Reset Tax Code Spending
Chuck Sheketoff
On the heels of across-the-board budget cuts comes the Governor's "reset" report raising concerns about a long term revenue shortfall under Oregon's current budget priorities. A similar look at the long term in early 2008 showed we were in fine shape (PDF - see page 33). The difference? The Great Recession hit and it clobbered the economy harder than state economists could imagine while at the same time Oregon continued to fail to save for a rainy day and continued its policy of spending all unanticipated dollars.
Improving this perilous fiscal outlook — shared by nearly all states — requires federal action (PDF) which has been difficult to obtain. But no matter what the feds do, Oregon can begin by thoroughly cleaning the messiest room in its fiscal house: the one where tax expenditures reside.
As OCPP's latest commentary, Finding Money in Oregon's Messiest Room, explains:
Tax expenditures are the roughly 380 deductions, credits and exemptions contained in the tax code.
* * * Like direct spending programs, tax expenditures cost the state money. The difference is that instead of writing a check from Oregon’s treasury to, say, pay part of the cost of installing solar collectors or buying hybrid vehicles, the state lowers taxes for families and businesses who make those purchases.
Unlike direct spending programs, tax expenditures don't go through the regular, priority-setting budget process every two years. While public schools and programs that protect foster kids vie in the legislature for limited tax dollars each legislative session, the tax credit that subsidizes film production in Oregon avoids such competition.
And when, as now, a revenue shortfall prompts the Governor to order "across the board" cuts, tax-code spending programs escape the budget ax.
Another problem with tax expenditures is that they are not always well-targeted. For instance:
A tax code provision subsidizes owners of multiple homes and million-dollar mortgages, even as the legislature struggles to fund affordable housing for low- and moderate-income families.
A tax code provision to encourage college savings mostly benefits the wealthy families who can already afford to save and send their kids to college, while the state cuts back on scholarship programs that help low- and moderate-income families.
Read the entire commentary, including OCPP's prescription for what the Oregon legislature ought to do to reset our tax code spending, Finding Money in Oregon's Messiest Room.
And discuss here.
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1:16 p.m.
Jun 28, '10
Republicans are often fond of saying that they favor "zero-based budgeting", by which they mean that every budget cycle we should start from zero and decide what's important, each and every year.
We should agree - and make every deduction and credit renewable annually by a vote of the legislature -- and through the normal budgeting process.
At some point in the process, someone should ask (and a majority, at least, should answer) "Should we spend these X millions on this tax credit or spend it on funding schools and prisons and health care?"
I'm certain that my personal answer will sometimes be in favor of the tax credit or deduction, and sometimes in favor of spending on schools or prisons or health care - but the question should at least be asked!
2:09 p.m.
Jun 28, '10
I couldn't agree more. Very well stated.
10:45 p.m.
Jun 28, '10
Michael, good to see you joining Chuck and I in calling for regular review of tax breaks.
Too many of your fellow conservatives believe that, once created, a tax break is inviolate - perhaps even ordained by God - never to be discussed or debated again.
9:59 a.m.
Jun 29, '10
Given that I tend to comment only when I disagree with an article, I understand how you might assume I am a conservative. I am, however, very much an independent.
I am very liberal on some issues, very conservative on others and pragmatic on most.
This lack of ideology allowed me to vote for Bush '00 and Obama '08. To vote Yes on M66 and No on M67.
I do agree with you often, I just don't express it as much as I should.
2:43 p.m.
Jun 28, '10
Chuck, I think you buried the lede:
"And when, as now, a revenue shortfall prompts the Governor to order "across the board" cuts, tax-code spending programs escape the budget ax."
That's a great observation and one missed in what is otherwise, in my near-complete reading, a pretty impressive report. Politically speaking, ending a lot of those cuts would be far easier than slashing schools.
3:00 p.m.
Jun 29, '10
actually, a lot of the resistance to doing the kind of review that we should be doing of tax expenditures is coming from the agencies. They say it's "too difficult" and would "cost too much" to determine the effectiveness of tax expenditures in a meaningful way. So one thing we really need to get at this is some leadership by the next Governor to say to agencies that they need to stop stonewalling the need for tax expenditures to have some accountability.
3:40 p.m.
Jun 29, '10
Imagine one of those agencies telling the Ways and Means Committee that they deserve their budget but don't have time to give the Leg an analysis of the effectiveness of their work.
For some of them it would be really easy to get reviews of the programs -- take 'em out of the tax code and make 'em compete for budget dollars in the Ways and Means Committee. I betcha they'd come up with evaluations!
8:23 p.m.
Jun 29, '10
Yeah, cut out the mortgage interest deduction and college savings programs. Commit political suicide. Great advice.
11:34 a.m.
Jun 30, '10
Only a law professor at a private law school could or would defend tax code provisions (on the grounds that they are popular) that help millionaires buy homes and save for college while the state shuts down programs for the homeless, raises tuition and scales back financial aid for college. Sad.
12:59 p.m.
Jun 30, '10
So the middle class, who do use those deductions as well, should be punished just because YOU are offended that some "rich" people also get to claim them?
1:36 p.m.
Jun 30, '10
No Michael. I imagine helping low- and middle-income households would still be a priority -- just as it is with the "on budget" spending. What's needed is reform that stops subsidizing those who don't need state financial assistance. That's what needs testing would address. Read our full post, please.
8:15 p.m.
Jun 30, '10
Would that include remving any public entity from BETC consideration?
1:06 p.m.
Jul 1, '10
I have long argued that it is rediculous that Oregon agencies get BETC tax credits to sell. We should just be doing the work and not taking the tax credit, which makes the purchase/work more expensive.
8:41 a.m.
Jun 30, '10
All I am going to say is MAKE THIS ISSUE SEXY. It is too important for people to overlook.
7:42 p.m.
Jun 30, '10
I agree with previous comments; however, IMO - 1) many tax deductions are overlooked by low or middle income taxpayers 2) this is all well and good but if you don't make sure agencies have adequate staffing (and I mean front line staff not more managers!)to administer these provisions and give the laws teeth when folks misuse and abuse these tax breaks, there will still be blood letting in our budgets....
8:14 p.m.
Jun 30, '10
i suggest that the other difference is the profligate pay increases given to state supervisors and managers late 2008 and the increase in headcount of 1731 ftes also play a part.
Chuck, we should look at tax deductions, AFTER the state has curbed spending. Also, in our zeal to "punish" the wealthy lets not stomp on our own foot. some recent examples of tax code punishments having an unintended effect on the lower and middle class:
10:48 p.m.
Jul 1, '10
I believe the managers pay increases were rolled back, retroactively. And the increase in FTE went mostly to DHS positions, where it was needed. I agree tax deductions should always be examined, regardless of the budget....