Effects of a proposed new corporate tax on Oregon's economy could be minimal but mostly positive when paired with other tweaks to the state's tax system, an analysis by the Legislative Revenue Office found.

Legislative Revenue Officer Paul Warner presented the finding Thursday to lawmakers on the Joint Tax Reform Committee. The model showed that a tax of 0.48 percent on companies' Oregon sales over $1 million would boost hiring and investment in the state while driving up consumer prices. But in every case, effects of the tax overhaul were slight – increases or decreases of just fractions of a percent.

The finding that consumer prices would rise less than one-sixth of 1 percent casts lawmakers' proposal to institute a so-called gross receipts tax – which taxes companies on all their in-state sales over a certain limit, not just their profits – in a different light than the Measure 97 corporate tax.

Opponents of that tax proposal launched a successful campaign against it by hammering on the fact it would be a "sales tax in disguise" that would be passed onto consumers at the cash register. Voters strongly rejected the measure.

If enacted at the level Warner described, a gross receipts tax, along with the elimination of the current corporate income tax and a slight lowering of personal income tax levels, would combine to raise $637 million of net revenue for the state in the next budget cycle.

Such a tax plan is one of several ways lawmakers are looking to close the state's $1.6 billion budget shortfall for the coming two years. They're also considering spending cuts and taxes on health care providers.

"This is a significant increase in revenue," Warner told the committee Thursday. "Yet the impacts on the economy (would be) positive in terms of investment and employment. So that's telling you that taxes are not always necessarily bad in terms of overall economic activity."

The corporate tax rate used in the analysis released Thursday's wasn't based on a particular proposal from the legislature. Committee Co-chair Sen. Mark Hass, D-Beaverton, said the rate the revenue office chose to study is the average of the myriad rates Washington uses in its gross receipts tax system.

A rough framework for a gross receipts tax in Oregon, released by the committee earlier this month, called for taxing Oregon companies' sales over $1 million at a rate between 0.25 and 1 percent. These rates would raise between $288 million and $3.1 billion for the upcoming biennium, without factoring in lost revenue from personal income tax cuts.

A plan from House Democrats offered a more targeted proposal to tax Oregon companies' sales over $5 million at 0.95 percent. Their proposal would raise a net of $2.2 billion for the upcoming budget cycle.

Thursday's presentation gave lawmakers and the public the first in-depth glimpse of how this year's corporate tax plans – with lower rates and broader bases than the one proposed in the voter-rejected Measure 97 – would affect households and the economy.

Warner said the effects of the proposal would be minor: A larger labor market would drive down prices for employers, boosting hiring and investment. While wages would drop slightly, the personal income tax cuts would result in larger take-home paychecks for workers. But because part of the gross receipts tax would be passed on to consumers, this increase in income would be eaten by higher prices.

According to the analysis, the average household making less than $20,587 per year would ultimately have $112 less to spend. The typical household with annual income of between $68,623 and $102,934 would take a hit of $214 per year, and the average household bringing in more than $205,869 would have $403 less.

Though this plan is mildly regressive because it has lower-income Oregonians shouldering a larger cost burden as a share of their incomes, Democrats were quick to point out that those people would reap the benefits of the added tax revenue.

"My assumption would be that the kinds of investments that we largely make in government in terms of education and health care, as two of our big expenditures, are ones that really disproportionately probably benefit our lower-income families and individuals," said Rep. Pam Marsh, D-Ashland.

"You're exactly right," Warner said. "Taxes, by definition, you're extracting resources out of the economy, but then you're putting them in in a different way that benefits different income groups."

Warner said future tax reform meetings will feature detailed models of the impact of taxes at other rates, including the one proposed by House Democrats. But Hass said he's leery of raising the rate much more.

"You can only ride this so far," he said after the meeting. "You start getting too high and you lose any economic benefit. ... Some people might be fine with that, but I'm not."

-- Anna Marum

amarum@oregonian.com

503-294-5911

@annamarum