A 12-Step Recovery Process for Tax Credit Addicts
Chuck Sheketoff
Last month, Missouri Republican State Senator Matt Bartle came clean: "I am a recovering tax credit addict," he quipped. A fellow Republican colleague noted "There are a growing number of members of this body that believe we have become drunk on tax credits." Bartle summed up the problem this way: "We're almost operating as if tax credits were money from God, created in heaven." (See the story here
in PDF.)
With a more sober understanding of state finances, Bartle is one of a half-dozen Republican legislators in Missouri opposing runaway tax credits that drain money from vital state services.
According to the news report, he and other critics of a bill that would increase existing and add new tax credits point out the inequities,
[G]roups receiving tax credits end up with privileged status because they need not fight each year for scarce state appropriations. Instead, they receive off-budget certificates that can be used to reduce state taxes or sold for cash.
The exact same unfair and fiscally debilitating addiction is at work in Oregon. I suspect, though, that there are probably some Oregon lawmakers, Democrats and Republicans alike, who, like their colleagues from the Show Me State, want to follow a more sober fiscal path as they face our own severe revenue shortfall.
Here’s a 12-step process to help them along:
1) Acknowledge the tax credit addiction. The number of bills introduced to create more in the face of a revenue shortfall is proof.
2) Admit that when the government spends money it is part of the economy and often attracts federal dollars into the state, while business tax credits can undermine the important role that government spending plays in Oregon's economy.
3) Admit, like Bartle, that states’ efforts to outdo each other in handing generous tax credits to businesses is resulting in a never ending race to the bottom.
4) Acknowledge that 216 profitable corporations operating in Oregon used tax credits alone to reduce their income taxes to the $10 minimum in 2006.
5) Admit that, unlike public subsidies in agency budgets, subsidies financed via tax credits are often both open-ended in terms of costs and hard to predict, since any person or entity that qualifies for it can get the subsidy.
6) Admit that business tax credits that are not means-tested provide scarce taxpayer dollars to very profitable corporations that would likely be denied the funds if the program competed in the regular Ways and Means budget process against other state funding priorities.
7) Admit that it is wrong to rely on the word of the tax credit beneficiaries themselves to establish whether a tax credit induces certain behavior, not any other independent metric.
8) Acknowledge that it is irresponsible to have a tax credit spending program with no sunset date and commit to adding sunsets to all of them.
9) Acknowledge that strong public structures — pre-K to 12 education, community colleges and public universities, job training programs, the court system, public safety, transportation, public health and health care — are more important to establishing a strong business climate than low taxes.
10) Acknowledge that public disclosure of corporate taxes would show which profitable companies are addicted to business tax credits and would change the political climate for tax reform.
11) Acknowledge that Oregon needs to compile in one biennial report all of its spending in support of economic development (in the budget and through the tax code) so that the state’s economic development efforts can be more effectively evaluated.
12) Accept responsibility for preserving vital public services in the face of the revenue shortfall by enacting revenue solutions for Oregon’s revenue problem consistent with Article IX Section 2 of the Constitution that mandates that the “Legislative Assembly shall provide for raising revenue sufficiently to defray the expenses of the State for each fiscal year.”
It was nice to learn that tax credit addicts in Missouri are on the path to recovery. What about at the other end of the Oregon Trail?
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org
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8:58 a.m.
Mar 27, '09
I propose a constitutional amendment that all tax credits and deductions sunset in no more than 10 years from enactment. If they are worthwhile, future legislators could renew them. But that way, they'd at least have to be reviewed.
Mar 27, '09
A 10-year sunset sounds way too long. You can run up a huge tab in a decade.
Why not every biennium? It keeps you honest, having to review the impact of the tax credits every time you put together a budget.
9:44 a.m.
Mar 27, '09
Bobby -- That's a very reasonable argument. I fear that doing it every two years would make it a pro forma process. That it would be so regular that there wouldn't actually be any review at all.
For example, we do budgeting every two years, but there's rarely a serious in-depth multi-hearing process to determine whether or not a given program should survive another two years. Sure, there are some that draw the attention of the budgeteers, but not all. Most just get re-funded each biennium.
Contrast that to the congressional reauthorization process. It's a big damn deal when the Farm Bill, or the Clean Water Act, or the Endangered Species Act goes through reauthorization. The process usually takes at least a year (though sometimes longer) and it becomes a major review of the policy, with all the attendant possibilities of reform, etc.
9:48 a.m.
Mar 27, '09
Something to add to Chuck's 12-step program, which might address Bobby's concerns:
In Oregon, we've got a supermajority requirement (36 of 60 and 18 of 30) to raise taxes. The righties would have us believe that canceling a tax credit or tax deduction is "raising taxes", rather than merely ending a tax expenditure.
