THE BLOG
03/30/2010 05:12 am ET | Updated May 25, 2011

When The "Fellow Behind The Tree" Does Not Pay His Fair Share

On Tuesday, voters in Oregon overwhelmingly passed ballot initiatives approving modest tax increases on high-income earning individuals and businesses. Despite hyperbolic claims made by anti-tax activists that Americans would find such increases unpalatable, such an outcome in a historically anti-tax state, may signal that some Americans are open to increasing taxes in order to rescue cash-strapped governments from serious financial calamity.

Predictably, anti-tax groups reacted bitterly to the election results. The Washington, D.C.-based Tax Foundation, for example, responded by referencing the late Senator Russell Long, an ardently pro-business Democrat known for championing taxpayer-funded loopholes for oil and gas interests, who famously characterized tax reform as meaning, "Don't tax you. Don't tax me. Tax the fellow behind the tree."

Anti-tax crusaders claim that such tax increases amount to class warfare and unjustly go after the rich. They ignore, however, any consideration of the state's regressive tax system. An analysis by the Institute on Taxation & Economic Policy shows that in Oregon, like in many other states, those in the lowest 20th percentile pay a higher share of their incomes towards taxes than those in the top 1%.

The inequity is even more pronounced in the business sector. In an interview with Media Matters Action, Charles Sheketoff, executive director of the Oregon Center for Public Policy, points out that the way Oregon apportions corporate profits is a big part of the problem. The state uses a "single-sales factor" formula to determine the extent to which the profits of multistate corporations such as Intel or Nike are taxed by Oregon.

Under this scheme, explains Sheketoff, "only in-state sales relative to all US sales matter in determining how much of a company's profits are apportioned to and thus taxable by Oregon." Nike's extensive property and payroll in the state no longer counts in calculating how much of their US profits Oregon gets to tax.

The formula is highly profitable for Nike, but comes at the expense of smaller businesses in the state. To illustrate the point, OCPP conservatively estimated that in 1986 about 2% of Nike's sales, 75% of its property and 50% of its payroll was in Oregon. Under the former and more standard equal weighed system of taxation, more than 42% of the company's profits would have been subject to the state's corporate tax rate. But under the "single-sales factor" formula, only 2% of profits would be eligible to be taxed.

That would translate into a savings of more than $22 million dollars for the giant multinational company under this hypothetical example. $22 million that must either be found elsewhere (taxes) or offset by cuts to vital social services, such as education.

Intel, the world's largest chipmaker, and the largest private employer in the state, according to Sheketoff, likely has been paying $10 a year, and now under the measure voters approved on Tuesday will pay between $150 and $100,000 a year in taxes, down from the $50 million they paid in the mid- to late-1990s. "I wouldn't be surprised if they get away paying just $150. They could show us the returns to prove otherwise," said Sheketoff. So much for fairness.

The approved measures do nothing to deal with the systemic discrepancies and corporate loopholes that exist. In fact, despite the modest tax increase, the top 1% will continue to pay the smallest share of income to state and local taxes.

But it is a step in the right direction. Starting to address such blatantly unfair tax formulations may indeed be a case of voters wanting the "fellow behind the tree" to be taxed. But the fact remains that the fellow in question, and often the giant multinational company that he runs, simply does not pay his fair share. Not even close.

Oregonians listened to their impulses and decided that saving vital state services would be worth the modest tax increases that impact a very small minority, many of whom currently do not pay their fair share.

More states should follow suit.

Crossposted at Media Matters Action Network

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