S corporations did not exist in 1929, so the comparison of their $150 minimum tax under the new law to their situation in 1929 is meaningless. C corporations did exist in 1929, but under the new gross receipts-based minimum tax under the new law (assuming the referendum fails), their minimum tax can be a lot more than $150 (or the inflation-adjusted $315). Under the new law, a C corporation with gross receipts of $10 million but no taxable income at all will be subject to a minimum tax of $15,000--100 times the $150 minimum you mention in your post.

Bob Wiggins

Interesting.

So corporations should be happy get a "good deal" on the $150 minimum as compared to the inflation-adjusted original rate.

Let's apply that analysis to individual income taxes, shall we?

When originally enacted in 1929, Oregon had 5 income tax brackets ranging from 1% (on income less than $1000 for single filers) to 5% (on income over $4000 for single filers).

Using your inflation factor of 12.6, that would mean that we should be happy if today's tax system takes less than (for a single filer):

1% on income under $12,600 2% on income between $12,600 and $25,200 3% on income between $25,200 and $37,800 4% on income between $37,800 and $50,400 5% on income over $50,400

But following that logic, since the current Oregon tax system takes significantly more than the inflation-adjusted original taxes, we should be pretty pissed off about that, right? I assume you'll be leading the charge to "fix" the Oregon individual tax system to at least come close to matching those inflation-adjusted numbers. :-)

My point, of course, is not about the question of whether $150 is an appropriate minimum -- just that applying an inflation-adjusted original standard to justify it can lead somewhere you might not want to go...

Someone actually has to pay the cost of providing state services for the business.

I always find it fascinating to hear this argument applied by people on BO to justify making every business at least partially carry its own weight -- yet those same people rail against anyone who dares suggest that every individual should be required to at least contribute something to the state coffers.

And in all seriousness, which do you think costs the state (as opposed to city/county government) more in support services -- the average business with no taxable income, or the average individual with no taxable income?

So if the least-fortunate people among us should be carried by the rest, why then shouldn't the least-fortunate businesses also be carried by the rest?

(Cue the argument that there are big, bad businesses who are gaming the system to pay the minimum and are distinctly not among the "least fortunate"... which is actually an argument for making those companies pay more than the minimum, rather than raising the minimum for all...)

Someone actually has to pay the cost of providing state services for the business

Just as a point of reference, when you say state services, what specifically are you referring to?

What services? For starters, "educate, medicate, incarcerate" have not gone away.

What services? For starters, "educate, medicate, incarcerate" have not gone away.

ever hear of property taxes and personal property taxes (that businesses pay on all tangible assets)

BTW, while you are kvetching about "tax fairness" your beloved "green" jobs are leaving the state for tax incentives. ( I thought they wouldn't leave b/c of that)

A wind-turbine maker lured by Colorado's tax incentives will relocate it headquarters to Denver from Portland, Ore., Gov. Bill Ritter and Denver Mayor John Hickenlooper said Friday.

Read the rest of the story here

Way to go.

The $10 minimum corporate income tax is not commensurate with the value of these privileges or the state's cost of processing corporate tax returns.

Again, the implied argument that those who benefit from the state, and cost the state money, have at least some minimum obligation to contribute to the state's coffers regardless of actual net income level.

So, Chuck, do you think the state should have a minimum individual income tax for the privilege of residing in the state and to at least offset the cost of processing individual income tax returns?

There is a broad philosophical point here, to wit: we all, businesses and individuals, benefit to some degree from state government. So, we all should be required to contribute in some way towards the maintenance of that government. Nobody should be exempt from at least a minimum contribution.

That would be my preference, actually. Go ahead and raise the corporate minimum income tax to maybe $500/year. But institute a personal minimum income tax of say $50/year. No exceptions in either case. The actual numbers are not as important as the policy that nobody gets to skate by without paying the state for the privilege of existence within the borders of that state.

On the other hand, if you wish to take the view that those who have no net income, regardless of the relative burden(s) they may impose upon the state, should be exempt from contributing to state revenues... then logical consistency requires you to include both businesses and individuals in that exemption. There should be no minimum corporate or personal income tax in that case.

So which is it, Chuck? Impose a minimum individual income tax, or drop the minimum corporate income tax? Or simply revel in your logical inconsistencies?

How very Orwellian of you, John, to twist my observation that both cats and dogs have four legs into an assertion that cats are the same as dogs. :-D

Chuck's defense of the corporate minimum income tax is that corporations derive benefits from the state by their very existence within the state's borders, and they cost the state money to support (which is, of course, true). His defense of the increase in the corporate minimum income tax is that the old minimum of $10 is not commensurate with the benefits derived and state expense imposed, thus establishing a particular minimum tax obligation somehow connected to the value of those benefits/costs.