We should acknowledge (and if necessary amend the rules) that ending a tax expenditure should require a majority vote, not a supermajority.
Mar 27, '09
Kari, I hear you on the need to end the supermajority voting.
But going back to the sunset provisions, take a look at what the Oregonian wrote earlier this year about the state's Business and Energy Tax Credits:
"At the time [2007], state officials projected the changes would add $2 million to a projected $23 million hit on the state's two-year budget. They were wrong. Less than two years later, the program is costing taxpayers $78 million. And that figure easily could triple again."
So heck, even in two years costs can explode.
Mar 27, '09
why not every 4 years, so that changes in policy could be tied to a candidate?
"We're almost operating as if tax credits were money from God, created in heaven.
Is it simply a coincidence that such a disproportionate number of those addicts, actually preach a theology that says "Jesus wants you to have material comfort in this life"? God wants you to succeed in your business affairs, and the government's taxing your profits is big brother thieving off the fruits of your faith seed. This is one of the dividends that social regressive Christianity has yielded, besides intolerance, strife, and the rest.
Mar 27, '09
I'm for across-the-board tax reform. To me, Chuck's '12-step' program here wouldn't really change anything. We'll still have special interest groups lobbying for preferential tax treatment to advance their preferred causes - some selfish, some well-meaning, most largely political. And then we'll even politicize the examination of corporate tax returns - demagoguing in a populist fervor some tax-advantaged but otherwise wholly tax compliant entities that dare to make a profit while giving a pass to other politically popular ones (e.g., companies that provide 'green' jobs, etc) It's just a matter of whose ox is being gored.
In my view, (and some others), the primary purpose of the tax system should be to raise revenue for necessary government programs - period. Not serve as a system of penalties and benefits to guide markets toward policymakers' goals.
Most people would feel better about paying taxes if we knew everybody was treated equally... These byzantine taxation systems we have now with credits and deductions for every manner of affliction and special interest just drive people nuts. It's a system only an accountant and lawyer can love.
Mar 27, '09
Seems to me the efforts of state reps. like Chuck Riley and Sal Esquivel are more likely to bear fruit than Chuck's 12 steps.
1:42 p.m.
Mar 27, '09
So heck, even in two years costs can explode.
Yes, yes... And the legislature can always repeal a tax credit. The question about sunsets is whether they should require a proactive reauthorization.
1:43 p.m.
Mar 27, '09
Seems to me the efforts of state reps. like Chuck Riley and Sal Esquivel are more likely to bear fruit than Chuck's 12 steps.
LT, you seem to be of the opinion (today? always?) that commentary and dialogue is worthless.
So why do you hang out here?
Mar 27, '09
Alcatross is spot on again -- n my view, (and some others), the primary purpose of the tax system should be to raise revenue for necessary government programs - period. Not serve as a system of penalties and benefits to guide markets toward policymakers' goals.
What I would love to see is a debate about what are necessary government programs. I would like to know what citizens really want and expect from their government at all levels. It seems that much of the push back against gov't is due to the feeling that gov't does the bidding of small interest groups while ignoring the wants of the majority. Seems to me, as naive as I may be, but we need government to get back to being of the people, by the people and for the people.
Mar 27, '09
I agree with Kari. Presumptive ten-year sunsets on all tax credits.
I would allow the legislature to expand or shorten that period with specific legislation, so long as there was a sunset provision. So you could create a twenty year tax credit, but not a permanent one. Conversely, they could set a four= or six- year period if they want.
3:33 p.m.
Mar 27, '09
I would go with max 10 year sunsets.
3:36 p.m.
Mar 27, '09
MP - Go read Novick's post this week. 90% of state spending is education, health care, and public safety.
Mar 27, '09
Just because spending falls under the heading of ed/health/PS doesn't mean it is needed nor wanted. Let take the spending there line by line and let the people decide the gov't they want.
Then tell them what the bill will be, that we ALL must bear, for the services we want.
9:08 a.m.
Mar 28, '09
Need I remind Mr. Sheketoff that it is the political process that runs the government? Or that tax credits are put in place because legislators see a social value to be served by them? Or that those credits actually do provide social value? Sure, tax credits should be looked at every once in a while to make sure that the original social value still exists (see, e.g., Oregon's political tax credit or energy-related tax credits) but a 12-step program (jihad) is kind of overkill, don't you think?
Mar 28, '09
Let take the spending there line by line and let the people decide the gov't they want.
Here here!!
For example, there is a line item in the current budget for a water treatment plant upgrade in Harney County. I don't live in Harney so I don't really feel like paying for that. In fact, most of my neighbors here in the Pearl District don't feel like paying for it either. So screw 'em I say - kill the budget item and let's all save a couple of million bucks!
That's true democracy - mp style.
