Corporate Accountability Reporting
Chuck Sheketoff
Oregon’s corporate income tax system is broken. It is so riddled with loopholes that big corporations today are paying a fraction of the income taxes, as a share of their profits, that they paid in Oregon a generation ago. Today, two of every three corporations doing business in Oregon pay only $10 annually in corporate income taxes.
As a result, Oregon individuals and families have to pay a larger portion of the costs of public investments and services. In this budget cycle, corporations are paying six percent of Oregon’s income taxes, leaving households to pay 94 percent. In the mid-1970s, by contrast, corporations in Oregon paid about 18 percent of the state income tax bill. At the same time, Oregon homeowners are paying a larger share of local property taxes than a generation ago, while businesses are paying less. Oregon families get stuck picking up the tab when corporations escape taxes on their profits and property.
The time has come for Oregon to honor the good corporations who pay their fair share, and to shine the light of public scrutiny on the irresponsible corporations who don’t, and hold them accountable. That is what Corporate Accountability Reporting will do.
Initiative petition #102 (text) would establish Corporate Accountability Reporting in Oregon. The measure requires some large corporations to file a report with the Oregon Secretary of State specifying tax-related information that will be available for public review. See Supreme Court approved ballot title.
The law covers only large corporations, not small businesses. Small businesses – corporations with fewer than 250 employees and less than $10 million in sales in a year (that’s less than $192,308 a week), and corporations where employee-owners are performing personal services in fields such as health, law, engineering, architecture, accounting, and consulting – are exempt.
The measure will help restore public confidence in Oregon’s corporate tax system. Corporate Accountability Reporting will improve decision-making about tax loopholes and tax incentives – helping Oregonians understand which tax breaks work, and which do not. The information will help create the climate for corporate tax reform.
Public acknowledgement of responsible corporations who pay their fair share in taxes is good for Oregon’s business climate. It will show that corporations selling to Oregonians and operating in Oregon can make a profit. Oregon bases corporate taxes on those profits, not revenues.
The information made public will help Oregonians construct a corporate tax system that treats corporations equitably, which is good for the business climate. Corporations want to locate and sell their products and services in states with fair tax systems.
The time is right for Corporate Accountability Reporting. With large corporations getting a 36% tax cut this year in corporate kicker tax credits, and more slated for 2007, it is time we learn who’s paying their fair share in taxes, and who isn’t. The Corporate Accountability Reporting initiative will be good for Oregon, good for Oregon’s economy, and good for Oregonians.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy.
You can sign up to receive email notification of OCPP materials at www.ocpp.org
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Apr 12, '06
Chuck,
What percentage of the corporations are S corporations which by definition have all of their income taxed at the shareholder level rather than at the corporate level?
Apr 12, '06
One of the premises of this ballot measure seems to be that only large corporations "cheat" on their taxes. In fact, lots of corporations (and lots of individuals, small business, partnerships, etc.) "cheat" on their taxes. There isn't any reason why one segment of the taxpaying public should be singled out for extra scrutiny. Furthermore, taxpayers didn't write the tax code -- the legislature did. There isn't any reason why taxpayers should refrain from taking advantage of deductions, credits, exemptions, etc. that are written into the code. The argument seems to be that a corporation that follows the law but ends up paying a small amount of taxes is somehow a bad citizen/taxpayer?
4:14 p.m.
Apr 12, '06
In a fantasy world where "individuals", "partnerships", "small businesses", and "large corporations", each had exactly the same amount of say in how the tax code is manipulated, you'd have a valid question.
We all know better don't we?
I don't see that Chuck's arguing that large corps break the law more than individuals, it's that the design of the playing field and the impact of cheating on the state economy, are much more noticeable when one hides millions in some dummy corporation in the Bahamas than when some guy writes down a couple of hundred extra travel miles and takes his wife out to Applebee's. Both are equally dishonest, but have hugely different results.
