Oregon Ballot Measure 118 is a Sales Tax in Disguise 

By Atticus Vernacchio

Scrolling through Measure 118’s website, a casual reader might be struck by how its promises seem too good to be true. That’s because they are. As the old adage goes, there’s no such thing as free money.

118’s supporters make alluring arguments to draw in struggling Oregonians trying to overcome years of high inflation. More specifically, it promises to hand out a “rebate” check of more than $1,000 every year, which is hard to refuse. In all but name, however, the measure is a sales tax, and an aggressive one at that.

The measure would impose a 3% tax on all gross receipts over $25 million. Advocates act as if the proposal is nothing more than a normal corporate income tax, but corporations are already subject to a relatively high corporate income tax of 7.6%, plus the 21% federal rate.

The choice not to present the measure as it really is should clue voters in to the deceitful marketing strategies that advocates of 118 employ.

Voters ought to know the truth, even if the measure’s advocates refuse to tell the real story behind the new tax on the ballot this fall.

A gross receipts tax differs from a corporate income tax for several key reasons. The most important is that the receipts tax is applied at every stage of production. On the other hand, corporate income taxes are charged annually and based on the final profits a particular business earned over the year. These taxes are, of course, still passed along to consumers and employees in the form of higher prices and lower wages, but they aren’t as directly linked to the sales price of a company’s products.

Because the tax will be applied at every stage of production, the price of the final good must reflect multiple stages of new taxation, driving up the cost far more than an ordinary sales tax would. It’s no wonder that Oregon would collect an estimated 7 billion if this new tax were to pass. Take the example of bread. A farm selling grain and wheat could be taxed on the sale of those commodities at 3%. The bakery that turns it into bread will also pay 3% on the final price of that bread. The distributor will get taxed another 3%, and the grocery store buying from them would be taxed 3%, too. The product that finally gets to the consumer will have received the cumulative effect of multiple 3% taxes, increasing the price of that product exponentially more than an equivalent sales tax.

This process is called tax pyramiding, and it means measure 118 will likely increase prices by 12%.

Because the tax is applied the instant a company breaches 25 million in sales, businesses will be incentivized to avoid the tax by stalling growth. As long as a company remains at 24.9 million sales, they’re safe, but once that tax triggers, they’ll likely be making less than they were before, at least for a while.

In the case of Measure 118, the tax is also regressive. As a gross receipts tax, it takes 3% off the top, regardless of expenses or profit margin. This means that in an industry like grocery sales, where stores typically have extremely thin profit margins of 1-2%, there is no alternative for these stores to pay the tax outside of a massive price increase across the board. Companies selling software and banking services – which the website ironically touts as the real targets of the new tax – will have a much easier time dealing with the economic fallout than essential (but low-margin) industries like food.

Their website proudly claims: “Don’t believe the lies, corporations will be fine – Multinational corporations like Comcast are not going to stop operating in Oregon because they have to pay slightly more in taxes…” Basic economics proves this assertion to be completely false.

Because the tax is applied at every level of production, companies will be incentivized to move as many levels of production as they can out of Oregon – perhaps a few hundred feet across the river from Portland to Vancouver, Washington. Since other states do not have these crippling new taxes, businesses will move some or all of their production to friendlier economic environments.

Oregon is one of five states that has no sales tax. Voters in the state have rejected sales taxes on the ballot ten times, the last being in 1990, and there has been no indication that they want one now. Just two years ago, a 3% tax on luxury goods failed to pass through the state’s legislature because, according to Rep. Anna Williams “”Oregonians don’t have an appetite for sales tax… They have said no and I think they will continue to say no.”

Moreover, this ballot measure is almost unanimously opposed by democrats and republicans alike. House Speaker Julie Fahey, House Majority Leader Ben Bowman, Senate President Rob Wagner, and Senate Majority Leader Kathleen Taylor, all Democrats, recently joined Republicans in opposition to the bill on account of the fact that it doesn’t even increase the state’s budget. Unsurprisingly, it costs a lot of money to give every Oregonian – regardless of age — a $1600 rebate. According to some fiscal analysts, it would actually lose the state approximately $1 billion a year.

Even unions don’t support the bill. Imagine that.

Given their principled opposition to sales taxes, the only reason why Oregonians might vote yes on Measure 118 is because they don’t know what it is, and that’s by design. Instead of offering Oregonians another sales tax or a corporate tax hike, proponents of the measure have chosen to wave a $1600 check in voters’ faces and hope they’re too uninformed to notice.

A functioning democracy doesn’t rely on deceit to manipulate votes: it trusts that the people will make the right call.

Measure 118 is a sales tax, and voters ought to know that at the ballot.