The Oregonian: Spreading Trickle Down Economics for the 21st Century

In their Sunday editorial, the Oregonian spent more than 700 words to say one thing: We should cut taxes for the rich.

Of course, you won’t see those actual words printed plainly anywhere in their editorial, but there’s no other conclusion to draw from their screed.

Ostensibly, the editorial is about reforming Oregon’s business tax system. To their credit, the writers acknowledge the obvious, that we have low taxes on large corporations.

They fail, however, to point to the findings of a recent, widely cited report from the Council On State Taxation, showing that Oregon is tied for the lowest business taxes in the entire country. Let me say it again: The lowest business taxes in the country. That’s down from our ranking as the 5th lowest just one year ago.

It’s hard to spin away that simple fact, but it wouldn’t be an Oregonian editorial if they didn’t ignore the obvious in order to support their political agenda. Instead, they argue that we should cut the personal income tax rates for business owners, including capital gains taxes. It’s the same ol’ Trickle Down Economics, repackaged for the 21st century.

Here’s the real story:

It’s true that most small businesses are organized as “S-corporations,” meaning that the business taxes are paid through the owners’ personal income taxes. But those taxes are paid AFTER all business expenses—employee wages, utilities, supplies, inventory, etc.—are paid. Put simply, S-corporation owners pay taxes just on the profit their company generates.

The tax rates on this profit—or income—are exactly the same rates that all of us pay on our income. Just like you and I, they’ll pay about 9% on most of their income (before exemptions and deductions). If they bring home more than a quarter of a million dollars per year (for joint filers), the tax rate is 9.9% on the amount they make above $250,000. That income level represents about the richest 2% of taxpayers. Almost no actual small business owners are in that category. 

But, the Oregonian thinks those at the top should get a tax break, and they’re hiding behind a bogus argument that this will help “small business owners.” They even bring in the National Federation of Independent Businesses, a front group for large corporations that also hides behind “small businesses.”

It should be noted that when the researchers for the Council On State Taxation study looked at business taxes, they included all taxes that businesses pay, including “individual income taxes paid by owners of non-corporate (pass-through) businesses.” They looked at the very taxes the Oregonian wants to cut, and still said, “yep, Oregon has the lowest business taxes.”

Bottom Line: The Oregonian is pushing an agenda of tax cuts for the rich, but they’re apparently too coy to say it explicitly. Instead, they obscure the issue and further spread the lie that Oregon is an unfriendly place to do business.

Oregon has the lowest business taxes in the country, period. And yet the Oregonian and some business lobbyists still think we should cut their taxes further. It’s safe to conclude that they think corporations shouldn’t pay any taxes at all. So why won’t they just come right out and say it?

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Also, for the record, the O got this major fact wrong. From the second paragraph of the editorial: “The amount of taxes paid by businesses varies widely, according to circumstances. For example, Oregon's lack of a sales tax improves its score in tax rankings, but sales taxes are a relatively small expense for many businesses.”

Actually, according to the data compiled by Ernst & Young for the Council On State Taxation, sales taxes are the second largest category of taxes that businesses pay on a national average, after property taxes. “General sales taxes on business inputs” make up 20.1% of state and local taxes paid by businesses across the country. To put that into perspective, the next largest category is Corporate Income Taxes, which make up 7.2% of total taxes paid.

It's simply not true to say that "sales taxes are a relatively small expense for many businesses." Sales taxes are actually one of the largest taxes that businesses pay, by a wide margin.

More relevant to the Oregonian's editorial, “individual income tax on business income” is the sixth largest source of business taxes paid, at 5.6%. That’s just a fraction of what businesses in other states pay in sales taxes.

Clearly, the fact that Oregon doesn’t have a sales tax is a big factor in why our corporate taxes are so, so low, coupled with the fact that we have a $150 corporate minimum tax and relatively low tax rates on profits. The Oregonian is just plain wrong about this.