It's a matter of priorities

Chuck Sheketoff

Every session, even when faced with a revenue shortfall, the legislature has created a new, or extended or expanded an existing spending obligation through the tax code. It’s hard to believe that history won’t repeat itself. Thus, the only question is whether the new, extended or expanded tax code spending will match up with Oregonians’ priorities.

Oregonians’ priorities. That ought to be the legislature’s guide when it comes into session in January and confronts a revenue shortfall by deciding where to spend Oregon’s precious tax dollars.

In today’s harsh economic landscape, what more important priority can there be than helping low-income, working families with children make ends meet?

The revenue shortfall has some lawmakers promising no new spending on tax subsidies and loopholes, but that’s unlikely to occur. Every session, even when faced with a revenue shortfall, the legislature has created a new, or extended or expanded an existing spending obligation through the tax code. It’s hard to believe that history won’t repeat itself.

Thus, the only question is whether the new, extended or expanded tax code spending will match up with Oregonians’ priorities.

That’s why the Oregon Center for Public Policy has pulled together a coalition of about 100 organizations — social service providers, small businesses, local governments and unions — calling on the legislature to improve the Oregon Earned Income Tax Credit (EITC). This coalition thinks that if anyone ought to get new tax subsidy spending, it ought to be those working families who struggle to get by despite their work effort.

Look at four examples of the alternatives the legislature will face.

First, film production. The tax credit subsidy doesn’t directly help woo Hollywood moguls. Rather, the subsidies for Hollywood come from a special pot of money funded with contributions, mostly from wealthy Oregonians. They receive a tax credit at least 5 percent greater than their contribution. In other words, the tax credit subsidy scheme costs the rest of taxpayers more than it would cost to fund the Hollywood moguls directly as a budget item.

Should helping wealthy Oregonians get a guaranteed 5 percent return on their “investment” trump helping a family earning near minimum wage make ends meet? Most Oregonians surely would prioritize funding an improvement of the EITC.

Second, research and development. We spend money through the tax code subsidizing corporations’ research and development. We spend the tax dollars even if the R&D is central to a corporation’s existence, has little social value or is going to a profitable company. And given that we subsidize just 5 cents on every qualified dollar, it’s hard to argue that it provides a real incentive to Oregon businesses to conduct R&D that they otherwise wouldn’t conduct.

Should giving money for R&D to corporations, even ones sitting on billions of cash, trump helping low-income working families with children make ends meet? Most Oregonians surely would prioritize an improvement of the EITC.

Third, solar energy, electric cars and energy conservation. Today, our residential energy tax subsidy is not means tested, so a disproportionate share of the money subsidizes purchases by Oregon’s wealthiest taxpayers.

Oregonians might well prioritize spending tax dollars in these areas, but should helping a millionaire put up solar panels or buy an electric car trump helping low-income working family with children make ends meet? Most Oregonians surely would prioritize an improvement of the EITC.

Last, new markets tax credit. A proposed state new markets tax credit (NMTC) would match a federal subsidy for real estate development by the same name and make the federal and state subsidy total 78 percent of investors’ costs. The NMTC essentially would be a giveaway to wealthy venture capitalists who fund real estate developments (think “The Nines” hotel in Portland).

Should Oregon prioritize a subsidy for wealthy commercial real estate developers ahead of help for low-income working family with children? Most Oregonians surely would prioritize an improvement to the EITC.

It is a safe bet that the 2011 legislature will spend some money through the tax code, regardless of Oregon’s overall revenue shortfall and other budget decisions. And when they do, let’s hope they spend it on helping low-income working families with children by improving the state EITC. It’s the right priority.


Oregon Center for Public PolicyChuck 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.

Comments

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    Good post and good comments. I believe that if tax subsidies had to go through the same budget process and review as spending we would have much fewer. Somewhere along the line we got into a mode that spending through tax breaks is not spending even if the effect is the same.

    While I would agree on cutting or eliminating three of the items you list I am not in agreement that we make the energy subsidies income dependent. The whole goal of the credits is to increase the use of alternative energy and to push the technology by making a market that would not exist otherwise. The hope is that as the technology improves the cost will come down to the point where subsidies are not necessary. The consumer still has to expend his/her own dollars to purchase the product/service that still does not pay for itself after the tax break. Only the well-off or the truly dedicated have the funds to spend this way. To the extent that a subsidy is not needed to entice the consumer the subsidy should be cut.

