Tax Reform in Oregon the Time Has Come for Major Tax Reform in Oregon
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Tax Reform in Oregon The time has come for major tax reform in Oregon. Oregon’s revenue system is inadequate to meet the needs of the state and places an unfair burden on individual taxpayers, especially low- income families. The Oregon Campaign for Economic Justice is working with allies around the state to transform the debate around taxes and spending in order to build a movement for genuine tax reform. What’s wrong with Oregon’s tax system? The debate about how to balance the state budget has THE REAL been clouded by several myths: PROBLEMS Myth #1 The tax burden on Oregon residents is excessively high WITH OREGON’S In fact, only five other states pay a smaller share of their income to state and local taxes than Oregon. And Oregon’s overall tax burden has TAX SYSTEM remained steady relative to income over most of the last 20 years. UNFAIR Myth #2 Government spending in Oregon is excessively high Oregon’s tax burden falls disproportionately In fact, the amount of state tax revenue that Oregon’s government on low-income taxpay- spends for public services is close to the national average. After account- ers and on households ing for federal aid received, Oregon’s state government ranks 24th out versus corporations. of all states for general expenditures. UNSTABLE Oregon’s budget crisis is due to government waste Our tax system is high- Myth #3 ly vulnerable to shifts and inefficiency in the state’s economy, In fact, Oregon’s state and local expenditures have remained at constant and we have no rainy levels, relative to income, for the past 20 years. Government spending day fund to help us weather the ups and has gone up but this is because of inflation, rising costs, and an increased downs. demand for public services due to population growth, aging of the population, and unfunded voter-driven mandates. INADEQUATE Oregon’s tax system Myth #4 Raising taxes in order to deal with the budget shortfall is unable to raise will hurt Oregon’s economy enough revenue to meet the costs of Raising taxes will not affect our ability to recover from the recession, essential public which is caused by national and international trends that have nothing to services, especially do with Oregon’s tax structure. In fact, raising taxes could help by during a recession. increasing state spending, which many economists argue is the best way to get us out of a recession. Myth #5 Tax breaks to businesses and the wealthy will spur economic recovery Studies show that state tax cuts rarely impact business investment decisions because state taxes are such a small portion of the total cost of doing business. 1 How does Oregon’s current system measure up? Is it Fair? No, it benefits corporations and the rich • Over the past decade, the tax burden on low- and middle-income WHAT ARE THE households in Oregon has risen, while the burden on businesses and PRINCIPLES OF the wealthy has dropped A GOOD TAX • The 1990s tax revolt benefited corporations and the wealthy more SYSTEM? than anyone else • Low-income households pay a higher share of their income in taxes FAIR than any other group The tax system should be based on the ability to pay – as taxpayers’ incomes and Is it Stable? corporations’ profits No, it is highly vulnerable to economic shifts increase, so should the • No other state is more dependent on a single tax than Oregon is on percentage of that income or profit that’s paid in the income tax taxes. • Income tax collections can drop quickly during economic downturns • Oregon lacks an adequate “rainy day” fund to cushion us from shifts STABLE in the business cycle The tax system should provide a stable stream of revenue during times of Is It Adequate? economic growth and No, it is unable to meet the state’s basic revenue needs economic recession. • In an economic downturn, Oregon’s tax system can not generate ADEQUATE sufficient revenue to pay for public services and programs The tax system should pro- • Oregon will have to make drastic cuts to essential public services in vide sufficient revenue to promote a healthy econo- order to balance the budget my and to meet the public needs of our state, includ- Is It Clear? ing education, health, and human services. No, it is difficult to understand • Oregon’s income tax is relatively clear, but the property tax is CLEAR confusing The tax system and uses of tax revenue should be • Lack of corporate tax disclosure makes it hard to know if clearly understandable to corporations are paying their share the people of the state. • The lack of transparency contributes to Oregon taxpayers’ perception that the system is over-taxing them EFFICIENT The tax system should be easy to comply with and Is It Efficient? easy to administer. No, Oregon