We Don’t Need New Taxes. We Need Old Taxes.
By Tim Nesbitt of Portland, Oregon. Tim is the president of the Oregon AFL-CIO.
We don’t need new taxes. But we could sure use our old taxes.
That’s the insight that emerges when you compare the Oregon's lean-and-mean spending budget for 2005-07 to its fat and happy list of tax breaks.
When Gov. Ted Kulongoski released his "live-within-our-means" state budget last week, he also released the state’s biennial compilation of tax breaks, called "The Tax Expenditure Report," a report whose numbers show why our means keep shrinking while our population and the demand for public services keep growing.
The Tax Expenditure Report constitutes a budget almost half as large as the official state budget. The latest report estimates that the state will forego $8.8 billion in income tax revenues in the next biennium (2005-07), while collecting $10.5 billion. The $8.8 billion is the cost of revenues written off in the form of tax credits, exemptions and deductions – amounting to almost 46 cents of every dollar that would be collected if the state allowed no tax breaks at all. Now compare that figure to the one in 1995, the year the state first began tracking its tax breaks. In that budget, we lost only 39 cents on the dollar.
A review of the state’s Tax Expenditure Reports since 1995 (comparing revenues and tax breaks recorded in 1995-97 to revenues and tax breaks projected for 2005-07) shows that the state’s income tax revenues have grown by 58%, while revenues given up from income tax breaks have grown by 108%. That disproportionate growth in tax breaks explains why the cost of our income tax give-aways rose from 39 cents on the dollar to 46 cents on the dollar.
But here’s the most revealing number of all: If the state were to limit its tax breaks to the level in effect in 1995-97, when our economy was steaming full-speed ahead, it would collect another $1.3 billion (that’s $1,300 million) in additional tax revenues in 2005-07. That would be more than enough to provide funding for a full school year with no increases in class sizes in K-12, freeze tuition at our community colleges and public universities, keep Project Independence alive for our seniors and restore the Oregon Health Plan.
If we can get our tax breaks under control, we’ll have enough revenue to maintain the services we need to sustain healthy communities and economic opportunities for all Oregonians.
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Dec. 09, 2004
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Dec 9, '04
Here is the URL for the tax expenditure report: http://www.dor.state.or.us/statistical/ExpR0103/TOCexp.html
12:13 p.m.
Dec 9, '04
Here's the correct URL for the current Tax Expenditure Report: http://www.oregon.gov/DOR/STATS/exp05-07-toc.shtml
And here's the URL for the links to all prior ones: http://www.dor.state.or.us/statistics.html
Dec 9, '04
Does the report measure property tax give-aways to lure "jobs" to Oregon?
Of the shamefully few tax breaks (state only, don't get me started on federal) any media covered in that time, the breaks started as part of some deal that would increase jobs (and, explicitly and implicitly) income tax revenues. Anyone done an analysis of when particular tax breaks were passed? I'd guess at the ends of various legislative sessions when everyone is (a) settling up on their vote-swapping deals and (b) overwhelmed by the pressure of getting out of town.
For bare minimums, any tax break that promises jobs and/or income tax revenues should have a monitoring system and if the promised benefits do not flow, the break would not only sunset, but the loss during the time period of the break would be re-captured by higher taxes until the loss has been recouped.
Dec 9, '04
Thank you!! Bravo!
We have got to shine the spotlight on these tax breaks. We simply cannot afford to give away tax dollars when schools are closing early, the Oregon Health Plan is going down the drain, and all the rest.
Those who rant about "waste" in government--show us how these giveaways of our tax dollars benefit the state.
Which is our priority--a full school year, or tax giveaways for "pleasure boats"?
Which is our priority--caring for our seniors, or doling out tax breaks to insurance companies?
Which is our priority--preventive health care for children, or lining the pockets of Intel, PGE, and Nike who get away with a $10 corporate tax?
As I understand it (from Kate Brown speaking at a schools forum), there would have to be some shift in procedure so that tax breaks would be reviewed and prioritized by the Ways and Means committee. Any possibility of this happening?
How about a two-pronged campaign--one to get the word out to the public about the giveaways; the other to pressure lawmakers to submit the tax expenditures to review.
3:35 p.m.
