What Measure 118 gets right and what it doesn't

Measure 118 will be one of the most closely watched measures on the November ballot.  Known as “The Oregon Rebate,” the measure would make it so that each year, every resident of Oregon gets a rebate from the state. To pay for these rebates, the measure would institute one of the biggest changes to Oregon’s tax system in decades.

In this episode of Policy for the People, we take a deep dive into Measure 118. Daniel Hauser, OCPP's Deputy Director, discusses what Measure 118 gets right, and what it doesn’t.

Transcript

Juan Carlos Ordóñez (host): This November, Oregonians will vote on whether to approve ballot Measure 118. It’s safe to say that this will be one of the most closely watched measures on the ballot. The measure, known as the Oregon Rebate, would make it so that each year every resident of Oregon, every adult and child residing in our state gets a rebate, a payment from the state.

The amount of the rebates would vary every year, but it could initially be around $1,600 per person. To pay for the rebates, the measure would institute one of the biggest changes to Oregon’s tax system in decades. A huge increase to the Oregon corporate minimum tax.

In this episode of Policy for the People, we take a deep dive into Measure 118 with my colleague from the Oregon Center for Public Policy, Daniel Hauser. Daniel is the center’s Deputy Director. For more than seven years, he has led OCPP’s research on tax policy. We discuss what Measure 118 gets right and what it doesn’t. Here’s my conversation with Daniel Hauser.

Juan Carlos: Daniel, this November, Oregonians are going to be voting on Measure 118. Can you walk us through the basics of this ballot measure? What would Measure 118 do if it were enacted? 

Daniel Hauser: Ballot Measure 118, if it was passed by voters in the November 2024 election coming up in just a couple of months, it would create what the proponents call the Oregon People’s Rebate, a rebate issued each year to every Oregon resident. Everyone, every family member, would get the same amount right, which would be an equal share of the revenues raised by a new tax. That’s also included in the measure. This new tax, it would be a really large increase in Oregon’s corporate minimum tax, which I’ll explain in more detail in a minute. The money raised from this tax increase would be sent equally, as I mentioned, to every Oregonian, as long as they were in the state over a certain number of days and they met really minimal eligibility requirements.

Juan Carlos: So how big would these rebates be? 

Daniel: Well, that will depend entirely on how much tax revenue is raised and how many Oregonians are eligible. There are new estimates from the Oregon Legislative Revenue Office, which is like the state’s body focused explicitly on understanding how different policies and laws and measures impact revenues in the state. So the Legislative Revenue Office, they forecasted that the Oregon People’s Rebate, Measure 118, would raise enough money to give each Oregonian about $1,600.

So that’s $1,600 per Oregon resident. But again, that amount will vary heavily year to year. It won’t be the same every year as more and less Oregonians are eligible and as more and less tax revenue gets brought in by the measure. 

Juan Carlos: So is this a good idea? What’s your bottom line assessment of Measure 118? 

Daniel: To answer that, we need to step back a little bit and understand the context of what measure 118 fits into. We’ve spent decades, centuries in creating a tax and revenue system here in Oregon. And Measure 118 is going to come in and shake a lot of that up. 

But first, we have to also understand that big corporations should pay more in taxes. In 2017, Congress passed an enormous package of tax cuts. And as part of that, they cut the corporate tax rate and they created all sorts of new opportunities for corporations to avoid paying their fair share.

And the corporate tax rate, even that only applies to the profits a company actually reports after they apply their other tax shielding opportunities and, you know, tuck money away in tax havens overseas and things like that. So to give you one example, U.S. corporations parked about 45% of their profits in tax havens where they only had less than 2% of their employees. So 45% of the profits is marked up in these, where less than 2% of their employees are located. So a profit sitting in Singapore is a profit not properly taxed here in Oregon. So corporations, they’ve had their rates cuts. They’ve had plenty of opportunities to shield their profits from being taxed at all. And it’s really clear that corporations should pay more in taxes in Oregon and and nationally.

And we also know that giving cash to struggling families is a good policy. It’s an effective way to make families more economically secure. There are dozens of studies on cash programs, from guaranteed income pilots in communities across the nation, including here in Oregon, to research on the impacts of cash tax refunds like the Earned Income Tax Credit in the Child Tax Credit.

