State tax giveaways for business are reaching a fever pitch in the Pacific Northwest. Washington lawmakers last month enacted an $8.7 billion “mega-deal” package of state and local tax breaks designed to keep the state’s aerospace industry, dominated by Boeing, in the state. The sheer scale of the package, which is designed to last until 2040, has prompted some to wonder whether the time has finally come to end the tax-incentive arms race between the states.
But across the Columbia River in Oregon, Governor John Kitzhaber is having none of this talk. Computer chipmaker Intel has just inked a new package of guaranteed tax breaks, not through legislative action but through direct negotiation with Governor Kitzhaber. In brief, Intel gets a guarantee that it will be able to use the coveted “single sales factor” manufacturing tax break for 30 years– even if the legislature repeals it for everyone else doing business in the state.
In return for a tax break that will outlive many current Oregon voters, Intel agrees to do...nothing they weren’t already doing. As the Oregon Center on Public Policy points out, the company has already begun construction of a new research facility in the state, and the result of this agreement is simply that they will continue building the facility. Intel senior leaders admit that Intel’s current investments on this site are “nothing new...just continued expansion of the site.”
Why does Governor Kitzhaber have the power to unilaterally negotiate tax deals with Fortune 500 companies? Because the legislature gave him that power. In a special legislative session last year, the legislature enacted a bill (PDF) initially designed to authorize a similar tax break package for the Nike corporation, but ultimately crafted to allow any large company to negotiate directly with the governor on tax incentive packages, as long as those negotiations took place before the end of 2013. (Reminder to mom-and-pop businesses in Oregon: you’ve got just two short weeks left to set up your personal meeting with Kitzhaber if you want to secure similar tax breaks– better get with the program!)
The good news is that in the limited time Kitzhaber has had access to his “magic wand” for granting tax breaks, he’s only done it for Intel and Nike. So when Kitzhaber turns over a new leaf and starts pushing for comprehensive tax reform after the next gubernatorial election, he’ll have to spend a bit less time undoing the damage he’s wrought in 2013.
What makes this all the more astonishing is that Kitzhaber and the legislature have no idea whether these companies are paying a meaningful amount of income tax to Oregon to begin with—and there’s anecdotal evidence that they don’t. A 2011 report from Citizens for Tax Justice and the Institute on Taxation and Economic Policy shows that Intel was one of over a dozen Fortune 500 companies that, despite being hugely profitable between 2008 and 2010, managed to pay not even a dime of state corporate tax nationwide during this three-year period.
Public disclosure of corporate tax payments (PDF) remains a terrific, if largely unfulfilled, step toward reform, and it’s worth asking: if Kitzhaber, to say nothing of Oregon taxpayers, knew just how little income tax Intel is paying right now to Oregon, would this horrific deal have ever seen the light of day?