Dec 9, '04
This is an initiative that really needs to be addressed in this session. I know that there are a lot of legislators that are aware of this glaring inequity and would like to do something about it.
As for the comment from Randy S, I recall hearing about an electronics firm that got a bunch of these bribes.....er........breaks to put a plant in the Eugene area and the jobs and payroll taxes generated were insignificant and would take millenia to pay the taxpayers back.
Does anyone know the specifics on thatdeal?
Dec 9, '04
Based on my experience, tax incentives are not a very effective way of creating jobs anyway.
Before starting my own business, I worked for large companies in the semiconductor industry for many years. The decisions on where to open new manufacturing plants were often based on a large number of factors, including taxes and labor costs, like for all big business. But a critical element in those decisions was always having a well-educated workforce "readily available" in the area. Good human resources are extremely valuable for a semiconductor company. I suspect that this is the same for most high tech industries. For this reason, in the long run spending on K-12 and on higher education is a more cost effective way to attract and create well paying jobs than tax breaks. But it requires a decade or two of comittment to quality public education. And it does not give results within a 2 or 4 year election cycle.
Dec 9, '04
Bravo indeed...this is exactly what we need to talk about. In fact, I brought up your post on a conference call today, and I am going to try to get the OSA board to help the revenue coalition and incorporate this into our priority agenda! (sorry about run-on sentence, i am finished with finals and could use a day off) Cheers
Dec 9, '04
as for tax breaks in eugene for an electronics plant, i think Pat is referring to the Hynix Semiconductor plant. a study on the plant that was done by UO students is available here
im not sure whether or not the study is reliable, but it is worth looking at. even if the hynix plant deal was as beneficial as the report shows, i would think that there are many many tax deals that are not benefitting the state.
Dec 9, '04
These tax deals may not be benefitting the state, but they're probably benefitting the companies who contribute to the campaigns of the people who run the state. Ditto for the tax-funded perks that go to certain developers in Portland.
7:30 a.m.
Dec 10, '04
This is a great post. Would that Oregon's legislators were as keen to address the real problems of revenues and spending as the posters here.
Thanks for the great info.
Dec 10, '04
Excellent story in today's O--made my blood boil. Legislators are caving to the special interest lobbyists. Bravo Tim for the great quotes (click for story).
"Fiscal conservatives don't buy the underlying idea that a tax break is the same as a spending program. It's the taxpayer's money to begin with, not the government's, said Russ Walker, executive director of FreedomWorks, the group most responsible for defeating the Legislature's $800 million tax increase proposal last year."
Let's fight this frame. Of course it's our money. And it should be spent responsibly, on public services that benefit us all as a society--like schools, roads, public safety, and health care. These tax breaks are giveaways to special interests. Lobbyists are pressuring lawmakers to spend our tax dollars to benefit special interests. We can't afford to give away our hard-earned tax dollars to subsidize a few people's vacation home or pleasure boats.
Message smiths, have at it!
Dec 10, '04
Ruth,
Wait a second, before we get on the anti-business anti-lobbyist bandwagon, let's make sure we understand where the growth in tax expenditures is coming from.
Everyone here seems to assume that it's due to new and poorly conceived tax breaks. Is it?
These incentive programs are, relatively speaking, penny ante. The big ticket items may have increased their proportion of tax expenditures for good reasons (e.g. housing values have increased).
The Oregonian story made it far clearer, as does the report itself.
So which one you want to take a whack at? Remember, we need big bucks here, not penny ante ones (like most of the incentive programs mentioned already).
The other big candidates are similar political poison pills.
Dec 10, '04
Prof,
Points well taken. How about a percentage reduction across the board in the poison pill deductions?
If we need to "tighten our belts" -- if our schools, public safety, and health care are on the brink of disaster -- and if all state agencies are being asked to review and prioritize and cut spending-- why do the same for not the tax giveaways, too? What makes them immune from the collective need to cut spending?
I also think some of the more egregious penny ante ones should be still be targeted. We're talking a shortened school year, and I should subsidize someone's vacation home or fancy boat? Why?
Also--I don't want to be anti business. I especially don't want to hurt small businesses, which are the true engines of job growth. But I consider it a moral outrage that large, profitable corporations like PGE get away with paying only $10 a year in taxes while paying lip service to the need for a well-educated workforce and a strong community.