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      I don't think there's any evidence that Oregon's subsidy for hybrids or solar has brought the market price down, nor has the subsidy for conservation improvements brought down the market (unsubsidized) price. And with the latter,it has long been economical with good paybacks.

      The federal credits, and the feed-in-tariff are enough of a market (heck, the feed-in-tariff sells out in minutes!!).

      The issue is priorities, and I really don't think taxpayers subsidizing solar or special cars or new insulation for a millionaire would be Oregonians' priorities, however valuable you may think those subsidies may be for the overall market pressure on cost. Should we insulate a home for Phil Knight or Mark Parker before we put money into arts, music, full-day kindergarten and smaller classrooms in K-12?

      I could have listed others, like the home mortgage interest deduction. Is it really a priority to subsidize a person who can afford a $990,000 mortgage? Isn't help for the working poor or homeless families (too often one in the same) a higher priority for state spending?

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        Really Chuck? Do away with the home mortgage interest deduction? You're right, Phil Knight is the only one who takes advantage of that... not my welder neighbor here in SE Portland or the family of four on the other side. Baby, meet bathwater...

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          Harold, I never said do away with it, but it certainly cries out for reform when taxpayers are subsidizing mortgages up to $1 million and most Oregonians do not benefit from the home mortgage interest tax subsidy. In 2006, nearly two out of three Oregon taxpayers (64 percent) received no benefit from the mortgage interest deduction.

          As we at OCPP noted in Rolling Up Our Sleeves (PDF), one of the most effective measures Oregon could take to build a fairer tax structure would be to better target the state’s primary tax subsidy for helping people buy a home. The current tax subsidy, the home mortgage interest deduction, does little to promote homeownership and helps primarily those with higher incomes. Its cost undercuts the ability of the state to promote homeownership opportunities.

          There are various ways to improve the current subsidy, each with the goal of better targeting those who truly need help with home purchases. For example, Oregon could reduce the mortgage interest deduction limit to well under $1 million of debt. Capping debt subject to the tax break at the cost of a modest home would target the relief. A more comprehensive option would be to turn the current tax deduction into a refundable tax credit available to all homeowners, only to first-time homeowners or to persons with income below an income cap.

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    I would support eliminating the 4 tax subsidies you list, and probably many others you didn't list. If tax rates were generally lower for everyone, and there was less social engineering through tax subsidies for politically-favored activities, I think we'd all be better off.

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    It should come as no surprise that I take issue with this article. Mr Sheketoff and I have sparred in the past (http://www.oregonlive.com/opinion/index.ssf/2010/06/what_can_the_oregon_film_indus.html#comments) and I'm sure we'll continue to.

    One thing I can't fathom, though - why is it the OCPP's opinion that helping struggling Oregonians qualify for the Earned Income Tax Credit is more important than putting them to work so they won't NEED the EITC? What does OCPP have against the Legislature's creating jobs?

    Given my profession and the web site I run - http://www.oregonfilmandtvdollars.com - you might think I take issue with Mr. Sheketoff's comments about the Oregon's film incentive programs which DO "woo Hollywood Moguls" to bring their business to our state (perhaps Mr. Sheketoff was asleep during the late 1990's and early two-thousands, before the incentives, when virtually NO revenue came in from film and tv production. That situation has changed dramatically - if you'll excuse the expression - to the tune of $350 million worth of economic impact since 2007.)

    My concerns go beyond OCPP's... misstatement of the Oregon's film incentives' benefits. The R&D tax credits OCPP decries have helped move Oregon from a struggling resource-based economy to a high-tech economy - again, I remember the mid-1990's, when the timber industry's troubles hit our state's economy. I have hard a time believing that those tax credits OCPP is against had no part to play in Intel's announcement that it's planning to invest $8 BILLION in new fabrication facilities - including a new facility right here in Oregon(http://www.techeye.net/chips/intel-announces-8-billion-investment-in-next-gen-us-fabs).