Mar 28, '09
Hey Scott: You might like this here
1:52 p.m.
Mar 28, '09
Lee Coleman,
"Jihad?" Now, now, now...
Which of the twelve steps do you disagree with?
Oh, and the political credit, there is no good evidence that it is nothing more than a payback to people who contribute anyway. Much of the credit is used by upper income folks, who likely give more than the credit amount. I seriously question whether it truly is a good motivator in many, if not most, cases. And the energy credits are hardly something that should go unreviewed. In fact, BETC is a major contributor to Oregon's revenue shortfall and is rewarding the wrong people and wasting precious tax dollars.
Chuck,
Mar 28, '09
"that tax credits are put in place because legislators see a social value to be served by them"
Lee, this is why it is so interesting that not only Rep. Riley but Rep. Esquivel favor at least reviewing each tax credit individually.
About time!
8:42 p.m.
Mar 28, '09
Corporate taxes are ultimately paid by consumers, not shareholders. Increasing corporate taxes won't add to Oregon's progressivity.
10:01 p.m.
Mar 28, '09
Jack Bog - That's the line that libertarian economist Bill Conerly uses, and its just not so.
Given that state and local taxes nationwide amount to just eight-tenths of one percent (0.8%) of the cost of doing business, how they are passed along really is somewhat irrelevant.
But most economists who look at tax incidence apportion income taxes to shareholders, workers and consumers in various combinations of percentages. No economist who is respected and works with incidence models apportions them totally to consumers. And, Jack, it is large multistate sellers who have been the big winners in the tax avoidance schemes in Oregon -- so if you are correct then almost all of the increased taxes will be born by out of state (and out of country) consumers.
Increasing corporate taxes on corporate income can and does add to overall progressivity of a state's tax system.
9:13 a.m.
Mar 29, '09
One note: Oregon's tax expenditure report is a wonderfully informative and useful document, and would be even more useful if each credit had a full analysis.
11:04 a.m.
Mar 29, '09
The first tax credit we should eliminate is the home mortgage deduction, because everyone knows that the sense of entitlement engendered in the homeowner class is what's reall taking us down the road to international Marxism..........Also it's perfectly clear that homeowners will just pass this tax increase on to........er......nevermind......
7:15 a.m.
Mar 30, '09
Chuck sez: "the political credit, there is no good evidence that it is nothing more than a payback to people who contribute anyway."
Well, yes, there is no good evidence that the credit is merely a payback etc. Please ask Gail Shibley about this.
Chuck also sez: "Much of the credit is used by upper income folks, who likely give more than the credit amount."
Well, yes, the credit amounts to a paltry $50 ($100 for the married privileged) and is INTENDED to stimulate political giving (political speech) by anyone who wants to and who also itemizes. This is a case of de minimus.
Chuck goes on: "I seriously question whether it [the paltry political credit] truly is a good motivator in many, if not most, cases.
Well, for the low earner itemizer the credit is indeed a stimulus for political giving. And a pretty good thing all things considered. Refer to anyone who runs an underfunded campaign.
Chuck on energy credits: "the energy credits are hardly something that should go unreviewed. In fact, BETC is a major contributor to Oregon's revenue shortfall and is rewarding the wrong people and wasting precious tax dollars."
Really! The country is in dire straits over (1) oil payments going to the decadant feudal overlords who misuse the profits and (2) global warming. Apparently Chuck is unwilling to stop those payments or their abuse and/or subscribes the the penny wise/pound foolish concept. How odd is that? Refer to President Obama on this.
Mar 31, '09
This is one of the dividends that social regressive Christianity has yielded, besides intolerance, strife, and the rest.
Missed the mouse in yer pocket, eh? It's "we", not just "they". Xtian and family values are pandered to as much by the Dems as the Reps. Leave faith out of it. All can agree that televangelists with their slimy faith marketing are the worst of the worst in this society. Anyone that didn't know that the Dems are in major denial about this, didn't pay attention to BSO making his first campaign appearance with McCain present, at an event that validates the slimiest for of Xtian fraud extant.
It's impossible to have a considered, moderate attitude on this. The moderates that indulge it have made that the case. Our tax code indulges and fosters it, yet you choose to raise revenue on the back of addicts and stupid punters. Distribute Graham Crackers to them all. It really never changes, does it? Is ANYONE OK, after they're dead? Chuck, I doubt you would find Dr. Graham any more palatable than Newt Gingrich. If you were transported 100 years into the future, and didn't have to worry about his political influence, would you quote him? Find his "plan for America" a good metaphor?
