This November, Oregon voters are being asked to become the first state to adopt a Universal Basic Income (UBI) of an estimated $1,600 per year paid for with a large corporate tax increase. For any business with revenue above $25 million, the excess of this amount will be taxed at 3%, removing the cap to the corporate minimum tax. The new revenue will be distributed equally to all residents, as the first state attempt at UBI. The Oregon Legislative Revenue Office estimates the tax would generate $7 billion a year, resulting in the annual rebate.
Voters should take notice of the bipartisan opposition to Measure 118. Democratic and Republican leaders across the state jointly argue the measure harms small businesses and damages the economic well-being of Oregon families, and also removes large portions of funding from the state’s general fund, cutting resources for schools, health, and other public assistance programs.
Under the proposal, regardless of income, wealth, or age, every resident will receive approximately $1,600 annually from the state of Oregon. This will be paid for by increasing the corporate minimum tax based on Oregon sales. All corporations are obligated to pay a corporate minimum tax, Measure 118 will increase this rate for businesses over $25 million in sales, regardless of net profits. The new corporate minimum tax for businesses with over $25 million in sales will include the current minimum, plus 3% of sales above $25 million.
This tax rate will compound at every level of business involved in the transaction with sales over $25 million. As a good moves through the supply chain, each business that is taxed at the 3% rate with sales above $25 million will pass this cost on to the purchaser. From production, distribution, to retail, these cost increases will create a pyramiding tax effect that is eventually passed on to the consumer. In a state that has repeatedly refused a sales tax, it is surprising to see a sales tax in disguise under consideration.
Arguing that the new rebate is “paid for by making giant corporations pay their fair share,” is just ignoring the reality that Oregon consumers and Oregon businesses will pay in the end.
When a large corporation is forced to pay an increase in their minimum corporate tax, it is to be expected this cost of doing business is passed on to the consumers. Oregon businesses and residents will be forced to buy goods that have these taxes built repeatedly into their prices. Imagine a large factory with sales at $25 million paying the tax increase, every proceeding level from distributor to retailer will also likely have sales (not profits) above this threshold and also have to pay this tax on sales (not profits).
Oregon’s Legislative Revenue Office says that Oregon’s General Fund will be reduced by billions of dollars. The rebates will be paid out in two ways either through a tax credit for filers or a direct payment for those who do not file taxes. Both avenues will quickly limit the general fund’s ability to pay for other projects like education, safety, etc. Tax credits will reduce deposits into the general fund and direct payments will increase spending out of the general fund.
Though designed to be revenue neutral, Measure 118’s tax revenue will have constitutional requirements to move fuel sales to the Highway Fund and divert money to the State School Fund because of designated “kicker” funds. The measure also stipulates that no one receiving federal or state benefits will experience a reduction in support, due to rebates. The state would have to make up these “hold-harmless” payments, further shortening the general fund's ability to cover other existing programs.
Oregon voters should look beyond the quick fix that Measure 118 promises. If voters are enticed by the Oregon Rebate’s claim to put money in the pockets of Oregon residents, they will quickly find there is no money left from other sources. In summary:
A UBI may help self-reported well-being, but economic challenges faced because of Measure 118 will not be helped through a decrease in worker productivity;
Residents will quickly find that a compounding, hidden sales tax will eat away at the rebate and harm their family budgets, hurting the lowest-income households the most, despite the annual payments;
Businesses growth will slow or relocate to tax-friendly states, increasing unemployment, decreasing investment in Oregon, and limiting Oregon small businesses; and
Oregon state funding will quickly struggle to make up budget gaps to fund basic programs like education, public safety, agency administration, natural resource management, and more.
Measure 118 entices voters with free money, ignoring the many downfalls that will see the rebate and more dollars disappear from family budgets. Policies that claim to make corporations “pay their fair share” will instead burden Oregon’s lowest-income families, subject local businesses to economic hardship, and deter economic growth from ever entering the state.