Kitzhaber's Nike gambit: Horrible policy or just bad reporting?

Chris Lowe

Here's what The Oregonian reports in its first crack at explaining what Governor Kitzhaber wants from the legislature in the special session he has called to gain some kind of tax power that he intends to use to benefit Nike:

"[Nike] has requested an assurance that the state's corporate tax structure won't change in the coming year"; and

"Kitzhaber is proposing legislation that would allow the governor to enter an agreement with any company planning an investment that would result in at least 500 jobs and $150 million in capital investment over 5 years locking in the state's corporate tax rates during a set period of time."

If this reporting is accurate, Kitzhaber would be seeking the power for governors to unilaterally legislate the entire corporate tax structure in conjunction with any single large business enterprise. Such an outrageous proposal should be defeated on democratic principle. If passed by the legislature, should be overturned by referendum and fought on constitutional grounds in the courts.

However, the problem may be with The Oregonian's reporting. The possibility seems to exist that "locking in the state's corporate tax rates" actually means locking it in only for the the single corporation in question, which, while still bad policy, would at least be relatively reasonable to debate.

If that's what emerges as the actual proposal, The Oregonian's reduction to the status of a fishwrapper will be confirmed.

Neither of these choices as to what The O's story means is happiness-producing.

In the comment on Kari Chisholm's initial story on BlueOregon about the governor's gambit, Evan Manvel links to a recent New York Times story on one reason why tax breaks for jobs policies are problematic at best. Not to put too fine a point on it, if big companies decide it suits their interests after making such deals, they just walk away.

That's not the only problem, but it's a good place to start. It suggests some minimum criteria for what any kind of "deal" restricted to one company should include to be even entertained:

1) Explicit minimum actual employment expansion. Some of the comments at Kari's post are rather breathless about "12,000 jobs." However, the story actually says "up to 12,000," and while that probably doesn't mean 47 jobs, it's pretty damn vague.

2) Commitment to retention of jobs for a period longer than the period of the tax commitment.

3) Retrospective payment of any taxes avoided plus substantial penalties if the corporation reneges on the commitments.

If companies aren't willing to lock themselves in as much as they are locking in the public fisc, we shouldn't make such a deal.

The "12,000 job" Nike-specific hand-waving also partly obscures the fact that the proposal, as reported, would apply to much smaller levels of job creation, though substantial ones -- 500 jobs over five years, with tax lock-in for unspecified periods. At minimum, such tax lock-ins should also be restricted to no more than five years.

However, over time even the company-specific approach would produce a patchwork corporate tax structure, and downward pressure on corporate taxes. Although on its face the reported proposal only locks in the current system, in fact over time we would almost certainly see efforts to get reductions to retrospective structures, if corporate taxes did rise, whether such efforts came from later expanders, new investors in Oregon, or companies threatening to decamp. Going down this path is a form of corporate moral hazard.

Finally, it is worth noting that the proposal comes on the heals of reporting in Willamette Week and The Oregonian that Democratic Senators Mark Hass and Ginny Burdick and Representative Tobias Read have floated a regressive proposal to "broaden the tax base" with a new sales tax, combined with cuts in income and property taxes that will disproportionately benefit wealthy and upper-middle income people. That proposal might be in the nature of an opening bid, to which one kind of comeback would be reducing the regressiveness of a changed system. That could include keeping existing income tax rates for upper income people, or more exclusions for low and lower-middle income people from sales tax (e.g. excluding clothing in addition to groceries and utilities), progressively structured sales tax rebates, or other measures.

For purposes of the Nike-Kitzhaber gambit, the most relevant possibility is that if the goal of tax reform really were stabilization, it would make sense to include corporate taxes in that mix. Attracting support or acquiescence from more progressive legislators and interests might be pursued by repealing or modifying corporate inclusion in the property tax restrictions from the 1990s.

In that context, it matters hugely whether the governor is proposing a power to make single company jobs-for-tax-breaks deals, or trying to protect corporate taxes across the board from changes.

If it's a single-company deal being obscured by bungled reporting, it looks like Nike getting out ahead of the possible course of tax structure debates and changes. Possibly it raises the question of whether Kitzhaber is trying to neutralize Nike opposition to tax restructuring paths that would raise corporate taxes. The Washington County epicenter of both the proposed Nike deal and the sales tax balloon-floating is interesting, though it might be just coincidence.

But if the governor were to get and use power to prevent overall corporate tax changes, it would push the rest of any tax restructuring effort into a narrower, more regressive realm. It also probably worsens the overall likelihood of such restructuring by narrowing the negotiating space.

Both effects would be even more reason for both progressive tax advocates and base-broadening tax advocates to oppose any such undemocratic expansion of gubernatorial powers.

I just wish The Oregonian had bothered to tell us what really is at stake. Or that the governor is being ambiguous, if that's the situation.

By Chris Lowe Dec. 10, 2012