There are better hard choices

Chuck Sheketoff

A front-page article in today’s The Oregonian purports to set out the “hard choices” that await the next governor and legislature as they confront our state’s fiscal woes. Unfortunately, it fails to even mention one clear choice for the legislature, cutting tax code spending, while summarily dismissing another clear choice, raising new revenue.

The article states,

Raising taxes isn't on the table. Services already have been cut, and further reductions to schools, prisons and the poor will spark great debates and surgical strikes.

Then it goes on to review several ways to wring savings out of public sector employees. In other words, the article proceeds as if the only choice is balancing the budget on the paychecks of thousands of middle-class Oregonians.

Fortunately, there are better choices.

The starting point in confronting Oregon’s revenue shortfall should be a review and overhaul of tax code spending. The tax code is riddled with deductions, credits and exemptions, many of which leak money in unproductive ways, and many of which provide unnecessary subsidies to wealthier Oregonians.

The legislature should begin with the tax code when looking for spending cuts and see how much revenue can be saved from that (maybe-not-so) hard choice.

Beyond that, consider raising new revenue. Raising revenue ought to be “on the table,” and the article offered no good reason for why it “isn’t.” No matter what your position was on Measures 66 and 67, there shouldn’t be any doubt that the measures are helping us today and into the future. Had they not been approved, we’d be in worse shape today and tomorrow.

Like just about every state, Oregon confronts a revenue problem caused directly by the Great Recession. When the 2009 legislature was in session they had before them the state economists’ 2008 projection that revenue would match or exceed expenditures well into the future. But the recession turned out to be worse than originally thought, and the recovery more anemic, so revenue shrunk. It was the Great Recession, not budget decisions, that caused the current projected shortfall.

The legislature knows that some very large and profitable corporations are paying too little in taxes, even after Measure 67.

The legislature also knows that wealthy Oregonians are still paying a smaller share of their income in state and local taxes than do middle- and low-income Oregonians, despite Measure 66 (PDF). That’s an upside down tax system and makes no sense.

Contrary to The Oregonian’s suggestion, squeezing paychecks is not the only choice. Cutting wasteful and inappropriate tax code spending and raising new revenue may be hard, but certainly better choices for our state to pursue first.


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

  • (Show?)

    I'm of the opinion that if you want to raise a sustainable revenue, then promote job creation within the public and private sectors. The impacts of facebook on Crook County have been enormous, and that's just one business. There's no amount of tax increases that would have the same multiplying effect within the economy as new jobs.

    In fact, if Oregon's per capita wages were at 1995 levels ($21,611 for an individual) with average unemployment, we'd have a budget surplus (when adjusted for inflation). So I'm not convinced that the idea of continually raising revenue through new taxation is the answer; however, I agree with your point about finding and fixing tax loopholes.

    Secondly, I don't think most people take issue with the salary of state employees, it's the benefits packages they receive. My wife and I pay nearly $500 per month for health/dental insurance. Most public employees pay little to nothing at all. And I certainly have never had the opportunity to take part in a PERS system.

    Please don't take my comments to mean that I don't support public employees, that's not it at all. Any job in Oregon lost isn't good, and I certainly don't want to see more layoffs anywhere. In fact, I wish we could focus the discussion on just providing and creating new long-term jobs period. Ultimately, the more workers we have in Oregon, the better off we'll all be.

      • (Show?)

        Newsflash--the rich don't "create jobs" they invest their money in whatever way they think will provide the highest return. If that happens to create jobs, fine, but that is not and never is the objective of an investor.

        For example, Facebook. A multi-billion dollar company. Just 600 employees.

  • (Show?)

    Thanks for posting this, Chuck. I totally agree we need to look at the tax code to close some loopholes. There are certainly some tax breaks that are subsidizing activities that would happen anyway without the tax break.

    • (Show?)

      That was a fantastic post Jason.

    • (Show?)

      Jason, it's too damn simple to just say we need more jobs to create more revenue. How are you suggesting that more jobs be created?

      Raising revenue to fund more jobs? No, that's off the table it seems. Cutting taxes? No, that hasn't worked yet.

      Praying to whomever you pray to? Seems a little on the iffy side that that will work.

      What then?

    • (Show?)

      I'm an investor. Whether I'm putting money into a venture capital position - where it will likely support jobs - or buying Microsoft stock - where it will create zero jobs unless at some investment house, I don't think about how many jobs I'll be creating. Is it a good idea that will create financial return, that is the investors' focus. Even when I was a business owner, it wasn't about the jobs, it was about whether something was a sound business decision. You're dealing with a very small subset of the investor population, so your view is limited.

