Hunt & Associates P.C.

You Can’t Kill the Cow to Get More Milk – Oregon’s Measure 97 and the Destructive Impulse to Over Tax

CowWinston Churchill described the art of intelligent taxation as knowing how to keep the cow healthy and alive so as to maximize its milk production.  The prime directive of good policy is to not kill the cow.  If the cow dies, there’s no more milk.  Without the milk of tax income, government can’t live. In Oregon the cow’s health, if not its life, is now in peril.

Unfortunately, government’s insatiable appetite often tempts it to forget the cow’s wellbeing and to focus only on taking as much milk as it can see at the moment, even if the effort is more than the cow can survive.  Public employee unions and their affiliates are promoting an initiative proposal on November’s general elections ballot, Measure 97, to enact a 2.5% gross receipts tax against all Oregon companies with more than $25 million in annual sales.

If the measure passes, any corporation making more than $25 million per year in sales will pay 2.5% of its total sales in tax over and above what it already pays in other state and local taxes.  It may be the largest such tax in the Nation.  Although the proponents claim that the proceeds from this tax might be used to advance a multitude of seemingly worthwhile programs, there are no restrictions on how those proceeds are spent.

Emily Powell, owner of Powell’s Books in Portland, explains in a recent interview with the Portland Tribune how this tax threatens her business and other businesses in Oregon and how, at best, it will seriously damage, if it does not kill, her business.

Ms. Powell points out in the interview that, even though styled a tax on business income, the gross receipts tax will increase the cost of living for every Oregonian who pays for electricity, phone, food, clothes, books, and other daily living expenses in the state.  As she also notes, passage of the measure would almost certainly cause Powell’s, like many other employers, to reduce the number of employees and to constrict the level of service they offer.

In other words, it’s another instance of the old truism that businesses don’t pay taxes, people pay taxes.  The businesses that pay the tax will pass the tax along to their customers who will then pay more to purchase goods and services to pay the tax.  Yet those individuals who ultimately pay this “corporate tax” will have less to pay for the goods and services which businesses sell and so will purchase less so sales of goods and services will decline.  There will also be fewer workers in the private sector earning money to buy goods from private businesses and also fewer workers in the private sector to support the continuously growing number of public employees who will be looking to this tax for income and benefits.

In short, any additional income the state might receive from enactment of Measure 97 could well seriously injure if not kill the tax revenue which now supports all of the state and local governments.  Measure 97 thus threatens to hurt if not kill the cow that gives our government the milk it feeds on.  As Churchill noted, that is not a good idea.

© 7/27/2016 Lawrence B. Hunt of Hunt & Associates, P.C.  All rights reserved.

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