And I simply pointed out that people are similar to corporations with regard to Chuck's relevant criteria for minimum taxation, in that both are entities which derive benefits from being in the state, and both are entities which draw resources from the state. Chuck's stated justification for having a minimum tax at all should therefore logically apply to any entities meeting those criteria. Obviously that is not to say that any such entities meeting said criteria are identical in all ways.

By the way, since I suggested different minimum rates for corporations and individuals, how then could I be asserting that there are no differences whatsoever between people and corporations? Or, in fact, that people and corporations should be treated identically in all ways? Clearly there is room for differences in the details (as I've said before, the actual numbers don't matter, it's the underlying principle of the thing).

Of course, if Chuck (or anyone else) offers some other rationale for the corporate minimum income tax, which would not also apply to individuals, that may very well justify treating corporations and individuals differently in this regard.

I have yet to see such an argument presented, but I'm certainly open to one. :-)

As to lower tax rates for corporations over individuals, as well as a host of other differences in tax treatment, we could examine each of those issues separately if you'd like. They are not particularly relevant to this very specific question, but they are interesting public policy issues in any event, and I do think they should be examined periodically (as should any public policy) to make sure they are fairly and effectively accomplishing whatever ends they are intended to promote.

MP--there were 2 factors: 1 was the tax break, the other was geography.

Are you saying that if Oregon had doubled the Colorado tax break, the company would say "gee, with that size tax break, geography doesn't matter"?

I once heard a comment (forget where) from some business leader saying that if tax policy was the ONLY factor in making business decisions, perhaps that was not a very strong business.

LT

It's kinda weird. Neither the AP story(my link) nor the Denver Post story mention anything about geography playing a role, only the tax incentives.

Not until I found a story in the Oregonian did they mention geography. Curious. Maybe a little spin by the Big O. (Yes, I saw the quote. What do you think he was gonna say, "Oregon sucks so we are leaving")

David

Thanks for adding your two cents on this issue. I have been raising the same issue with Chuck for some time but never quite so eloquently as you have here. Good luck getting him to respond to you points.

BTW, while we are at it, lets start imposing a personal property tax on the tangible assets of individuals as well. That would certainly ease the burden on school and other valuable institutions.

Chuck: In 1931, the legislature gave businesses a tax cut, reducing the corporate minimum to $10. If the $10 tax had kept up with inflation it would be $142 today. J: Thanks for pointing out how much your government has trashed the value of our dollar and people's savings accounts. Be interesting to see how much inflation was caused by which parties. I know the Ds causes a lot of the inflation financing Johnson's war. That trashing didn't end until Regan.

Hey MP,

I've had several "conversations" with Chuck over the years... been hanging out on BO for a long time, but it's been a while since I last posted. I can't recall a single time that Chuck has ever actually responded to any points I've raised in the past (as opposed to changing the subject) so I don't hold much hope for this time, either.

It's unfortunate that so much of the "opposition" commentary here has turned into mindless blather. Used to be there was a place for the occasional exchange of really different views... but oh well. I still find it an interesting place to learn how others see the world, even if I disagree with most of those views... it's nice to occasionally find those places where we do agree...

John Calhoun,

On the S corporation point, I do think it is odd that the state imposes a minimum tax on an entity all the income of which passes through to others (its shareholders) who pay tax on that income.

My main objection with the corporate tax changes, however, is not that S corporations are subject to to the $150 minimum, or even to increasing the minimum for all corporations and limited partnerships to $150. (I'm not crazy about any increase, but I wouldn't go to the mat to fight an increase in the minimum to $150). What I think is terrible policy and makes the new law so pernicious is the gross receipts-based minimum tax. It is a just a bad idea, when added to a system that already has a fairly high corporate income tax rate. It will take away an advantage Oregon has had relative to Washington in the case of start-ups. It will be burdensome to low-profit or unprofitable companies in low margin businesses. It will take away the benefit of net operating loss carryforwards to companies that have a big loss in one year and the make up some of the loss in the next year (again, affecting start-ups and a lot of other companies as well). And, as essentially a new tax, I will bet you dinner that(assuming it survives the referendum), its rate will not stay at .1% for long.

Bob Wiggins

If we called the minimum tax a business license would you feel differently?

I, for one, certainly would. By establishing a reasonable business license fee we could stop taxing business entities that have no taxable income.

Bob, you can thank the Oregon Business Association for including the gross receipts model for the increased corporate minimum tax.

The Legislature was headed in a different direction (a fairer, valued-added model), but OBA convinced them to adopt the gross receipts model.

Hi John,

Just for the benefit of anyone reading (since I know you know this), Nevada doesn't have a corporate income tax and, as you note, their overall business taxes are less than Oregon's. I agree though that a payroll-based corporate tax is probably a disincentive to start-ups there.

