Oregon Measure 97: The Harsh Reality

The State of Oregon is having a bit of wild dream when it comes to a state measure that was intended to raise taxes by 2.5 percent on big corporations. The ‘Yes on Measure 97’ campaign even has over 70 experts and academics to back up the measure. But is it really all it’s cracked up to be? To be honest, I don’t think so. 

What is Measure 97?

“It’s a 2.5 percent tax on big corporations that exceed $25 million in corporate gross sales. By keeping corporations accountable, we can invest in healthcare and education.” This sounds wonderful on paper. I mean, who wouldn’t like investing in schools in a state that grossly underfunds education to the point where “Republicans at one point [stormed] off the Senate floor over Democrats’ claims that their alternative proposal, which would result in cuts to public safety and human services.”

With over 70 experts and academics in favor of this measure, one of them being an economist from Lewis and Clark College (a nice private school in Portland), how could someone vote no on this? Well, maybe we should dig a little deeper into this. After all, they did just use a logical fallacy known as an appeal to authority by bringing in the economist.

A Closer Look: What is it, Exactly?

First, in order to fully understand what the outcomes could be, we need to look at the yes and no options.

“yes” vote supports this initiative to increase the minimum corporate tax by establishing a 2.5 percent tax on corporate gross sales that exceed $25 million.

“no” vote opposes this initiative to establish a 2.5 percent tax on corporate gross sales that exceed $25 million and retains the existing corporate tax structure.

https://ballotpedia.org/Oregon_Business_Tax_Increase,_Measure_97_(2016)

First and foremost, we need to take a closer look at the definitions. Of course, the only one that has any serious  Let’s start with yes statement. According to the sentence, the initiative has a goal to “increase the minimum corporate tax by establishing a 2.5 percent tax on corporate gross sales that exceed $25 million.” What do they mean by a minimum corporate tax? And why were the words “gross sales” included? This requires looking at the original text.

If you open the link to view the original text, you will notice in section (1)(a) that the taxable income, which used to be considered profit (which is revenue (sales) minus expenses (cost)), is now gross sales (revenue). Of course, this is not plainly written. It is hidden in legalese. The way they do this is by including Oregon Revised Statue (ORS) numbers. This is done so that people have to look up different statutes to fully understand what the initiative is saying.

The New Minimum Tax

Just so you know, this change only happens if your business is registered as a c-corporation, and if you make more than $25 million in revenue (total sales). The way measure 97 is presented makes people think that this tax is only a percentage, like a regular income tax. As I mentioned earlier, it’s a tax on revenue, which is total sales.

The original text lists what seems to be the current tax brackets for c-corporations. Toward the bottom of this list is the edited text that has been proposed by the initiative. If this initiative was just a new percentage, then why does it list minimum numbers? And why are these minimum numbers literally one-tenth of a percent? The change that was made was capping the top bracket at $25 million for a minimum tax of $30,000. If a business makes more than $25 million, then it’s a minimum tax of $30,001 plus 2.5 percent.

Keeping Big Corporations Accountable*

Something that isn’t really explained by the ‘Yes on Measure 97’ campaign is that there are companies that will be exempt from this tax and, no, I’m not talking about a benefit company, which is something that is currently on the books. They will continue to be taxed according to their income if they make enough (meaning a lot more than $25 million). So the idea is to keep big corporations accountable, but there’s a hidden asterisk.

So if you thought that big corporations like Nike, Monsanto, or some very large oil companies were finally going to pay their fair share, you’ve been duped! Sure, maybe many of these companies will see an increase in taxes. But overall, it won’t be as much as you thought. So what exactly is this cap that they decided to hide? Well, it’s clear, but it’s best to read the current system and then the proposed change. To make this easier, I decided to allow Ballotpedia to explain:

In Oregon, these businesses pay either a minimum tax of 0.1 percent on sales or 6.6 percent on taxable income up to $1 million and 7.6 percent over $1 million, whichever amount is greater. The minimum tax on sales is capped at $100,000.

Whichever rate amounts to a higher tax payment would apply: either the 2.5 percent on gross sales or the 6.6/7.6 percent on income.

What exactly do they mean by taxable income? Taxable income is usually thought of gross profit. That’s total revenue (income) minus total expenses before taxes (pre-tax costs). The gross profit of Nike for the fiscal year of 2015 was $14.97 billion. But after other expenses, the income before tax (the real taxable income) was $4.623 billion. Basically, just as it is for any other business, taxable income is the income a company has before it finally has to pay taxes. The total tax expense for Nike was $863 million in 2015. That’s federal and state taxes. That’s literally a little more than 17 percent.

To be clear, this definition is the current system and then the proposed change. The first is the system that supporters of measure 97 want to change. However, as previously explained, corporations that make enough money become exempt from the change and will be defaulted to the current, unchanged system. According to my math, a corporation that made $25 million would need to make an income before tax that is between $8 million and $10 million to default to the old system. So while the cap is not specified, it is safe to assume that between $8 million and $10 million is that cap.

What Actually Affects You

So maybe Nike won’t have much of a price increase on you. Maybe you actually buy New Balance, Addidas, or even Puma for your shoes. But imagine something for a moment: Where do you make a lot of purchases from? Walmart, WinCo, Target, Costco, Albertsons, and many other stores most likely make more than $25 million. They would understandably raise their prices little by little. The ‘Yes on Measure 97’ campaign is open about this: The rise in costs for Oregon households is estimated to be $600.

According to the Social Security Administration, 51.43903 percent of American workers earned less than $30,000 in 2014. In the same year, Oregon’s per capita personal income was $41,220. It’s a little interesting as an Oregonian to hear some people complain about the price of rent, gas, and other things necessary just to get by. It’s interesting because if people think it’s hard now, imagine how hard it’s going to get when they have to subtract $600 from their annual budget.

Most likely, someone who doesn’t care about an extra $600 ($50 per month) leaving their bank accounts will support something like this. The average salary for faculty at the University of Oregon is more than $100,000 per year. So anyone who teaches at the University of Oregon that supports this can afford it and, logically, would not care if someone else could not afford it because it makes them feel good. But why does this apply to college faculty members and not other rich people? To put it simply: Many college faculty members have tenure, which guarantees them a salary per their contract with the college or university.

Does it really seem fair to you that rich Democrats, who can afford this tax increase, don’t care that you can’t? The only way to take a stand for yourself is to vote NO on measure 97. This article is my official endorsement of voting NO on this measure because there are more of us who can’t afford $600 leaving our possession than rich Democrats want to believe.

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