Why the misleading $600 figure is just a scare tactic

Chuck Sheketoff

Comcast, Wells Fargo, Chevron and other corporations are spending millions of dollars trying to scare you into thinking that Measure 97 will cost you about $600. Rest assured: it’s just a scare tactic.

Much about the measure is undisputed:

• Measure 97 amends the existing corporate minimum tax for C-corporations by establishing a 2.5 percent tax on Oregon sales over $25 million.
• Legislative Revenue Office (LRO) data shows that only about 1,000 C-corporations — large, mainly out-of-state corporations — will be affected by Measure 97.
• Measure 97 will raise $3 billion each year in new revenue.
• The text of the measure directs that the money go to schools, health care, and senior services.

Opponents of the measure, however, argue that the typical Oregon household will take about a $600 hit from the measure, citing a report from LRO.

That argument is, at best, misleading. That figure is what a computer economic modeling tool used by LRO predicted would be the increased consumer costs faced by the typical household. The problem is that the model was fed poor assumptions.

LRO wasn’t able to have the model test what Measure 97 would actually do — tax only C-corporations with sales over $25 million. The only other gross receipts taxes in existence tax all businesses across the board, so that’s what LRO’s model used. The model wrongly assumed there’s no difference between a tax that applies to all businesses and one that impacts only a small fraction — 3 percent — of C-corporations, those with more than $25 million in sales. That’s one reason why the LRO estimate is flawed.

Related to that, the model began with the assumption that a significant portion of the tax will be passed on to consumers. That’s why the result is not surprising, but is misleading. Passing the costs on to consumers was assumed, not discovered through analysis.

The LRO model ignores several economic realities that will limit the ability of large corporations to pass this tax on to consumers. For instance, it ignores, as the Oregon Center for Public Policy has pointed out, that most businesses operating in Oregon will not be subject to the tax. And it ignores that it is competition, not taxes, that influences a company’s prices.

Further ignoring reality, the LRO model assumed there is no Internet. If a Costco or Best Buy were to try to raise their prices here in Oregon, you could just follow the advice on their own advertisements and buy the item online and have it shipped to you. These companies would be competing not only against their own online divisions, but against many other online retailers. The LRO model didn’t adjust for that basic economic fact before the model spewed out the oft-cited figure.

The LRO model also ignored that national corporations — the majority of corporations affected by Measure 97 according to LRO — have national pricing schemes. Wednesday supermarket inserts in your newspaper tell the real story ignored by the LRO model.

With all the flaws, the $600 figure isn’t worth the paper it’s printed on.

So, Wells Fargo, Comcast and others are simply using a flawed statistic as a scare tactic to divert your attention from the obvious: If the corporations subject to Measure 97 could so easily pass on the tax to consumers, why would they spend so much money and energy fighting the measure?

For as long as economics is a field of study, economists will debate the extent to which businesses pass their taxes on to consumers (vs. to shareholders and labor). In the case of Measure 97, however, it’s clear that much of the corporate tax hike will be borne by the corporations affected, not consumers.

Measure 97 is certain to be a game-changer. Oregonians have a chance to ensure corporations do their share to support the schools, health care, and senior services that Oregonians and corporations alike rely on — services that corporations have divested in for far too long.

When you receive your ballot, don’t let Comcast, Wells Fargo, Chevron and other corporations scare you from doing what’s right for Oregon: Vote YES on Measure 97.

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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.

By Chuck Sheketoff Oct. 21, 2016