    The energy tax credits Mr. Sheketoff and OPCC decry have been a boon not only to "millionaires who want to buy electric cars" but working-class Oregonians - like me - who've purchased hybrid cars from Oregon dealerships, bought electric lawn mowers from Oregon businesses and have even hired Oregon contractors to upgrade our homes insulation (where'd the money for those upgrades came from? Leverage and Twilight, both brought to our state by Oregon's film incentives.

    Next on the list is a "tankless" water heater I'd probably never invest in... if there wasn't a tax credit available to off-set the cost.

    Mr. Sheketoff is right about one thing - it is all about priorities. The question we need to ask - and ask our legislators - is what ARE our priorities? Should our priority be to lift people out of poverty with the jobs programs such as these create? Or should our priority be to assume struggling Oregonians will never be able to do better?

    Fogive me, but if it's all the same to you I'll choose the former.

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      Harold shows he doesn't know what he's talking about right from the get go. To qualify for the EITC you need income for work, so to claim the alternative to improving the EITC is to put the families to work is nonsense.

      Let's assume the film subsidy fund has been as successful as Harold says it is, then why wouldn't the legislature fund it as part of the budget, saving Oregonians the 5%+ premium we're giving the fortunate few who purchase the tax credits? Heck, some of those savings in theory could go into the fund to fund more of what Harold wants...but apparently he's comfortable with the inherent inefficiency/waste built into the tax credit scheme.

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        You know Chuck, I've never understood your railing at the structure of the OPIF's tax credits. I have no idea why the program was structured this way, but it seems to be working pretty well - the money providing Oregonians with jobs doesn't come from the general fund - instead, it comes from an alternate, sustainable source of funds similar to the park funding that's at issue with Measure 76.

        On, and incidentally Chuck, you don't have to be one of the "fortunate few" to buy one of these tax credits. All it it takes is $1.00 to buy 1 credit.

        Honestly, what's the big deal? So those investors have an incentive to put Oregonians to work. That incentive sold the full allotment of tax credits in 2009, and those credits created over 900 jobs for Oregonians that same year.

        I'm sorry, I just don't see a problem here. Everybody wins - the investors get a return, Oregonians get employed, and income tax gets paid on all those wages (not to mention the $62 million productions paid directly at Oregon vendors and merchants in the course of doing business... I'm guessing tax was paid on all THAT income too.)

        Honestly, why should the legislature fund it as part of the budget? This is working just fine for everyone concerned - especially all those people going to work.

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          Harold, where do you think the credits come from? The General Fund. It is NOT funded like the parks measure, that is taking a percent of Lottery funds.

          You are correct that anyone can get in line to buy the credits, but Dept of Revenue data shows that its a game played mostly by the wealthy -- the ones with the accountants who know about it (in a Register Guard story last year, an accountant said the deal seemed too good to be true for her clients, but when she realized it was true, she started signing them up).

          And you are taking your jobs number out of thin air -- there is no evidence that 900 permanent jobs have actually been created by the subsidy program. The ECONorthwest study estimated that the taxes paid as a result of out of state film production do not pay for the cost of the subsidy program.

          Everybody doesn't win -- taxpayers pay people like the Goodman's a 5% premium (it was 11% before I started complaining about it and brought the waste to light). And you (and all other subsidy fund supporters and alleged beneficiaries) are a loser too -- to the tune of $750,000 a biennium. Under the wasteful scheme, the fund sells $15 million in tax credits but gets only $14.25 million to spend on subsidies. What happens to that $750,000? It pads the bank accounts of the donors.

          Why do you persist on being such a shill for this wasteful program?

          Oh, that's right, you are an actor and maybe being math- and waste-challenged is all just a big act.

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            Wow. Nice, Chuck. That's really the way to "seal the deal" in any debate - insult your opponent and his profession. I REALLY respect your position now. You've gone a long way towards changing my mind. Bravo.

            Forgive me, but your reasoning is simply short-sighted. I seem to recall that when Oregon was suffering with the collapse of the timber economy, there were people just like you saying that the state's investment in high tech industries was wasteful and those moneys - whevever they came from - would be better spent elsewhere. Had those voices won, OHSU would not be one of the top research hospitals in the nation. Intel might not be one of the top employers in Oregon.

