Getting public policy right is never easy. There are almost always unintended consequences and miscalculations that can lead to negative outcomes. However, when it becomes clear that a policy will not work as promised, policymakers have a responsibility to reconsider and withdraw the proposal.
This is the case with Oregon Measure 118, also known as the Oregon Rebate. The ballot measure proposes a 3% tax on a business’s gross sales above $25 million, and would apply to both S corporations and C Corporations. The revenue generated from this tax will be distributed equally among Oregonians of all ages and income levels, providing, according to the measure’s proponents, a $1,600 rebate for each person in the state.
Unfortunately, despite its good intentions, this measure will hurt, not help Oregon families.
It would create a budget shortfall. Several nonpartisan studies indicate that a 3% tax on corporate sales is unlikely to raise enough revenue to sustain a statewide $1,600 per person rebate. To maintain the rebate, the state legislature would have to cut expenses elsewhere, potentially affecting critical services like road maintenance, firefighting, and addiction recovery. Some estimates suggest that if the rebate were to become law, the state could end up with about $400 million less to spend on basic government services in the 2025-27 budget cycle.
The most vulnerable in Oregon would be left worse off. Although the Oregon Rebate was designed to create a basic level of income for all state residents, in reality, the budget shortfall will likely encourage cuts to vital safety net programs.
It would lead to higher prices for goods and services. The sales revenue tax established to fund the rebate would likely lead to higher prices, including for basic goods like food and transportation. The Legislative Revenue Office estimated that the gross receipts tax established in the measure is expected to increase prices by 1.3%. With average annual personal consumption expenditures estimated at $52,200 by the Bureau of Economic Analysis, a 1.3% increase in prices would add $679 in expenses per household. This would effectively diminish the value of the $1600 rebate, making it far less beneficial than it initially appears.
It would create unnecessary job losses. While historically low at 4.1%, the unemployment rate in Oregon has risen since last year, and many predict job creation will slow nationally. Unfortunately, Measure 118 could exacerbate this trend because a tax on gross corporate sales would harm businesses that have low profit margins. Unlike a traditional corporate income tax which is levied on net income or profits, the Oregon Rebate proposes a tax on gross sales, applying the same tax rate regardless of a company’s profitability. This would place a disproportionate burden on businesses with high revenues but low profit margins. In response, companies with marginal profits might choose to move out of Oregon or distort their business decisions by reducing sales to minimize tax exposure, which would negatively impact corporate growth and innovation.
Given the problems with the design of the Oregon Rebate, it is not surprising that the proposal is opposed by leaders from both political parties, including Oregon House Speaker Julie Fahey, Senate President Rob Wagner, House Majority Leader Ben Bowman, Senate Majority Leader Kathleen Taylor, Oregon Governor Tina Kotek, and Senate Republican Leader Daniel Bonham. Ensuring corporations pay their fair share is an important goal and one that should be pursued. But that is not what would be achieved should Measure 118 become law.