Dec 10, '04
woops, mangled sentence alert:
..if all state agencies are being asked to review and prioritize and cut spending-- why not do the same for the tax giveaways, too?...
Dec 11, '04
Before recycling all of the M28, M30 and "tax reform" rhetoric under the new "revenue recovery" label check out other factors.
http://www.cascadepolicy.org/pdf/fiscal/rank.pdf How Does Oregon Government Spending Rank? Ideas for Budget Stability September 2004 by Randall J. Pozdena, PhD Eric Fruits, PhD
9:47 a.m.
Dec 11, '04
There's a real rhetorical tool here, too. (I've been so busy the last few days that I just had a chance to read through three days of papers and see the O article yesterday.) For twenty years or more, conservatives have argued for "small government" and have cleverly kept the tax breaks half of entitlements out of the discussion.
Liberals will probably not get much traction from this issue in this legislative session. But instead of remaining in a perpetually defensive posture--trying to protect revenue streams and protect critical programs--while the conservatives have a field day attacking, Tim has now given us our own powerful offensive tool.
Every time a conservative (libertarian, GOP) brings up the evils of tax expenditures, we must throw it right back in their faces. If we're going to talk about entitlements, we must talk about all entitlements.
Dec 11, '04
But does the state need all the money that it takes in today? How about some reform at the spending level before demanding more? When I look at the reasons people are in Oregons prisons there seem to be a lot who are in prison for crimes that have nothing to do with property or person but are instead non violent crimes. Oregon's system of higher education does a poor job of educating low income students and is geared towrd the upper income ones and why should anyone paying to subsidize the education of well income families. I'm all for fairly spreading the tax burden, but when I punch that time clock on Monday I know that I'll be paying the way for a lot of people how are far better off than I am.
Dec 11, '04
Michael, I agree there should also be scrutiny of existing spending. For example, as a K-12 schools advocate I support looking into pooling health insurance statewide, closing/merging ESDs and maybe merging some smaller school districts.
I'm not that well acquainted with higher ed, but it's my understanding that high tuition (via budget cuts) is the major barrier for lower income families being able to participate.
Scrutinizing spending, and cutting/modifying programs and policies where appropriate, is important. But--the billions of dollars in tax giveaways, which disproportionately favor those with the highest incomes and special interest groups, must be included in this scrutiny.
I don't want my tax money going (to take one example) to subsidize million-dollar vacation homes and line a few realtors' pockets. I'm outraged that the Legislature doesn't have the spine to review any of these tax breaks. We've got to shine the light of day on them and ask where our priorities are for spending public dollars.
1:16 p.m.
Dec 11, '04
Michael,
As someone who spent 25 years "punching the timeclock" I'm also concerned about priorities and effeciency when I see my tax bill. I think the point is that the guys who want to get government down to a size where they "can drown it in a bathtub" are controllong the debate. I can't tell you how many times I've heard that government needs to be more efficient. That's true, but when you hear people talking about tax givaways to people who make 10, 20, or a hundred times as much as you do in a given year, you've gotta wonder if everybody is getting a fair shake. Every time our state government gives a targeted tax break out to a wealthy individual or a large corporation, that break comes right out of your pocket.
The extreme of the libertairian view is that if you want a paved road, pay for it yourself. If you want a healthy child, pay for that yourself. If your child has some kind of chronic ailment, good luck. Neither the government nor your fellow citizens have any obligation to you as an individual. This dogma harks back to the Social Darwinism of the late 1800s and is predicated on the concept that both the wealthy and the poor deserve to be right where they are.
I don't want to live in their world. Do you?
Dec 11, '04
Tim, Man Oregonians see the following as a severe problem which has yet to be adequately addressed. Until such monumental problems are dealt with there will be little public support for throwing more revenue after bad. No matter how you attempt to extract it. There are many examples of major probelms which undermine the ability to adequatley fund basic services, simply enable them to function productively or both.
http://159.54.226.83/apps/pbcs.dll/article?AID=/20041211/STATE/412110326/1042
Pension cost could go up by 9 percent
Already strapped government agencies face expensive jump STEVE LAW Statesman Journal
December 11, 2004
TIGARD -- Public-employee pension benefits will cost much more than expected in Oregon the next two years, putting more pressure on tight government budgets..............................................