And they all point to the same general truth. If you give a family money to spend on their priorities, they spend it on meeting their basic needs. A safe room to sleep in, warm food for dinner, the ability to get around their community, getting to school or work. It also sets a family up to invest in starting a business, buying a home or getting a degree.

It’s a catalyst for further economic stability. And importantly, children who grow up in economically secure homes are more likely to succeed as adults, to really thrive. Fewer crimes, more education, more income. Longer, healthier lives. And all of this, to be clear, has really immense benefits to the state and to society as a whole. So when we start from this perspective – cash is good giving struggling families money is a good thing, taxing corporations is good and needed – it’s clear that Measure 2018 gets some things right. 

But unfortunately, Measure 118 is poorly designed and it triggers an array of damaging, likely unintended consequences that make it really a measure that is not a good idea as it has been drafted and proposed. 

Juan Carlos: What are those unintended consequences that you’re talking about? Can you flesh those out for us?

Daniel: Of the unintended, negative consequences that appear as part of 118 is that the measure would reduce the funds available for Oregon schools, child care, health care and other essential services that we pay for through the Oregon General Fund. 

Let me explain what the Oregon General Fund is. The corporate income tax is the second largest source of funding for the general fund. And this is what people mean when they talk about the state budget. The vast majority of the general fund pays for three things: education in largely K-through-12 education, health and human services and public safety. And under Oregon’s corporate income tax, corporations pay the higher of a profits based tax or of the corporate minimum tax.

Oregon’s existing corporate minimum tax is quite small at roughly 1/10 of 1% of a corporation’s sales in Oregon. And to pay for the rebates in Measure 118, it would expand Oregon’s corporate minimum tax to 3%. So from 0.1% to 3% for corporations that have receipts in Oregon above $25 million. So as a result, many large corporations that currently pay the tax based on their profits would instead pay the corporate minimum tax. And the taxes they pay would go instead towards the rebate, whereas before it would have gone into the general fund, would have helped fund those fundamental services. If you consider a corporation that had a $100 million in profits in one year and they had, you know, a set amount of receipts here in Oregon, sales here in Oregon, that company might be currently paying 7% on those profits. Right. But with the new corporate minimum, because they would have such a significant amount owed due to the minimum tax because of their receipts in Oregon, they would no longer pay that tax on their profits. Instead, that money would go directly into the rebate and the general fund would get less money as a result. 

Juan Carlos: So, in other words, the one of the unintended consequences is that money that otherwise would have gone into the state budget to pay for K-through-12 schools, health care and so on – some of that money will instead go to help pay for these tax rebates because of the way the measure is written. Is that a general summation of it? 

Daniel: That’s right. I mean, the general fund right now gets more than a billion dollars per tax year from the corporate income and excise tax rate, from the profits based tax. And that’s projected to increase to one-and-a-half billion dollars per year. If Measure 118 passes, then a big portion of that, a significant share of that more than a billion per year, instead of going into the general fund, will now go towards the rebates.

And I don’t expect the proponents of this measure realized that they were going to be seeing that kind of an impact on the general fund. I think their intent was to raise new revenue that would go to the rebates. But unfortunately, because of how the measure was drafted, it doesn’t seem like that is what the outcome would be.

Juan Carlos: What other problems, what other unintended consequences, do you see with the measure? Because you mentioned several unintended consequences. 

Daniel: Yeah, there are other consequences besides the fact that I was just describing that we could see billions of dollars over the next decade pulled out of the general fund and instead going into these rebates. Another consequence is that the measure is designed to send it equally to every Oregon resident that meets those, you know, minimal eligibility requirements. And that includes people who don’t need the money. 

There are people who are able to, you know, buy a second boat or a third home or invest hundreds of millions of dollars in stocks and bonds and other investment opportunities. Not saying they shouldn’t. Good on them. But why is the state going to send them a check, when we have families that are struggling to survive, struggling to stay housed, struggling to find a way to give their children or their parents the care they need? And so one of the other real problems with the measure is that universality, because it doesn’t target the resources at the families that are in greatest need.

Now, some federal some universal programs are a good thing. Not saying that we shouldn’t have universal programs, but the challenge is, how do we fund it when we as a state do not have the fiscal flexibility of the federal government? We don’t have a Federal Reserve to lean on. We can’t spend at a deficit. We can’t build up a huge debt as a state.