I'll ignore the humorous mixed metaphor involved with stating that we're at the precipice and need to take 12 steps. Twelve steps IS a good metaphor. It uses religion to try to counter the effects of religion. Twelve steps is about a group of people chain smoking, bragging about how they are "alcohol, drug- fill in the blank- free". In other countries these legislators would face prosecution, and would not be re-elected. Here, they are asked to admit that they are uncontrollably out of control...then continue legislating. The only reason anyone buys it, IS BECAUSE RELIGION SAYS SO.
How about a Dem version that starts with, "I compulsively pander to any faith based group and talk about the existence of things I don't believe in. I am addicted to pandering to God and Country".
God is useless and has destroyed what could have been a decent society. Only an addict would continue to characterize faith based political activism in the terms the Dems do. There are not good ones and bad ones. The founding fathers had the same addiction. They didn't believe that crap, but choose to use the language because it'll get the rabble behind 'ya. Portraying something contrary to reality, for consideration, is the dictionary definition of fraud. For those that ask, "why is it always America is fraud", that's why. Has this country once, just once, ever, presented an issue without spin for an arbitrary vote? Every last issue gets translated from the accurate, straightforward, "Support xyz' to 'Don't let abc do/get xyz". That is America. If the press hadn't done that day one, the 60% that never wanted to leave Britain would have won the day. The only thing worse is hearing Rush go on about society being biased by the press. This society would never have started as an independent entity if it weren't for press bias.
You think this doesn't touch you every day? My brother-in-law just lost his business, a restaurant, because he had reggae acts in the evening and some of the fans, outdoors, would light the occasional doob. That leg. was passed, motivated by Christian, Victorian attitudes, hidden in blatant rug-rat mongering. Defeated 11 times, what was called the "Rave Act" was added at the last hour to the Amber Alert law where David Wu worked to squelch debate or any notice of it, along with other "progressive" Dems. You have a local pseudo-progressive, accused of being in the pocket of big pharma, and he just happens to play a major role sequestering the #1 gimme that pharma demands. Seriously, if they had to choose between socialized prescription drug coverage and legal weed, they would give the drugs away. It's about consumers and producers. You are a consumer. Don't forget it. Lot's of political issues there, right? Wrong. That was religion, religion, religion and stupid religion.
Some say it's over-indulgence of lobbyists, some say greed, some say genuflecting to every interest... My take is simple. Stop genuflecting, period. If you want to go down that other road, and be a Christian Nation Under God, I'll be glad to explain how you suck at that too.
I'll repeat the original question. Do you really think it's a big coincidence that the degree to which legislators have the described problem, varies closely with their belief the televangelists concept of a "faith seed"?
Mar 31, '09
Perhaps my most favorite topic in Oregon politics after the QEM (Quality Education Model). I've read the Tax Expenditure Report (thick book) several years running and am always struck by some of the more ridiculous - pleasure boats, depreciation on timber/mining lands (ie I used the land up so now I get to claim it as a tax credit), crab pots (not that I am against fishermen, my wife's father is a lobsterman, but we don't give tax credits to everyone for the tools of their trade). It would be nice if the 52 cents of every tax dollar collected that are (is?) given back were somehow justified by requiring a sunset/reauthorization. That seems to make the most common sense. I have long advocated a 10 year sunset, although I'll concede the point that a lot of moolah could be wasted in 10 years. However, 10 years seems about right for figuring out if the tax credit is justified.
To respond to a couple of points: If anyone thinks tax policy is just about revenue raising then we don't have any common ground to begin a discussion. Taxes also stimulate and discourage behavior (ie pollution credits and tobacco taxes). They are an effective tool to assist in public policy decisions.
Secondly. the political tax credit is available to everyone, not just those who itemize. I remember the first time I used it, when I made slightly above minimum wage. Granted, I didn't know it existed when I donated, but after that I definitely viewed each year's contribution to a candidate as a much easier decision b/c I knew the credit was there. As my friend Pete Sorenson (Lane County Commissioner) frequently advises, a candidate who starts early enough can get $150 from every donor much more easily (a 2011 candidate can start fundraising in 2009, picking up $50/year per donor)
Although Pat Ryan was being flippant, I completely support ending the home mortgage deduction on SECOND homes. Primary residences serve a valuable societal purpose, but we should not be subsidizing someone's vacation home on the Metolius River (wait...that might be too loaded)
And finally, Alcatross, mp, and Scott inadvertently bring up my most favorite topic - the QEM. For education, at least, there is a blueprint, agreed to by both major parties, about what it would actually cost for a quality education. The bill is right there. The items are research based, best practices (ie class sizes, number of electives, extra teachers for math/science/english). If one agrees that the Model is accurate then one must also agree that a school funding level below that is not a quality education. You want a way to judge if tax dollars are being spent efficiently/on what people want? Then the model is the Model. And BM 1 requires the State Leg to say why they aren't funding it.
James Mattiace Currently living in Morocco