Measure 97: don’t buy a pig in a poke

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After months of waffling and so-called reflection, Oregon Gov. Kate Brown now says she supports a whopping increase in business taxes through Ballot Measure 97. Surprise!

What liberal Democrat wouldn’t salivate over the prospect of $6.1 billion of additional state revenue in the 2017-19 biennium?

What’s dismaying is that Brown seems to be on the voters’ side, according to a recent poll by Clout Research. That poll, released on July 27, concluded the following with respect to Measure 97:

  • Yes              39%
  • No               34%
  • Not Sure    27.1%

The only saving grace here is that, according to FiveThirtyEight, Clout Research isn’t too reliable, earning a lousy C- ranking. Of the 9 Clout polls FiveThirtyEight reviewed, Clout called only 3 correctly. This compares, for example, with the ABC News/Washington Post which polled 78 percent of 51 races reviewed correctly and earned an A+ rating.

 Opponents of Measure 97 can also take some solace in the fact that The Clout poll  found support for the measure is diminishing. About 39 percent of respondents to the Clout poll favored the measure, versus 44 percent who favored it in early May.

Still, Brown’s support for Measure 97 is hard to fathom given the real impacts and uncertainties associated with the measure.

For example, Democrats always like to position themselves as dedicated, empathetic protectors of the poor. But Measure 97, if approved, would be a significant burden on the poor.

“…the gross receipts tax is subject to the same equity concerns as the retail sales tax because under most circumstances it eventually leads to higher consumer prices,” said Oregon’s nonpartisan Legislative Revenue Office in a report. “Any tax that is based on general consumption will have a regressive impact on the distribution of the tax burden, meaning that lower income households will experience a higher tax burden as a percentage of their income than higher income households.”

According to the report, families earning up to $48,000 a year will see a 9 percent decrease in net household after-tax Income under Measure 97 after wages and prices have adjusted to the new tax policy. In contrast, families earning over $206,000 a year will see just a 4 percent decrease in net household after-tax Income.

In the same vein, Measure 97 would change the distribution of Oregon’s state and local tax burden to disadvantage low-income Oregonians. According to the report, families earning up to $48,000 a year would see their effective tax rate go up in the range of .51 percent-.80 percent. In contrast, the effective tax rate of families earning more than $206,000 would go up just .27 percent.

So much for the Democrat’s commitment to low-income families.

For a party that says so often that it wants fairness and equality in the economy, its support for Measure 97 is also inconsistent. That’s because Measure 97 could really cause the equality of Oregon’s corporate tax system to go seriously awry.

According to the Legislative Revenue Office report, gross receipts taxes, such as those proposed in Measure 97, can distort tax payments because of something called pyramiding. “Pyramiding occurs when the gross receipts tax is built in at the time each transaction occurs and then passed on to the next stage,” the report said. “Because industries vary greatly in the number of transactions that occur, the effective tax rates can be considerably higher for those industries with multiple transactions compared to those that have very few.”

A study by the Washington Legislature, cited in the Legislative Revenue Office report, backed up this conclusion. “Because the degree of pyramiding varies widely, this means that effective tax rates will vary widely among industries, thereby distorting market prices and decisions,” the report said.

With all their talk of fighting inequality, is that really what Democrats want, a flawed, unequal business tax system?

Democrats will also be relying on some very iffy revenue expectations if Measure 97 passes and they grow spending based on the Legislative Revenue Office’s revenue projections. The office’s report projects that the largest 274 corporations based on Oregon sales would see their annual Oregon taxes increase by over $2 billion, or most of the total tax revenue increase from Measure 97.

But the office emphasizes that this is a very dubious number. “Since these corporations are large, operate globally in many cases, and often have substantial market power; accurately predicting their behavioral response to a large tax increase presents numerous challenges. The individual behavioral response of these corporations will be a key factor in determining how the tax burden is ultimately distributed.”

Finally, Oregonians who support Measure 97 because they believe Democrats’ claims that the revenue would be committed to things like K-12 education and healthcare are tragically misinformed. On Aug. 1, 2016, the nonpartisan Office of the Legislative Counsel released an opinion saying, in essence, the Legislature can do anything it damn pleases with Measure 97 revenue.

“Section 3 would not bind a future legislature in its spending decisions,” wrote Chief Legislative Counsel Dexter Johnson in the opinion. “If Measure 97 becomes law, the Legislative Assembly may appropriate revenues generated by the measure in any way it chooses.”

In other words, don’t bet your sweet bippy on how this would all play out.

With all these negatives and uncertainties, do Oregonians really want to buy the Democrat’s and unions’ Measure 97 snake oil?

 

 

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