We have to pay for what we spend. We have to raise the taxes and raise the fees to fund the services that we invest in. And so a program like this, where we’re taking billions of dollars of new revenue and we’re sending it out equally, including to the richest Oregonians in the state, is a real missed opportunity to focus the resources more on the Oregonians that are struggling most. To really target the resources where they could do the best.

The revenue raised could be continued to be sent out as cash payments, just focused on low income families. That would be an improvement. It could also look like taking a piece of it and investing it in affordable housing and child care and higher education, and many of the services that Oregonians depend on. We can’t really afford the luxury of giving cash rebates to those who are well-off and don’t need a rebate.

And not only is it an issue that we’re spending so much of these resources on the rich, but we also are making it really hard to raise any further taxes to invest in our schools or in other facilities that need more resources. We need to build more housing, we need to build childcare facilities, we need to staff them.

And it’s going to be really hard to raise more money beyond that $7 billion or more annual tax increase in Ballot Measure 118. It’s going to be really hard to raise more money for those services Oregonians depend on after this measure is passed. And after all of those dollars, including the piece going to the richest households, are flowing out the door.

Juan Carlos: Yeah, it seems that lawmakers would be really hesitant to raise any new revenue for quite the foreseeable future if such a large tax increase is enacted. 

Daniel: You’re absolutely right. I mean, we haven’t been able to raise significant new revenue from the rich and corporations since the Student Success Act was passed in 2019. And we’ve often heard from lawmakers like, didn’t we just do a big tax increase? And that was about $1 billion a year. And that was, you know, five years ago. We’re talking about something that will be six or seven times as large as that. So getting lawmakers, getting leaders in Oregon to do any additional large tax increases on corporations or the wealthy, it’s not something that I can really foresee being likely if Measure 118 does pass in November.

Juan Carlos: What else? Any other consequences from Measure 118 that we should be aware of? 

Daniel: One kind of wonky but deep fear I have is that Measure 118 could result in vulnerable Oregonians losing some of their public benefits. The federal government is likely to consider cash rebates as income – the Oregon People’s Rebate, the rebate part – when they’re determining whether or not someone is eligible for food stamps, a program like the Supplemental Nutrition Assistance Program or SNAP when they go to recertify their income.

The government might count, and we expect they would count, the people’s rebate that that family received as income. And so now that family will get less food assistance than they would have without it. And so, in a way, vulnerable Oregonians could lose part or all of their SNAP benefits. 

And it’s not just SNAP. This could apply to housing vouchers. It could apply to eligibility for subsidized health care. It could apply to subsidies for child care. I mean, there’s a whole slew of potential programs that could be impacted, that eligibility could be impacted as a result of the Oregon people’s rebate payments. 

And to be fair, the measure tries to anticipate this problem by requiring the state to request a waiver from the federal government to prevent those payments from being included as income. I wish I felt like the odds of that being successful were good, but they aren’t. A similar concept was tried just last year with the Oregon Kids Credit. Oregon Department of Human Services submitted a waiver request to the USDA to have those payments be sent out quarterly and have them not treated as income. That waiver request was rejected. And it’s expected the same answer would be provided under Measure 118, that the waiver request would likely be rejected.

Juan Carlos: So what would happen then if the measure gets enacted, but the federal government rejects this waiver request? What would be the implication of that?

Daniel:  Well, Measure 118 has a back up plan, and that’s a hold-harmless provision. This hold-harmless provision says that if Oregonians lose public benefits as a result of the measure 118 cash rebates, then the state will reimburse those Oregonians the amount they lost to hold them harmless.

There are a couple of problems with this attempted fix, however. First, the reimbursements, the hold-harmless payments, would arrive well after families have lost their benefits. In other words, after the harm has been done. And second, the hold-harmless payments themselves could count as income. If you get a hold-harmless payment to address the $200 you lost in SNAP benefits and you get another $200 from the state, the next time you file and you submit your eligibility and recertify for SNAP, you could get even less SNAP benefits.

So it could be a hole that kind of keeps digging itself. And third, the rebate and potentially even the hold-harmless payments could be included as federal taxable income. So this would leave families owing more or getting a smaller refund on their federal taxes that following year, never truly holding them harmless as intended. Now, let’s put aside the problems of implementing the hold-harmless provision and think about the big picture.