One of my problems with the new gross receipts tax is that it is really a new corporate tax, on top of an already very high corporate income tax rate. Neither one of us believes that the rate will remain at 0.1 percent. And even at 0.1 percent, the tax will have adverse consequences.

While I agree that taxes are not the most important factor deciding where a start-up will start up, under the new minimum tax regime, they will be a lot more significant matter here in Oregon. A successful start-up with $10 million in revenue (but not yet profitable) will have a $15,000 minimum tax liability. That's significant when a business is still relying on investor capital to fund itself.

You comment that Oregon's overall business tax burden even after the new tax law will be less than California's and Washington's. Unfortunately, we will now have the high corporate (and personal) income tax rates of California AND a gross receipts tax like Washington. I would be surprised if there is any other state with a mix like that.

I think the legislature made a big mistake passing these two tax measures. Fortunately, I don't think they will survive the referenda. If the tax hikes do not survive, I really think it's past time to look at the entire tax structure and costs of government here in Oregon, hopefully using as a model states with good business climates and stable government finances. And if the tax measures survive the referenda, I think we'll still have a fiscal crisis and a much more meager business base here.

On the dinner bet, I would always be happy to have dinner with you.

Bob Wiggins

Ah, Chuck, I didn't fail to recognize that fundamental difference you mention -- but perhaps you can enlighten me as to how that specific difference is relevant?

Bear in mind, I at no point have questioned the state's right to tax corporations, that right is not in dispute. Of course the state can establish a minimum tax for corporations and not for individuals.

But should it?

You still have not yet offered any rational argument why a corporation with no taxable income ought to be subject to a minimum tax, while an individual with no taxable income ought not be subject to any such minimum. I'm not asking for the legal justification (again, that's not in dispute), I'm asking for the philosophical reasoning behind the policy.

Your latest non-sequitur ("laws create the structures that allow [corporations] to exist") is rather useless in this regard. Laws create structures that allow, oh, say 501(c)(3) organizations to exist also, do they not? (Rhetorical question, of course, as they are named after the section of federal tax law that allows them.)

Does that mean than an organization such as, oh, say the Oregon Center for Public Policy (tax-deductible contributions made possible thanks to state and federal law, no less) has some obligation to provide at least minimal recompense to the state for the privileges it enjoys and the services the state provides to it?

What minimum tax did the OCPP, which only exists at the pleasure of the legislature, pay last year Chuck?

Now, let me be clear on this point and tear down the straw man before he can be built up. I am not advocating for the imposition of a minimum state tax on non-profit organizations. Hey, I even tried linking directly to the OCPP donation page to show I'm a good sport, but the site wouldn't take my post.

I'm simply using the OCPP as an illustration of the irrelevance of Chuck's most recent comment. Clearly, the fact that corporations are allowed to exist only at the pleasure of the legislature is not per se justification for imposing a minimum tax (or any tax at all, for that matter).

Chuck may think that I am undeserving of a response, but when the original post advocates for an increase in the corporate minimum tax ("voters need to say “yes” to the new corporate minimum tax") I think it's certainly fair to question the philosophical underpinning of the policy in question. Elimination of the corporate minimum tax is not on the table -- but the voters have an opportunity to rescind the increase. If the very foundation of that minimum is questionable, why should the voters allow such an expansion of questionable policy to proceed?

But if the policy is so fundamentally sound, it should be pretty easy to articulate a clear rationale behind it.

Or does that not deserve a response either?

Let's try this again and see if it works:

OCPP Donation Page

Just 'cause I'm a techie and I want to see why the previous attempt failed... ;-)

David Wright is adept at changing the subject.

Said, apparently, without a hint of irony. Some times the mind boggles.

He tries to portray the minimum tax as only affecting companies with no income

Care to point out where I said that, Chuck? In fact, I alluded to those companies with net income paying the minimum tax in my 2nd comment on the thread. (By the way, you missed your cue back then...) ;-)

The minimum tax gets at the issue that companies with net taxable income -- aka profits -- over 5100 of them in tax year 2006, and 31 of whom had taxable income of greater than $1 million - paid just the $10 minimum tax.

You cited those numbers in your previous piece from August 5, along with a link to the source documentation for this claim. Interesting reading.

So the corporate minimum is "mostly designed to get at" the 31 corporations with over $1m in Oregon taxable income who paid the minimum in 2006, and if the 14,458 corporations with no income (or a net loss) that year happen to get caught up in the net, so be it?

David, first defend a company with net taxable income in excess of $1 million paying no income taxes.

Since I never claimed such a company should pay no income taxes, I'm not really obligated to defend them. But OK, how's this: they DID pay income taxes, in the form of tax credits! That's what a tax credit is, essentially -- state-sanctioned credit to use towards paying your tax liability.