I think that my neighbors at the Sandy Chamber of Commerce would be pretty shocked if some mechanism were introduced to assist them in connecting the dots on who really benefits from various tax evasion schemes put forward by folks who definitely do not have their interests at heart. You know, like Measure 5, or NAFTA, or.....well you get the idea.....
The small business people of this state might wake up and start voting in their own economic interests rather than voting in the interests of Jeld-Wen, LP, who are intent on passing the tax burden on down the foodchain to Calamity Jane's Old Fashioned Burgers.
As I see it, Chuck's proposal is basically an information gathering tool that will help us keep score regarding who's shouldering their share and who's not, for whatever reason or how absolutely legal.
Also, the little guys are wa-a-a-a-ay up on the IRS auditing radar, and large corps are way down. No need to speculate on why the Gummint is targeting the class that donates the least to political campaigns, and is least able to manipulate the tax code is there?
Apr 12, '06
Why not just write an initiative that changes the tax code? Spending tax money (in enforcement, administration, etc.) to raise awareness that corporations are not paying their fair share of taxes seems like a waste of time. Why not just attack the problem directly?
Apr 12, '06
Hey Chuck will this cover Wal-Mart?
Apr 13, '06
There is a difference between cheating and exploiting loopholes in the tax code. Cheating is illegal. Using loopholes is not. Corporations are designed to make money. If using a loophole will increase profits, it would be silly of a corporation not to do so. Why not just change the tax code instead just like blizzak proposed?
8:08 a.m.
Apr 13, '06
Bill,
The 2/3 of corps pay the minimum tax is referring to only C-corps ... 2/3 of all C-corps pay the minimum tax.
Chuck
8:14 a.m.
Apr 13, '06
blizzack and davebrown:
The measure's focus on large corporations has nothing to do with assumptions about who cheats more...in fact, this measure will not show cheaters. It will show, like studies at the federal level, http://tinyurl.com/et5ue , who is paying their fair share
This will help identify which companies or industries have too many loopholes available to them. It is a tool that will (hopefully) lead to changing the tax code to close inappropriate loopholes and other components that make the system unfair. It will change the climate for tax reform.
Apr 13, '06
The initiative will not show who is paying their "fair share" of taxes. The only way to tell which taxpayers are paying a "fair" amount of taxes would be to make the tax records of all taxpayers public. Lots of taxpayers game the system. Two examples I can think of off the top of my head. Contractors who are sole proprietors -- they expense everything and usually end up with little or no taxable income. Upper middle class people who own two houses and/or carry a large home equity line of credit -- they deduct all the interest against their high salaries. Without analyzing the taxes paid by everyone there is no way to tell if larger corporations are benefiting more or less than other taxpayers from the loopholes in the code.
What's your proposal for corporate tax reform? Real ideas would be more productive than a imperfect system that would change the climate for tax reform and someday (maybe) lead to reform.
8:41 a.m.
Apr 13, '06
This measure is an important part of a long overdue conversation with Oregonians about basic tax fairness and I can't wait to see it hit the streets. Good work Chuck!
9:05 a.m.
Apr 13, '06
Blizzak -- this measure may not tell us which non-corporate taxpayers are gaming the system, but it WILL tell us which corporate taxpayers are, and which are not.
The taxes paid by corporations vary wildly in Oregon, even from one year to the next. The purpose of this measure is to get the data.
Look at the outrage produced by knowledge that PGE paid $10 in taxes. If this measures passes, we'll know exactly which companies are doing what.
That will change the climate for larger tax reform.
One step at a time.
Apr 13, '06
Please, one constructive idea about how to change the tax code. Did anyone behind this measure actually read the Oregon tax code?
Apr 13, '06
So the average person is going to read a corporate tax return and be able to figure out if that corporation is paying a "fair" amount of taxes? Accountants go to school for years to understand the corporate tax code. What the average citizen will do is just look at the bottom line and make a uninformed judgment about whether the tax paid is fair. There are certain circumstances (ex. large capital investment and expansion) where a low tax liability is not any indication of unfairness. Conversely, there are other situations where a corporation could have a relatively high tax liability but still be guilty of gaming the system (ex. corporation that gives a large amount of stock options as compensation to directors).