            Now I suppose, being an actor, I don't have the massive intellect to come up boogie-men like "the wealthy" and "the Goodmans" to hang my arguments on... I just have to stick to facts. Facts like $62 million - that's the amount spent in 2009 in Oregon by the film and TV industry. Hm... $62,000,000.00 minus $15,000,000.00 (with or without that $750,000)... I don't know, I'm just an actor and I'm math-challenged. Why don't you do the math for me and let me know if the state made a profit there?

            Incidentally, that "900 job" figure I "pulled out of the air?" http://bit.ly/cjpX5M That's just ONE production shooting in our state. Are they permenant jobs? No. Will the jobs that production provided help those families we were talking about earlier make their car payment? Youbetcha!

            I persist in being a "schill" for this program because it delivers results - plain and simple. We've seen income from this industry rise to $350 million since the OPIF was enacted - that's a fact. It's provided thousands of jobs that wouldn't be here otherwise - that's a fact. It can grow to become a sustainable domestic industry - just look at a state like New Mexico (which offers a much more robust film incentive than we do.) Since their legislature began investing in that state's film industry, New Mexico has seen revenue of $3.3 BILLION and over 10,0000 film-related jobs. (http://bit.ly/8X4foO)

            You're right, Chuck - there's no way Oregon should try for anything of that nature. That'd be like investing in that wasteful, pie-in-the-sky tech industry - it obviously has no benefit to our state either.

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              When I read this, it reads that Chuck's main issue isn't the value of Oregon's film industry - but how the subsidy is structured and how much it costs.

              Do you think that the current structure is what makes it work? Or do you think we could find some savings while still providing some support for the film industry? Those are the questions I'm interested in.

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                While I do question whether the economic impacts of the subsidy are as great as its proponents claim, because from the film industry's perspective it is a subsidy payment they apply for and receive, and not a tax credit, changing the source of funds -- from a tax credit funded fund to a direct appropriation -- would have virtually no impact on the program while saving the "premium" we give to the predominantly wealthy folks who contribute to the tax credit-financed fund. Besides the immediate and clear savings associated with not providing a 5%+ premium, the fund would be subject to two year appropriations instead of getting multi-year spending guarantees (the years until the sunset). The health care industry, the construction industry and others that provide services or otherwise rely on state dollars (printers, office equipment suppliers, etc.) have handled the 2 year budget cycle just fine, and I am sure the film industry would get by with it too.

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                  You know, Chuck, I just don't see why you want the general fund pay out to more programs when there's an alternate funding structure in place - one that allows for the building of a strong domestic industry while leaving general fund dollars to pay for services such as protection and schools.

                  You quibbled with my comparison between the OPIF tax credits and the parks funding at issue with Measure 76, but I maintain that it's a sound analogy - both programs are set up to remove funding for their particular interests from the political back-and-forth of the biannual budget cycle. Your argument is tantamount to an argument against measure 76 - "The health care industry, the construction industry and others that provide services or otherwise rely on state dollars... have handled the 2 year budget cycle just fine... I'm sure the state parks would get by with it too." Couldn't we better use the money dedicated to state parks by putting it in the general fund? If they were really as important as backers say they are, they'd be funded in the biannual budget just fine.

                  Of course, I and many of BlueOregon's readers don't buy that arguement - they want to assure that maintenance of the parks (and everything that provides to the state in terms of tourism dollars and ecologic preservation) is kept insulated from the political meat-grinder. Funding for the OPIF is structured with the same philosophy.

                  Look, I'll be honest - I've struggled with the 5% incentive to investors built into the plan. As time has gone on, however, I see the wisdom in it. When I took advantage of the energy tax credit this past year, I got new insulation in my home. When I took advantage of the hybrid vehicle credit, I got a car. What do the investors in the OPIF get for their investment?

                  I'd love to live in a world where altruism ruled an investor's heart - but the reality is that most people aren't looking to give money away for nothing in return. Giving these investors the 5% return you're railing against (the kind of return your checking account USED to give you) is just making sure that Oregon's industry is allowed to develop - without political brinksmanship getting in the way.