loses millions in potential revenue through tax breaks • Oregon currently gives away more potential revenue in the form of tax credits, exemptions, and deductions than it collects in taxes • In recent years, tax breaks have grown at a faster rate than revenues 2 How did it get this way? Tax revolt of the 1990s In 1990, taxpayers passed Measure 5, a property tax limitation meas- ure. Unfortunately, Measure 5 benefited businesses a lot more than individuals. Frustrated taxpayers didn’t experience much financial relief, so in 1996 they voted for Measure 50 which rolled back property taxes even further. Again, corporations benefited more than individu- als. The result: major reductions in public funding for schools, parks, and public safety, with little real financial relief for most taxpayers. Shift in tax burden from corporations to households In the late 1970s, businesses and households paid about the same share of Oregon’s state and local taxes, but now households pay a much larger share. While low- and middle-income households have seen their tax burden increase, the tax burden on corporations and the wealthy has decreased. The result: Oregon residents are paying The Oregon more in taxes but getting less in services. Campaign For Shift from property to income tax Economic Little more than a decade ago, the property tax was the chief revenue source in Oregon, with the income tax not far behind. Because of the Justice property tax limitations of the 1990s, Oregon now depends on the income tax for its revenue. Personal income taxes account for 87% is a statewide coalition of the state general fund, the highest percentage from any single tax working to impact public source in the country. policy through grassroots organizing and education. Income tax less stable than property tax You can learn more about The problem with Oregon’s over-reliance on the income tax is that the Oregon Campaign at incomes go way up in good times, but way down in bad times. our website: Property values are more stable. The impact of Oregon’s tax revolt www.oregoncampaign.org was hidden in the 1990s because the state’s overall economy was so good that income tax collections remained high. But now we’re in a recession and income tax collections are down. That is why we’re experiencing such a huge budget deficit. No rainy day fund Most states save up surplus revenues from good years to help them weather the bad years. But Oregon gives back all tax surpluses through the Kicker. We’re the only state that has an automatic tax cut that kicks in whenever the economy is good and tax collections exceed forecasts. This makes the state even more vulnerable to the econo- my’s ups and downs. Increased costs Over the past decade, the cost of running state government has gone up, largely due to inflation, rising healthcare costs, PERS, and an increasing number of mandated services. At the same time, the demand for public services is higher, because Oregon’s population is growing at twice the national average while the percentage of our pop- ulation who are elderly is rapidly increasing. 3 Sample Options for Tax Reform ESTIMATED OPTION FOR REFORM REVENUE PROS CONS Personal Income Tax Reform $295 million per • Makes the income tax system more fair • Higher income taxpayers would oppose it Create 11% bracket for couples with biennium • Easy to implement • Oregon’s income tax is already high compared to incomes over $200,000 other states (singles over $100,000) Corporate Income Tax Reform $230 million per • Re-balances the tax burden so corporations pay • Difficult to enforce – lots of loopholes Equalize corporate income tax rates biennium more of their fair share • Business interests would likely oppose it (now 6.6%) with personal income tax • More equitable for small businesses rates (now 5%-9%) Revise Measure 5 Limitations Local option: would • Property taxes are more stable than income taxes • Regressive for renters and low-income owners Change the $5 limit on schools to $7 allow local school • Doesn’t require statewide reform • May reduce pressure for statewide reform per $1,000 of market value districts to go to voters • Rural and poor school districts will have difficulty taking to raise additional advantage of local option taxes property taxes Split Roll Tax Depends on rate and • Re-balances the tax burden so businesses pay more • Small businesses might suffer Change the way properties are property value growth of their fair share • Business interests would oppose it assessed to set a higher limit for • Would help to make Oregon’s property tax system • Costs could be passed on to tenants income earning properties than for more fair • Defeated by Oregon voters in 1992 residential properties Retail Sales Tax $1.1 billion per • Only 5 other states don’t have a sales tax • Defeated by Oregon voters nine times Create