It doesn't really matter as this ballot initiative will likely be a non-starter with the public -- many people will just view it as another unnecessary government regulation.
4:17 p.m.
Apr 13, '06
blizzak:
First you need to read the measure. There you will see that this does NOT give anyone access to a corporate tax return. It does, however, tell people what profits a company had and what taxes they paid on those profits. That's a good measure of tax fairness for the large corporations (vs the contractors you complain about) who will be required to report.
Think its a non-starter, eh? Just wait and see. I think Kari is correct - just as people were interested in learning that PGE paid only $10 in corporate income taxes, Oregon voters are gonna want to know the names of the other companies that are getting away with that.
As to ideas for reforms of corporate taxes, I'd start with repeal of single sales factor apportionment and go back to the equal weighted apportionment formula. Next, I'd start going through tax loopholes and inappropriate tax credits, such as the R&D credit. There's no shortage of ideas for corporate tax reform. We just need the appropriate climate. Showing that some of the corporate emperors wear no clothes will get us there.
Apr 13, '06
Hey Chuck;
I know something that you apparently do not!
Corporations DO NOT pay taxes!!!
Any and all taxation levied on corporations are paid by the corporations customers. Increase corporate taxes and the price of their products increase to pay the increase. Only individuals pay taxes, ever!
If you truly want fair taxes I suggest you visit www.fairtax.org.
Sincerely
Duane Neighbors
Apr 14, '06
Fair enough Chuck, you do seem to have an understanding of how the tax code works but I still think (1) your approach to fixing the corporate tax problem is indirect and probably won't work and (2) your fixation on corporations is misguided -- making the tax system "fair" will require an examination of all taxpayers. Hopefully I'm wrong and your plan will lead to a better tax code in Oregon.
Apr 14, '06
In my opinion, the ONLY way to curb "cheating" by corporations (and other businesses) is to adopt a gross receipts tax similar to Washington's Business and Occupation tax. The Oregon system which seeks to tax only "profits" will always be subject to manipulation and avoidance, since there are an almost unlimited number of ways to reduce or eliminate "profits" at the corporate level.
Of course, the same day a gross receipts tax is adopted, Nike, Intel, Columbia Sportsware, ESCO and a hundred other companies will be loading the moving vans for Mississippi, but that is the trade off.
Apr 14, '06
So, Realtors want Fair Tax.
I happen to think Wyden's Fair Flat http://wyden.senate.gov/media/2005/12152005_wyden_emanuel_tax_plan.html makes more sense.
I also think this state needs open public debate on tax reform.
Apr 16, '06
An article in the Sunday Oregonian addresses corporate income taxes. Chuck is quoted in it. Two questions/comments:
The article states:
"Observers say one reason Oregon lawmakers have reduced business taxes is their fear of recession.
"We have one of the most volatile economies in the nation, and that makes us desperate," says Hallock, the UO economist. "If you have Intel in your office telling you you have to have this single-sales factor or they're not going to invest in Oregon any longer, that gets your attention.""
Why do we have one of the most volatile economies in the nation?
The article claims Washington's gross receipts tax hasn't scared off business. To the contrary:
"Washington has a bigger high-tech sector than Oregon does -- and sharply different corporate tax policies.
In Washington, businesses pay sales taxes and a tax on their gross receipts, even when they don't turn a profit. Largely as a result, businesses shoulder half the cost of state government, one of the highest rates in the nation.
Yet Washington businesses lobby more for university funding than for lower taxes, says Richard Davis, president of the business-backed Washington Research Council, which works to improve the state's economy and business climate. A skilled work force, a top-notch research university and "human capital" give Washington a competitive edge, he says.
"I don't see pressure broadly for tax reductions," Davis says. "As somebody who cares very much about having a healthy business climate, I wouldn't trade our tax structure for your tax structure.""
I don't get it. Who's lying here? Can somebody please explain more?