Let’s say this hold-harmless provision is triggered and Oregon ends up reimbursing families for their lost public benefits. Let’s say everything works well. Though you know, the agencies that are likely to administer this have shared that they aren’t confident that they can implement this efficiently or quickly or without significant cost. But let’s assume everything works fine. What would happen then is that we would still see a large portion of the revenue raised by Measure 118 going to fill this loss of federal benefits, loss of federal dollars that would otherwise flow to Oregon. And that’s a loss caused by the measure itself.  

Juan Carlos: So it sounds like there’s a good amount of inefficiency built in the measure, at least the way would play out, in the sense that some of the revenue raised by the measure, as you say, could end up simply going to fill in some of the loss of federal dollars if people lose their public benefits. And also, some of the money would go to people who are well-off, who don’t need it. So in terms of raising a lot of money to try to do good things for Oregonians, it seems that it’s not the most efficient way to go about it. 

Daniel: I think that’s absolutely right. I mean, we would be exporting a significant amount of the revenue to the federal government based on federal tax payments. We would see lost benefits. We would see a lot of administrative complexity in trying to figure out the hold harmless payments. That would be additional costs, additional routing of those revenues to things that aren’t the rebate or aren’t investing directly in low income families. 

So I think as much as we really see this measure and the proponents of this measure as having their hearts in the right place and really wanting to tax corporations to fund cash assistance for families in Oregon, really the devil’s in the details. And the details have been missed in quite a few areas on this measure. 

Juan Carlos: Daniel, you talked a little bit about some of the difficulties implementing Measure 118, which would represent a very significant change to Oregon’s tax system. I’m wondering if there are other challenges that would be presented in trying to implement this measure? 

Daniel: Yeah, I think there would be. In some recent meetings of the Department of Revenue, Secretary of State, an array of department heads that were working on figuring out what would be the impacts to their agencies and to their programs from Measure 118, and what they were discussing was that it would be really hard to effectively implement this program. 

Consider just the corporate tax measure itself. Corporations have fiscal years that end sort of throughout a tax year. It’s not cut and dry like it is for personal income tax, where most people file by April 15. Even though there are extensions for corporations, it stretches all throughout the filing year and it can take up to three years to actually know how much money would come in from this tax for that one tax year. And so that would make it really hard to then figure out how much the payment should be. If the payment is just a math equation of like revenue brought in from the tax divided by total Oregonians, and it’s going to take you three years to figure out how much money to distribute, how do you know what the payment should be per Oregonian? What do people, what will people claim on their taxes if you won’t know for years in advance how much the actual revenue is for them to distribute? 

Director Imholt of the Department of Revenue noted in this hearing that, you know, we will be guessing on billions. It’s what she said. And that’s terrifying. If you have any familiarity with how the state of Oregon does on guessing billions, and have heard of the kicker, that’ll keep you up at night. The other thing to keep in mind is that this would roughly double the Department of Revenue’s largest program during their peak season.

So this would be a really strong challenge for the Department of Revenue to implement how the money is raised and how the money is distributed in a way that is accurate and credible and actually gets to what is, you know, what the proponents of this measure are hoping to achieve. And that’s just looking at like the core tax and the rebate. That doesn’t get into all of the administrative complexity of the Oregon Department of Human Services trying to work with the Oregon Department of Revenue and other agencies to figure out how to do the hold-harmless payments.

I mean, the hold-harmless payments are going to be very challenging. Are we going to make people submit receipts and documentation for the payments and the services that they’ve lost because of the people’s rebate income? Is the department going to kind of guess at it so that way it’s easier for the person filing? But what do they do when the department guesses wrong?

The Department of Revenue, it knows a lot about people’s finances, about their wages, but it doesn’t necessarily know how much your SNAP benefit is. It doesn’t know how much your housing choice voucher is. It doesn’t know how much benefit programs are providing to families. So I think there’s a lot of administrative difficulty in implementing a program like this as it was drafted in the actual ballot measure.

Juan Carlos: Let’s go back to something you said at the beginning of our conversation, and that is that giving cash to families struggling to make ends meet is a good way to improve economic security. If the cash rebates proposed by Measure 118 are not the right solution, what other forms could a cash program take that would be effective, that would do a good job at improving economic security for Oregonians?

