A Progressive Proposal to Reach Co-Chairs' Revenue Goal

Chuck Sheketoff

A few weeks ago, the Co-Chairs of the Oregon Joint Ways and Means Committee released their much anticipated budget plan (PDF). This plan, a blueprint for the budget that Oregon lawmakers will ultimately enact, took an important step in calling for new revenue — new revenue that will help protect and strengthen education, health and human services and public safety.

The Co-Chairs' budget plan requires about $275 million in new revenue through reforming tax expenditures. "Tax expenditures" is a catch-all term for the many tax subtractions, deductions, exemptions and credits in our tax code.

The Co-Chairs' plan, however, does not identify which tax expenditures to reform.

What’s the best way to reach the $275 million goal?

OCPP has put together a progressive plan that gets lawmakers slightly above the Co-Chairs’ revenue goal to $300 million.

Our proposal is based on two principles. The first principle is that tax reform should first focus on those with the greatest ability to pay. The second principle is that all of Oregon will benefit if we invest more in low- to middle-income working families with children.

The four components of this progressive plan are:

1. For only rich Oregonians ($250,000 for Married Filing Jointly, $250,000 for Head of Household and $125,000 for Singles) cap itemized deductions (respectively, at $25,000, $20,000 and $12,500). Capping itemized deductions for the rich would raise revenue while adding a degree of fairness to Oregon’s income tax code.

2. For rich Oregonians who still get a small Personal Exemption Credit, fully phase it out to zero. The 2007 session partially phased it out to a minimum amount, now $60 for 2012 for the wealthiest Oregonians. Phil Knight et. al. would not miss that $60.

3. Make the richest households pay a true top tax rate. In other words, for the richest households phase out the lower brackets’ rates (5, 7 and 9 percent), starting the phase out with households with incomes of $250,000 and ending it with households once adjusted gross income hits $300,000. The richest households would pay the top 9.9 percent rate on all taxable income — a true top rate — and be denied the tax table’s benefits of the lower brackets.

4. For a quarter of a million low- to middle-income working families in Oregon, comprising 790,000 Oregonians, increase Oregon's earned income tax credit to 10 percent of the federal credit from the current 6 percent level. Through their work effort these working families have earned the investment.

The proposal garners 76 percent of the $300 million a biennium in new funds from the top 1 percent, and 23 percent from the next 4 percent. In other words, about 99 percent of the increased revenue comes from the richest 5 percent.

For those who are benefiting so spectacularly from the economy, this plan asks them to contribute more — but the impact is small. For the top 1 percent, these reforms on average would affect less than 1 percent of their income.

At the same time, the plan gives a small boost to low- and middle-income working families with children.

This is a progressive plan that raises the necessary revenue to balance the budget, and helps all of Oregon through a small investment in low- and moderate-income working families.

Discuss.

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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.

By Chuck Sheketoff March 27, 2013 Posted in open discussion.