Every one of those 31 companies presumably used tax credits to reduce their payment to $10 (since the $1m+ income is after any losses carried forward).

Those would be credits such as, say, the Business Energy Tax Credit (BETC), which you recently supported. Surely you're not suggesting anything untoward in the actual application of the tax credits you support?

So let's leave your little diversions and return to my original point -- why, Chuck, should the nearly 70% of corporations subject to the minimum tax (as of 2006) even though they had 0 actual taxable income for the year (or a net loss for the year) be obligated to contribute to the state, when individuals in a similar situation are not?

By the way, when you ignore tax credits and simply factor in those corporations in 2006 who either had no income that year or carried forward a previous loss for no net income that year (19,228 corporations combined), more than 92% of corporations subject to the minimum tax are not profitable. But it's OK to throw them under the bus to go after those 31 bad boys?

The minimum tax gets at the issue that companies with net taxable income -- aka profits

WRONG. FASB profits DO NOT equal IRS taxable income. This has been explained to you numerous times and yet you continue to willfully ignore that fact. I strongly suggest you take a class in Federal Income Taxation.

+++++++++++++++++++++++++++++++++++++++ IRS Form 1120 US Corporation Income Tax Return

Line 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11

Line 29 Less: a Net operating loss deduction b Special deductions (Schedule C, line 20)

Line 30 Taxable income. Subtract line 29c from line 28 (see instructions)

Here is where the confusion lies in this post: the author is using Line 28 while the IRS and the State of Oregon use Line 30 as the determinate of TAXABLE INCOME. +++++++++++++++++++++++++++++++++++++++

Here is an example of what this means: XYZ, Inc has 2008 taxable income of $(50,000)

XYZ, Inc has 2009 taxable income b/f NOL deduction & special deductions of $ 50,000

What does XYZ, Inc get to legally place on Line 30 of their 2009 tax return????

$0.00 of taxable income

Why do corporations get to do this? Because the law says they can. Just like you deduct property taxes or mortgage interest from your 1040 because the law says you can.

Chuck

Do you support a minimum tax on individual taxpayers?

I suppose I should have known better than to try to get a straight answer out of Chuck.

$10, $150, $500 is not the point, as I said early in the thread.

The question has been, and remains: What rationale is there for imposing a minimum tax on corporations that would not also apply to individuals?

If you've got one, I'm listening. Help me to see the light.

If you don't have one, then I submit as a matter of public policy there should be some minimum tax for both corporations and individuals, or else no minimum tax for both corporations and individuals.

Once we establish the guiding principles for public policy, then we can haggle over the price.

David Wright:

For profit corporations are statutorily created entities that are formed for a business purpose.

People...are not created for a business purpose, and aren't created by statute.

Corporations don't have a constitutional right to exist.

People do.

Corporations are voluntary organizations. An entity doesn't have to operate as a corporation. And if it un-incorporates the business can still survive. Corporations exist at the sufferance of the state. I understand it may be difficult to aggregate large amounts of capital in unincorporated businesses, but nonetheless, it is voluntary.

People I guess have a voluntary right to live. But there's really no other form they can actually survive in other than...as people.

So the question is....should we tax humans for living when they have no other real good options. And what exactly does that have to do with an entity who decides to incorporate in order to take advantage of limited liability, ability to aggregate large amounts of capital, and ease of ownership of a business.

I'd say these two issues have nothing at all in common.

Thank you, Robert, for taking the question seriously.

If I understand the point you're trying to make correctly, it is that a minimum tax on individuals would be unfair because a person has no choice but to be a person, so they would have no option for avoiding such a tax.

Whereas, a corporation does have an option for avoiding the corporate minimum tax, by choosing not to be a corporation after all, whatever other hardships that might entail. (They also presumably have the option of not being a corporation in Oregon, i.e., move to another state.)

Is that a fair summary?

If so, I think you've presented a very reasonable case for why there should not be a minimum individual income tax. Broadly speaking, you've actually made a case for why there should be no unavoidable taxes, period.

I don't think you've really presented a case yet for why there should be a minimum corporate income tax, however.

While certainly you have identified significant differences between individuals and corporations, I still don't see how those differences are relevant to the idea that not every person is expected to contribute to the state, but every corporation is.

Put simply: why do corporations have this special obligation, that does not apply to people? Should we apply income tax to corporations simply for existing in addition to any other fees (licensing, registration, etc.) imposed on corporations by the state?

Yes, there are advantages gained by a company that chooses to be a corporation. Where those advantages are used to derive profits, of course it is reasonable to tax those profits.

But the corporate minimum requires many companies (69-94% depending on whether you consider loss carry-forwards) to pay for the "privilege of doing business" (as Chuck quoted in the law above), which business results in losing money. Doesn't seem like a very valuable privilege to a corporation in that position.