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OP-ED: Initiative Petition 28 is bad for business

SC2013_DJC_320x320This column originally appeared in The Daily Journal of Commerce in Buildings Bridges and Roads
By: Mike Salsgiver

Mike SalsgiverSince 1990, when voters approved Measure 5 to place limits on property taxes, we have seen policy-making power taken from the hands of the elected representatives of the citizens – the Legislature. During that time, we have seen Oregon’s vaunted “initiative and referendum” system metastasize into a special-interest, big-money system that is making the state almost impossible to live in, let alone govern.

And now, we are facing the mother of all tax increase proposals: Initiative Petition 28. Oregon contractors, construction companies and building industry members large and small – indeed, all Oregonians – should be very concerned about IP 28, a statewide initiative proposed for the November 2016 ballot. IP 28 would impose a new tax increase on the sale of many products sold in Oregon, as well as on services provided by many Oregon employers.

IP 28 is a proposed new tax on the sales – not profits – of many companies doing business in Oregon. Even if an Oregon business is not directly subject to the tax, this type of proposal is structured so that taxes compound through the supply chain, increasing the costs of inputs for small and large companies regardless of whether they pay the tax directly.

Many products will be taxed several times before finally reaching the consumer. For example, a forest products company selling logs to a mill could be taxed, the mill selling lumber to a retailer could be taxed, the retailer selling lumber to a contractor could be taxed, and the contractor selling the building to the end purchaser could also be taxed. In fact, under IP 28, the more a product is sold in Oregon, the more it could be taxed. This type of “tax on a tax on a tax” would make Oregon products more expensive, and Oregon companies less competitive.

IP 28 would create a new tax on the sale of products and services that Oregonians buy every day – including hardware, groceries, fuel, utilities, medicine, insurance, health care and many other essentials. This would include millions of dollars in sales of Oregon products and services provided by Oregon companies. The nonpartisan Legislative Revenue Office has estimated that IP 28 would increase taxes on Oregon sales by more than $5 billion per two-year budget cycle.

Oregon is a small business state – 82 percent of our state’s construction companies are comprised of 20 employees or less. How are those companies supposed to absorb these additional costs at every point of sale without passing it along to the consumer?

The fact is that these companies won’t absorb the increase. Consumers will. Businesses really don’t pay taxes; they pass the cost of the taxes assessed against them along to consumers, who will ultimately have to dig deeper into their recession-shocked pockets to pay the bill. This huge cost will ultimately be paid not only by small and medium-size, in-state businesses, but of course by Oregon families as well.

It is misleading for proponents to claim that this huge tax increase will not impact small Oregon businesses or Oregon families. In fact, this type of tax is structured so that it disproportionately hurts those who can least afford to pay more – including low- and moderate-income families, seniors, and others on fixed incomes.

Because this would be a new tax on gross sales – not profits – businesses would be required to pay the tax on their total revenues, regardless of whether they make a large profit, a small profit, or no profit at all. For an economy that looks significantly different since the Great Recession, this would mean that many employers would have to raise prices or cut jobs in order to stay in business. Many Oregon businesses with high sales volume and low profit margins – like construction, hardware, lumber and building supply retailers, grocery stores, pharmacies, utilities, and other retail businesses – will be unfairly targeted by this tax, which will ultimately result in Oregon consumers paying for the tax in the form of higher prices for everyday products and services like food, medicine and insurance.

Finally, there’s no guarantee that the billions of dollars in new taxes from IP 28 would go where proponents claim they would. In fact, there is no plan and no accountability for how this huge new tax increase would be used – it’s a blank check for politicians to spend as they please for years to come.

So what does IP 28 mean for the construction industry? It means higher costs for materials and construction inputs such as lumber, hardware, construction equipment, fuel and insurance. It means damaging economic impacts that could threaten highly-skilled jobs and set back the recent economic improvements that we have worked so hard to achieve.

The damage this proposal would cause our industry and the economy as a whole is not something we are willing to risk. In January, AGC’s Board of Directors voted unanimously to oppose IP 28. We hope other business associations, individual businesses and all voters will see the damage that will be caused to Oregon’s economy and join us in opposing this anti-consumer, anti-business, mega-billions tax increase.

To view the column online, please click here (DJC subscription required).

Mike Salsgiver is the executive director of Associated General Contractors’ Oregon-Columbia chapter. Contact him at 503-685-8305 or to learn more about IP 28.

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