Oregon Capitol

The Oregon State Capitol

Oregon lawmakers want to raise an additional $1 billion a year in taxes to pay for new initiatives to improve K-12 education.

The Legislature wants to raise a lot more money this session, despite already being on track to see revenues increase by 5%.

Its decision a few years ago to expand Medicaid has led to a $254 million shortfall, despite a raft of taxes voters approved last year to help fund the program. A $300 million tobacco tax hike is on tap to fill the gap.

It has voted to hold back $108 million owed to Oregonians under the “kicker” program, which rebates money to taxpayers when receipts exceed projections by 2%. And it is proposing a carbon cap scheme that could raise as much as $700 million while increasing the cost of fuel and everything transported by truck or train.

But one tax at a time.

Under the first proposal, businesses would pay a half a percent of their gross receipts over $1 million. Businesses would be able to deduct 25% of either labor or capital costs, which could push some businesses below the gross receipts threshold. Sales of groceries, gasoline and diesel would not be taxed under the proposal.

Supporters say about 40,000 of the state’s 460,000 businesses would be subjected to the tax. And to further help sell the plan, the proposed legislation would cut personal income tax rates for all but those in the top bracket by a quarter of a percent.

This plan is similar to the ill-fated Measure 97, an initiative petition voted down in 2016.

That measure proposed Oregon’s largest tax hike ever. It would have imposed on “C” corporations an additional 2.5% tax on gross sales in Oregon exceeding $25 million. It would have raised $3 billion per year.

Democrats sponsoring the current proposal have obviously scaled back their ambitions. But even in its pared-down form, the proposal has the same shortcomings as Measure 97.

Advocates like the gross receipts tax because they claim businesses use recognized deductions to avoid corporate income taxes. The biggest problem with a gross receipts tax is that it must be paid regardless of whether the business in question makes a profit. High-volume, low-margin businesses such as farming can get caught in the net without making a dime.

The impact of the tax is cumulative, with each vendor in a supply chain adding to its price to help cover the cost. The end user of a product — a farmer with a piece of farm machinery — pays the full load without necessarily being able to pass that along.

Oregon faces a lot of tough problems. The unfunded liability of the Public Employee Retirement System is a daunting burden that costs local school districts an ever-increasing share of their revenues. At the same time, test scores and graduation rates are abysmal.

Lawmakers see the gross receipts tax as an easy source of big money. They need to look elsewhere.

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