12:30 p.m.
Dec 13, '04
WE DON'T NEED TAX BREAKS, WE NEED TAX BRACKETS.
During my three year career in public accounting, I never came across a tax break that I shook my head at in disbelief. Tax breaks have specific social and economic purposes, and although the effectiveness of the tax break might come into question, simply dissolving all tax breaks is the most asinine idea I've heard my liberal counterparts rant about lately.
Do people realize that we only have TWO tax brackets in this state? California has SIX. The Federal government has SIX. This ensures that the poor are not overburdened and the rich help support a strong community infrastructure. I can't tell you how many times I prepared a tax returns where a poor individual living in Oregon would pay more in state tax than in Federal tax.
If we really want Progressive tax reform in this state, we would increase the number of tax brackets to five, start the first bracket at 1-2% (like in California), and leave the tax breaks alone. As soon as you meddle with tax breaks, you increase the cost of tax preparation, you increase the likelihood of litigation, and you increase the amount of errors found in tax return.
Please Oregon, start to think differently on this issue!
Dec 13, '04
Wow, this bracket fact is something I never knew. Thanks for the nibble, Jenson, I'd like to learn more. Suggestions?
Dec 13, '04
"simply dissolving all tax breaks is the most asinine idea I've heard my liberal counterparts rant about lately"
While I'm interested in learning more about the tax bracket issue, I'd like to push back a bit on this comment. No one here that I can see is talking about dissolving all tax breaks. The issue is that the tax breaks are completely off the table--there's no accountability for how our money is being spent.
Simply to review the tax breaks, consider reducing some, maybe eliminating some, is entirely reasonable--just as for any other form of spending.
12:29 p.m.
Dec 14, '04
WE NEED TAX BRACKETS
I wrote my first blog (up above) rather hastily. And I wrote this one hastily as well. I will have more time in a couple days to put together a more convincing article.
Per Ruth's post: there are a lot of groups calling for tax break reform and I'm not convinced that these people understand tax law well enough. Tax break reform and having a fixed education budget are actually conservative efforts (two issues talked about by liberals lately). These are conservative efforts because they reduce funding for social and health programs.
I'd like to write a longer article on the fact that when the Oregon legislatures tried to fiddle with the tax brackets a couple years ago, they did so in a very secretive manner, almost springing the whole issue on us. Conservatives reacted and used our tactics against us. Our plan backfired essentially.
Time has passed and we must reinvigorate this effort, but we must first educate voters, create strong talking points, and organize a better effort.
The good news is that I did find out that in 2004 there will be a new 5% tax bracket. The bad news is that it only applies to the first 2,500 in taxable income. The 9% bracket sits at 6,250 of taxable income. So almost all Oregonians (about 90%) will easily hit that 9% tax bracket. It makes me ask 'why do we have tax brackets at all?'
Like I said, I'll write a better article and I'll outline what the tax brackets should look like and how much revenue will be created from those tax brackets.
Dec 16, '04
Well Ruth, from my Ivory Tower, I have an easy solution: sales tax. But before Steve decks me with a sledge hammer, this is a political non-starter.
I really don't see a good cure on the horizon. Economic growth is unlikely to be rapid given the weak dollar, rising interest rates, continuing uncertainty over Iraq, and now a trillions dollar proposal on Social Security that will only increase the federal budget deficit.
I think perhaps an across the board reduction on tax-expenditures is a good one, but how do you stop the Republicans (and Kulongoski for that matter) from describing this as a tax increase? Is there a way to do this and avoid a voter referral?
Dec 16, '04
The only way to win on this that I can think of is to focus on the limited public benefit that many of the tax breaks (giveaways) provide.
We're spending everyone's tax money, to benefit a few special interest groups.
I really think we could win a campaign that targeted a few breaks like the vacation homes and pleasure boats if we took the offensive and hammered on the priority/giveaway frame: is it our priority to provide a full school year--or subidize luxury homes? etc.
On the corporate side, the "job creation" argument doesn't seem to hold water. Other states that charge corporations more than a fershlugginer $10 income tax, still manage to create new jobs. At the very least, large corporations should be required to document how many jobs the tax breaks created.