest corporations, but much of the money will come from consumers who buy groceries, medicine, electricity and clothing from these large businesses.

The basic problem with IP 28 is that it behaves like a sales tax, but it doesn’t exclude all the items normally exempted from sales taxes. As Legislative Revenue Officer Paul Warner notes, the tax would be levied on the sales of those companies where consumers do most of their shopping.

In an email to the Portland Tribune explaining his methodology, Warner states:

“While it is true that only about 1,000 corporations are directly affected by the measure, they account for about 76 percent of total corporate sales and about 88 percent of corporate sales in the retail trade sector — the most directly impacted sector. The larger businesses that are directly affected by the tax also tend to be the lower-priced, larger retailers who have economies of scale. They are likely to lose some market share to smaller corporations and non C-Corporations but remain the dominant companies in these sectors. So the end result is likely to be higher overall prices.”

There, in plain English, is confirmation of something that backers of IP 28 have been loath to admit. Their measure will not simply force big corporations to pay more taxes. Instead, the tax will be tacked onto the fruit at Fred Meyer, the winter coats at Walmart and the power sold by Portland General Electric.

In many cases, the increases will be far larger than 2.5 percent, because this type of gross receipts tax is levied at each stage in the supply chain. Warner’s report shows that wholesalers in Oregon — businesses that supply other businesses — would pay 24 percent of corporate taxes under IP 28. Those costs will be passed along at every step until they hit the consumer at the checkout stand.

We find it particularly troubling that people who call themselves progressives and who say they want to protect children and vulnerable citizens are advancing IP 28 as the answer to the state’s budget problems. We agree that Oregon needs more money for public services and we would support a reasonable plan for raising substantial revenues.

However, if public employees and others want to propose a sales tax, they should craft one that is as progressive as possible — one that excludes food, medicine and utilities, and that provides a rebate to the lowest-income Oregonians. IP 28 doesn’t do that.

Because ample signatures have already been collected and submitted, this measure will appear on the November ballot despite its obvious flaws. Oregon voters, however, should demand a more responsible proposal to bring stability and increased revenues to the state budget. Dressing a regressive tax in progressive clothing won’t make it any easier for Oregon families to foot a bill that undoubtedly would come their way.