Calling this season "Election Season" is contrived and limiting. In actuality, this is ballot season. Now, many of these ballots are elective, but some regard specific changes in policy. Since the current state of the Presidential election provides, for me, an obvious choice (Vote Hillary Clinton), I have spent most of my time this ballot season contemplating Measure 97.
Measure 97 is a suggested change in Oregon State corporate tax policy. It increases the corporate tax rate on sales to 2.5% if the gross sales exceed $25 million. The arguments for Measure 97 are primarily based on how much tax revenue it would achieve: projections include $548 million dollar increase in the first six months, and an expected $3 billion annual increase in tax revenue per year following.
Arguments against Measure 97 are that it will raise prices of consumer goods, and thus be a regressive tax (putting the burden on low-income earners), it will decrease employment and job creation within the state, and by taxing the gross sales of large corporations, Oregon would be taxing the investment savings of shareholders. I have decided, after much deliberation, to vote yes on Measure 97, because the three arguments against it are not well supported.
1. The tax is regressive because it causes corporations to raise prices .
This first argument has been flouted by TaxFoundation.org. TaxFoundation.org has said that Measure 97 will increase the price of consumer goods by 0.9%. While this projection may be true of consumer goods in general, if they were taxed, Measure 97 would only affect large corporations. The price of consumer goods by large corporations is relatively consistent across state borders, regardless of state corporate tax policy. Consumer goods in general may increase in price, but the consumer goods that low-income earners purchase have been proven to have standardized prices across states. Therefore, the tax is not regressive.
2. It will hurt job creation.
The second argument, that it will hurt job creation, focuses only on retail level workers. While it may be likely that large corporations lay-off some minimum wage workers, the tax revenue will be spent on healthcare systems, education and senior citizen support. The revenue going towards seniors and healthcare are supporting the second highest job growth sectors in Oregon, while the focus on education will support one of the lowest job growth sectors in Oregon. In this way, Measure 97 will support both large and small job growth sectors in Oregon, even if it does hurt low-level retail jobs (which there is no evidence to assume that it will do so). Therefore, Measure 97 may not increase job creation, but it is likely to balance the losers and the winners, which should be the end goal of any economic policy.
3. A tax on the gross sales of large corporations is a tax on shareholders.
The third argument, that a tax on the gross sales of large corporations is a tax on shareholders, and therefore, should best be described as a tax on individuals savings, is the most difficult to respond to. The logic is pure. Sales and profits of corporations ultimately increase the value of the company, which increases the value of the stock, which in turn increases the savings of individual American investors. If Oregon taxes those sales, the same pattern follows only with the devaluing of the company's stock, and the decrease in the savings of individual American investors. The wrench in this argument is a new type of investment firm, a private equity firm.
Private equity firms are pools of investment capital that differ from hedge funds in two profound ways: how they make money and how they treat investors. Hedge funds make money by using their capital to play a game of stocks and bonds. Private equity firms make money by playing a game of mergers, acquisitions and tax breaks. Hedge funds treat investors as people with risky savings, with allowance to withdraw every month, or at the very least annually. Private equity firms typically only allow investor withdraws once every decade.
The end result is summed up by the Economist article on private equity: "As companies shift from being owned by public shareholders to private-equity funds, direct individual exposure to corporate profits is lost." In other words, a tax on corporate gross sales has less effect on individual savings because private equity firms create space between the individuals savings and corporate profits by their methodology.
Also, assuming that Measure 97 does decrease the value of a corporation (which again, is only a speculative claim at this point), private equity firms can benefit from this, and thus, investors who entrust their savings to private equity firms will benefit. The firm would benefit by buying the struggling corporation, using federal tax loopholes and other methods to decrease spending, and then re-selling the corporation at a higher value. The losers are the shareholders in the corporation at the time it loses value, but those with savings in a private equity firm gain from the devaluing of the company. Once again, Measure 97 at its worst is an equal balance of winners and losers, that results in a balance of American savings.
I hope this is a helpful breakdown of some of the issues regarding Measure 97. If this interests you, I strongly encourage you to read through the Economist article (linked above), and the ballotpedia page that summarizes Measure 97 (also, linked above).
