We don’t only vote for Presidents. While we spend much of our time fretting over who the next President will be, we often neglect important local elections and legislative bills. This isn’t necessarily a problem but it is ironic that voters spend more time paying attention to headline grabbing presidential candidate debates and TV appearances than local bills that if passed, are likely to have more impact on their lives than the next President. In Washington this year, the potential bill getting most attention is Initiative 732 which would be the first statewide bill in the United States to place a tax on carbon. In my home state of Oregon, Measure 97 is generating the most discussion. In fact, it’s the most expensive measure in the history of Oregon State with supporters and those in opposition raising a combined $35 million for campaigning efforts. If you want to know more about I-732, check this out, but for my fellow Oregonians and anyone else that’s interested, here’s a quick summary of Measure 97.
If passed, Measure 97 would increase Oregon’s corporate tax rate by mandating that businesses making $25,000,000 or more in annual sales pay a tax rate of 2.5% on gross sales (not their profit). The argument of proponents of the bill rests primarily on four tenets. Supporters claim that 1) by raising annual state revenues by $3 billion, Measure 97 will improve public education and healthcare 2) Oregon is due for such a bill because it has the lowest corporate taxes of any state 3) consumers will not be hurt by the tax because large businesses will not be able to raise prices due to competition and 4) small businesses will be protected by the measure because they will pay a smaller percentage of taxes.
Critics of the measure argue that 1) the measure does not guarantee revenue will be actually spent on education and healthcare 2) it will hurt small businesses and farmers and 3) it is a deceptive and regressive measure because low income families will be hurt by an increase in prices.
As is the case with most highly politicized debates in the United States today, the debate over Measure 97 includes two sides arguing that the same mechanism will lead to two completely different outcomes. The most contentious and economically interesting point of debate is whether the tax will increase prices on goods. Typically, micro theory suggests businesses will respond to an increase in taxes by raising prices and/or lowering labor and other production costs (ie laying off workers or reducing their hours). However, proponents of Measure 97 argue this won’t happen because large businesses facing the tax increase must have competitive prices to those of small businesses that don’t face the tax. Like many macroeconomic statements, no one really knows if this will happen practice as there is little to no concrete proof to back it up.
I hope voters will take the time this November to do a little research into the bills and initiatives that will fill their ballots, especially those, like Measure 97, that are sure to have a big impact, for better or for worse, if passed.