Today’s revenue forecast shows that Oregon is in a revenue crisis, not a spending crisis. The Governor and legislators should address it with revenue solutions.
The forecast found that Oregon has $261 million less in the current biennium than the 2007 legislature thought would be available to spend. In the upcoming 2009-11 biennium, there will be $1 billion less than the 2007 legislature thought would be available.
Oregon is now $142 million in the red for this budget period, and based on data from the Budget and Management Division, next biennium Oregon will be short $1.1 billion in meeting the essential budget level.
Oregon should turn first to its reserves, but these reserves will not be adequate. The forecast indicated that reserves will total $734 million at the end of the current budget period in June 2009. Even if legislators could access all of the reserve funds — which they are restricted from doing — the state would still be far from having enough money to provide the services Oregonians demand and need.
The most effective policy for raising revenue in this recessionary context is get revenue from those with the greatest ability to pay — both wealthy individuals and large, profitable corporations. That’s where the money is.
A tax increase on very wealthy individuals, who are best able to ride out the economic storm, would tap money that would more likely be saved rather than spent.
The current budgetary predicament reveals the foolishness in letting Oregon’s kicker law send $1 billion back to taxpayers. A year ago, Oregon’s kicker sent $414 million of the billion dollars to the richest 5 percent of Oregon households — those with incomes of at least $181,000. Now that a recession has arrived, Oregon needs that kicker money back. A targeted tax increase can do that.
Another good option is to raise revenue from those profitable, large corporations, most of which are located out of state, who today escape paying their fair share of Oregon’s taxes. Earlier this year the Governor and the legislature let a foolish federal corporate tax cut masquerading as a stimulus measure go into effect. That measure cost Oregon $85 million this budget cycle.
Profitable corporations operating in Oregon now pay less than half of what they paid 30 years ago in corporate income taxes as a share of the economy. Oregon should put the income back in the corporate income tax on profits to get us out of this revenue mess.
It is important to note that yesterday the Oregon Department of Human Services released data (PDF) showing that more Oregonians are turning to state government for help as the economy has suffered. Requests for food stamps, temporary assistance for needy families with children under age 18 and Medicaid are up. Oregon needs revenues to help meet that those needs.
To avoid aggravating the recession, it’s important to maintain state spending on these and other key public services by raising revenues from those who can best afford to pay.
It's appropriate that today's forecast was presented to the House and Senate revenue committees, not the Joint Ways and Means Committee. The revenue committees write our tax laws and can explore smart revenue solutions to our revenue problem.
The suggestion of a tax increase undoubtedly will elicit howls from those who fail to acknowledge the important role that government plays in the economy. They will claim, contrary to reality, that a tax will "pull money out of the economy."
But the current economic crisis demands smart, practical solutions, not ideological sound bites. Slashing public sector spending would deal a serious body blow to the best economic actor still standing.