To fund education at adequate levels, fix crumbling infrastructure, and make other crucial investments in Oregon’s economy, the state needs to raise billions of dollars in new revenue. These funds could be raised if big corporations paid their fair share of taxes – right now, they are not doing their part.
Over the past 40 years, while personal income tax collections have risen, corporate income taxes remained flat. This is not because of some drop in corporate profits—in fact, while corporate taxes have flat lined, their profits have reached record highs.
In comparison to other states, Oregon is significantly under-collecting in corporate taxes. Independent economic studies by the Anderson Economic Group and Ernst & Young found Oregon to have the country’s lowest business taxes.
Here’s how they calculate this rate: use publicly available data from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis to compare business profits (profits are represented by a measure called “gross operating surplus”) to the total amount of state and local taxes businesses actually pay in each state. Among the states and Washington D.C., Oregon is in 8th place for per capita business profits. Business profits per capita are about $6,200 (30%) higher in Oregon than the U.S. average. On the revenue side, Oregon’s business taxes are below average. According to AEG, Oregon is 40th among the states in business taxes per capita. Put high business profits together with low business taxes and you’ve got the state with the country’s lowest effective business taxes. Not just is Oregon in last place, but last by a lot. Based on the AEG report, Oregon would need to raise an additional $1.9 billion per biennium just to beat out North Carolina for 49th place.
So where are all those profits going? All around the country and the world – but they’re not staying in Oregon. 84% of corporate income in Oregon is claimed by companies headquartered outside of the state. 68% of these companies pay minimum taxes, which average only 0.06% of their Oregon sales. Oregon could raise billions of dollars each year from these big, out-of-state companies and still be one of the cheapest places to do business in the country, all while not increasing the tax burden for local employers. A corporate tax, properly crafted, could mean billions of new dollars for Oregon’s economy without adding to the burden of most Oregon businesses. It’s a win for our schools, our infrastructure, and our economy.
A small increase in taxes on out-of-state corporations will benefit all Oregonians if the proposal is crafted right. Right now, some corporations skirt paying their fair share because companies are so good at hiding their income from taxation. Oregon’s current corporate tax is almost entirely income based. A better approach is to base corporate taxes on the amount of business they do in the state – it’s a better reflection of the amount of resources and infrastructure they use. Out of state corporations rely on Oregon’s tax investments to sell their products – without our community investments in roads, schools, airports, health care, and the like, they could never make their profits. So it is important that businesses pay for these investments. This taxing approach mirrors states like Washington, Ohio and New Mexico, their systems prevent corporations from avoiding taxes by hiding their profits in foreign subsidiaries. While raising revenue from big corporations, we could even give small businesses a substantial tax cut, providing tax relief for thousands of Oregon companies.
If we are serious about growing Oregon’s economy and reducing poverty, we need to make large investments in education and infrastructure, in addition to adopting new rules to give working families a fair shot. Oregon can afford to make these investments if big corporations pay their fair share.