Daniel: There has been a ton of research and pilots and experimentation around the nation. I mean hundreds of pilots of a cash program called guaranteed income. And a guaranteed income program is really focused on setting a floor beneath which no one can fall, to a level of income where if you hit a really tough circumstance in your life or you’re in sort of chronic poverty and struggling to survive, that there will be unrestricted flexible money to help you ensure that your basic needs are met.

And so a program like this has been tested in many different ways for many different types of family circumstances – people who are houseless or people who are leaving incarceration, people who have new children. I mean, all sorts of different families and individuals have been part of tests of guaranteed income. And the experiments, you know, really consistently show that it’s effective. That it helps people get housed. It helps people be stable. It helps people find the time and resources to learn new job skills or to get to a job, to get new education, to help pay for their kid’s school supplies or food. The research is incredible to look at how impactful guaranteed income programs and unrestricted cash is for low income families that really are struggling to get by.

So I think for a state like Oregon, which has limited fiscal capacity – we only have so much that we can spend on a program like this with all the other needs families have – a guaranteed income program rather than a universal one that sends the same amount to every Oregonian is a much more viable approach for advancing economic security than what’s included in Measure 118.

Juan Carlos: Are there other types of cash programs that we could also think about implementing, programs that have been shown to be effective? 

Daniel: Absolutely. I mean, separate from a guaranteed income program. Which I should also say Oregon has a number of guaranteed program, guaranteed income programs in effect at the local level as well as at the state level, really targeted programs that are helping, for example, homeless youth in a few different counties around the state get by with unrestricted cash.

And it’s clear from talking to the folks involved in those programs that it’s having a really big impact on people’s lives. So guaranteed income programs like we’re already seeing them in Oregon, we need to continue investing in them. There are real opportunities there. 

But I will say that probably that the longest running state guaranteed income program that is worth highlighting is actually a piece of our tax code. It’s called the Earned Income Tax Credit. The Earned Income Tax Credit is the largest anti-poverty program in Oregon in our state tax code, and it helps more than a quarter million working families who are struggling to make ends meet. The state credit is 9% of the federal credit. It’s a federal program and the state just takes a percentage of that and adds it on top. It gives a boost. And so if you have a family with a child under three, they get 12% of the federal credit. Everyone else gets 9%. The EITC is only available for families with earned income, and it phases out at about $65,000 in income. So when we think about who would benefit from an Earned Income Tax Credit relative to who would benefit from measure 118, we can really see that the phase out is much more targeted in the EITC.

So the Oregon EITC is scheduled to sunset in 2025, go away, unless the state legislature takes action. And we fully expect they will renew this crucial program. However, the once every six year sunset cycle that it’s on does create a risk, but it also creates an opportunity to seriously evaluate how the EITC can be made more effective, can be strengthened, and can better meet its goal of alleviating poverty in Oregon.

And we’re working with an array of partners all across the board to roughly double the Oregon EITC, to go from this 9%, 12% level up to 20% for everyone, and 25% if you have a child under three. And we also want to expand it to all adult workers. Right now, some adult workers who don’t have kids aren’t able to get the EITC just because of their age, because they’re a little too young or a little too old.

And this reform will disproportionately help rural Oregonians and will disproportionately help Oregonians of color. And fundamentally, we’re talking about sending hundreds of dollars more each year to hundreds of thousands of working families in Oregon. And we’re also working with partners on investing in those cash programs I mentioned at the onset, right, increasing investments for homeless youth, increasing investments for new mothers or people who are pregnant and all sorts of other populations where the tax code isn’t exactly the perfect answer, and a targeted program could be more successful. 

Juan Carlos: Daniel, any final thoughts you want to share with us regarding Measure 118? 

Daniel: Measure 118 gets some things right. I really, really appreciate how much energy and passion proponents put into getting this measure on the ballot. I agree corporations need to pay more in taxes and giving cash to families is a good way to improve economic security.

So in that sense, the proponents should be commended. But at the end of the day, the measure is too flawed and these flaws would lead to a lot of damaging consequences for the very Oregonians we’re trying to help. There are better ways to advance economic justice, and I think that’s where we’re going and should be focusing moving forward.