                  It really is a question of priorities, Chuck - measure 76 is a chance to restate our piorties, as Oregonians, to preserve our natural legacy beyond the politics of the biannual budget battle. The OPIF is structured the way it is to allow citizens of Oregon to say its their priority to build a new, sustainable, green, 21st century industry in our state.

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    Harold, the EITC is the earned income tax credit. If you don't have a job you don't get it. This was a Reagan creation to help low wage earners.

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      Yeah, I don't think I was clear in what I was saying regarding the EITC - and you (and Chuck) were right to call me on that.

      My point is simply that raising household income by providing better paying jobs - jobs that provide an annual household income beyond $45,295.00 for a family of four - is a much more sustainable model than simply raising the threshold for the IETC.

      That being said, I don't see why it has to be an either/ or scenario; this notion that we can't do one without limiting or doing away with the other is, to my way of thinking, limited. As Chuck said in his initial article, it's all about priorities.

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        Harold, I'm all for strategies for reducing poverty by increasing wages, education and training and embarking on a "high road" economic development strategy in Oregon.

        But with limited dollars -- you do know we are facing about a $3 billion revenue shortfall -- spending priorities need to be made and somethings need to honestly put lower on the list. And in my book, a program that costs taxpayers $15 billion a budget period and provides only $14.25 billion of "service" is waste we cannot afford and cries out for reform.

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          million, not billion. in last comment.

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            Wow. You know, Chuck, this last one made me a little uncomfortable...

            "...with limited dollars... spending priorities need to be made and somethings need to honestly put lower on the list."

            You do know that thats precisely the argument used by Republicans to justify their desire to do away with "entitlement programs," right? This notion that we have to do one thing exclusively for the short-term good, and not keep our eye on building a stronger, long-term future of our communities is EXACTLY the type of famine-based thinking that the right has been working to engender in us for the past 40 years.

            Sit back. Take a breath. You're right, the legislature is going to be facing a massive budget shortfall, and they'll have had decisions to make. Making decisions that patch the dike now without at the same time setting resources aside and planning for building a newer, stronger dike, though... well, that's madness - and a perscription to keep us all in bondage for a long long time.

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    Chuck, I tend to support your four arguments to the extent I am familiar with the issues--which is to say only passingly.

    But I do cringe when I read sentences like this, which undermine your credibility: "[B]ut should helping a millionaire put up solar panels or buy an electric car trump helping low-income working family with children make ends meet?"

    I have no idea what percentage of solar-panel users are millionaires, but electric car owners? Not 100%. You're asking two key members of the coalition who will decide on these changes to select among their own top priorities. Demonizing your partners isn't a great way to foster cooperation. This is a false dichotomy. Were I to have written the sentence, it would have been something like: "But can we afford to spend our limited dollars on programs that benefit the middle class and wealthy like solar panel or buy an electric car subsidies when they come at the expense of programs that help low-income working family with children make ends meet?"

    The greens aren't your enemy, brother. They're the ones who will cede their ground in tough negotiations when the GOP want draconian cuts. Work with them.

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      Actually, were I to rewrite that sentence, I'd try to make sure it was English:

      "But can we afford to spend our limited dollars on programs that benefit the middle class and wealthy like subsidies for solar panel and electric cars when they come at the expense of the programs that help low-income working family with children make ends meet?"

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        About 79 percent of the residential energy credit (which includes cars) goes to the top 40 percent of taxpayers (and these from the top 40 percent represent 79 percent of the people taking the credit), and low- to middle-income taxpayers -- taxpayers in the bottom 60 percent of taxpayers -- get about 21 percent of the credits.

        Taxpayers in the top 5 percent of the income distribution get about 15 percent of the credit. The "middle class" -- the 20 percent of Oregonians in the middle of the income distribution, represent just 12 percent of the tax credit's claimants and got about 11 percent of the tax credit's value. To call this a middle class subsidy is disingenuous.

        The fact is that it is not means tested and the credit's proponents have never offered to make it so (the Energy Trust can't even tell you what the distribution is of their subsidies, paid for with a regressive tax on utility bills).

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    Chuck scored 80, an amazingly high score for his normal attacks. Had he also suggested leaving the EITC as it is he would have had a perfect score.

    The state has no money Chuck. The cuts must come from all areas.

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