Yes, Tax Expenditures Can Be Cut to Meet Spending Priorities
Chuck Sheketoff
Governor Ted Kulongoski ordered across-the-board budget cuts to address the state’s budget deficit. That approach, unfortunately, fails to take into account the state’s spending priorities and leaves off the table misplaced spending enshrined in our tax code.
Now, along comes the Oregon Department of Energy, taking a step in the right direction. A story in Friday’s Oregonian noted that the Oregon Department of Energy has by temporary rules scaled back the state tax credit subsidy for residential solar installations as part of a cost savings plan to help with the state revenue shortfall. The change applies only to residential customers, and the story does not explain why the department didn’t scale back the solar subsidy for business installations, too.
Too bad the Governor didn’t give a directive to all agencies to do as the Department of Energy did and reconsider tax expenditures in a time of a revenue shortfall.
Take, for example, the Governor’s Office of Film and Television. Oregon Film sold out the extra $2.5 million in tax credits the 2009 legislature authorized in just 15 minutes on July 1. Those $2.5 million in credits generated $2.375 million for a special fund that the film office uses to subsidize film production. For every $0.95 the taxpayers put in to the subsidy fund on July 1 the taxpayers will reap $1 in tax credits by April 15, a guaranteed 5.3 percent ROI over the six –nine month period. The Governor’s Office of Film and Television apparently didn’t feel obliged to scale back their sale to help keep priority programs, like schools, services to the aged and disabled, public safety and the like, from having to take even deeper cuts. If this year’s sale was like past years’, nearly three-quarters of the tax benefits from the program go to the highest-income 1 percent of households, who represent about 22 percent of the households that use the tax credit, and the wealthiest 5 percent of households, representing about 62 percent of claimants, reaped about 94 percent of the tax credit sale’s benefits.
Perhaps the Department of Energy’s action will prompt other agencies to look for savings in the tax expenditure programs they administer.
Agencies are constrained as to the amount of savings they can generate from tax expenditure programs that don’t match Oregon’s budget priorities, and many tax expenditures are not dependent on action by administrative agencies. It is really the Legislature’s responsibility, and they have full authority to fix the problems.
Hopefully, the good move by the Department of Energy will give the Legislature the will (they have the means) they need to really comb the messy tax code for other misplaced spending priorities during these tough times.
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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10:13 a.m.
Jul 19, '10
As I understand it, the film credit donations also get to be tax deducted from your federal taxes. Which means a much higher return than the 5.3% in six-nine months you get just from Oregon. Is that right?
11:40 a.m.
Jul 19, '10
I don't know if that is correct...the donation may be deductible, but the credit definately reduces the amount of state taxes that the person can deduct on federal return. I'll leave it to an accountant to pencil out the net of those two. The bottom line is that few Oregonians can find a guaranteed 5.3% return, whether the donation is tax deductible or not, and the money is funding a questionable priority. If the subsidy fund is as good for Oregon as the proponents argue, then stop the tax credit and let it compete with education, human services, public safety, just fund it out of the general fund (without giving a 5.3% premium to wealthy folks).
12:53 p.m.
Jul 19, '10
I agree: Gov K's administration should look at ways to cut all tax expenditures by 9% or more.
As you explain it, the tax credits for donations to the special fund for the Office of Film and Television makes no sense. They should be eliminated. We're just giving tax dollars away.
I don't give much priority to spending $5 million to $7.5 million per year subsidizing film production in Oregon. Our long term economic future would be better off if we spent the $5 million on sending 600 high school students per school year to China or other emerging markets so that we can beef up our exports.
4:04 p.m.
Jul 19, '10
But what is an Oregon shot movie if not an export? Remember, most movies shot in Oregon are funded from outside the state, so really, what export activity has such a high "new" money (extra-state capital infusions) rate on the input side and since most of the actual sales are outside the state on the output side too (remember pensions and back end points spread some of the profit back instate)? Film and Video is also an industry cluster that is targeted for development by state planners because the ROI is historically so high. Additionally, it is a bit deceiving to look at the incentive package in a vacuum. The competition for this high paying, clean, clustered industry is not just from other states but Canada and other countries that have an exchange rate advantage. this means that the whole argument is a little all-or-nothing. Our total incentive package must be able to compete. Additionally, the multiplier on this industry is higher than most on in-state economic activity because the spending is so diverse (think hotels, cars, fuel, food etc., instead of concentrated industrial inputs like lubricants or specialized materials. And please remember that movies are one of the overall largest exports from our country. But then... I have a lil' bit of a vested interest : )
4:38 p.m.
Jul 19, '10
I agree that film production is an export. The sales of the final goods are largely outside Oregon so their production largely brings new money into Oregon, which is great (more of it, please). So much would depend, IMHO, on the specific percentage subsidy of a project and the multiplier effect of the production spending in Oregon. And I haven't a clue.
The larger question is can film production be sustained in Oregon without the subsidies? What gives Oregon a comparative advantage? Or how can we really compete with Canada and the other states and countries you mention?
8:17 a.m.
Jul 22, '10
Brian, you're making an excellent argument in favor of the subsidy.
Chuck's point is that if you're right, the Legislature should have no trouble approving the subsidy through the normal budget process - where questions like Dave's will actually get asked: "Is it better to subsidize film production in Oregon or send a bunch of Oregon kids to study overseas for a year? - or fund schools, health care, and prisons?"
All good questions... that are UNASKED in the legislative budget process.
2:20 p.m.
Jul 21, '10
The Film and Video office paid for a consultant report on the economic impact and taxes from out of state film production are less than the cost of the subsidy to out of state film producers.
But assuming it is a smart deal for Oregon, then let's put the program into the General Fund and take away the subsidy to wealthy Oregonians who are making money buying the tax credits. If the program is as valuable as Brian and others think it is, won't it survive the General Fund budget process and get funded? Why should we continue the system where every 95 cents of subsidy costs us $1.00? That's wasteful and inefficient.