    • (Show?)

      Investors don't invest in order to create jobs. They invest in order to make more money. If they can create jobs in the process of making money then all the better, but that is not their goal.

      They might like to create jobs. They might be happy to do so. But they won't do so out of a sense of charity. They will do so if doing so will make them more money.

      Until investors feel that investing in new jobs will make them more money, they won't create jobs. And what makes investing in jobs worthwhile? If there is something those workers can make that people want to buy. If people aren't buying, the investors won't create jobs to make things. So we have to get people buying. That means getting money in their hands so they can buy. That means spending.

      The dominant dialog today is about how we spend to much. This is so much bull. The problem today is that we aren't spending enough. That's basically the textbook definition of a recession.

  • (Show?)

    One place to start: property tax limitation. Even granting that voters in the state want SOME kind of limits on property tax, does it make sense to let Don McIntire and Bill Sizemore write it? (Yes, I know Sizemore's dumb Measure 47 idea was rewritten by the legislature to be just a little more workable, but it's still a freakin' public policy debacle now that we've had fifteen years of changing market values massively distorting individual tax burdens.)

    I suggest the legislature should work up a counter-offer for the voters on property tax limits. Maybe just apply the current scheme to owner-occupied residences, exempting income-producing property from the limits. Maybe readjust the base value of your property for tax purposes to the year you purchased it, rather than an arbitrary "10% below 1996 values." Or create a local option: let local voters place a higher cap on school funding than 1/2 of 1%. If voters are actually sick of gutting schools and services, they might be open to a yes vote on a new offer that gives back some local control.

    Sales tax, of course. I'm not a fan of a general sales tax and a lot of Oregonians would say "no" automatically. But maybe specific excise taxes could be on the table rather than a general sales tax. For example, a 5% statewide lodgings tax. For those who say we should have a sales tax to capture more visitor's money: a tax on hotel rooms is the way to go.

    Or a 10% tax on restaurant meals. We tip 15% - 20% anyway. (Well, those of us who aren't jerks.) And restaurant meals are indisputably a luxury item.

    Or a 5% tax on event tickets. That's chump change compared to what Ticketmaster gouges you for.

    And why not increase the gas tax? Given the way the price of gas fluctuates, it's not like people genuinely object to paying it -- they just grumble and pay whatever the price at the pump is. Fact is, if the government raised the gas tax and (somehow) didn't tell anyone, nobody out there would even notice.

    Taxes on cigarettes and booze? Why not? And the state selling pot should be on the table too.

    And yes, there's a lot of money to be found by getting rid of tax expenditures.

    We have revenue options. Quite a few of them, in fact. Some probably would be acceptable to a majority of voters. It would be a gross dereliction of duty for the legislature to ignore them.

    • (Show?)

      Sales and excise taxes are simply a way to shift more of the tax burden onto the poor and middle class.

      A 2002 report by the Washington State Tax Structure Study Committee (chaired by William H. Gates, Sr.) broke down household tax burdens by tax type in Chapter 9, Table 9-1 (p. 99). It calculated that households paying with incomes of less than $20,000 were paying 3.2% of their income in non-sales excise taxes, with households between $50K and $60K paying 1.3% and those making more than $130K paying only 0.4%. So sure, if you're comfortable with systems where poor people pay proportionally 800% what upper-middle class and wealthy people pay, increased excise taxes are a great plan.

      You can take solace that sales taxes aren't quite as regressive: 6.7% of income for <$20K, 3.7% for mid-$50s, and 2.2% for >$130. Just a 3:1 ratio there!

      For those who say we should have a sales tax to capture more visitors' money, I just like to remind them that half the overnight stays in Oregon are by Oregonians traveling within the state. That someone who lives here year-round pays a sales taxes 52 weeks a year, not just when they're on vacation. And that people don't bring take extra money with them to pay taxes when they visit somewhere, they just spend less on goods and services.

      • (Show?)

        Half of overnight stays in Oregon are by Oregonians traveling within the state? I'll take that as accurate. That means roughly half of a hotel tax would be paid by visitors out-of-state ... a FAR better ratio than we would get out of a general sales tax or most excise taxes.

        There isn't enough money in taxing hotel rooms to make more than the slightest dent in the budget shortfall -- but it could be one small component of broader revenue reform. (Personally, I'd dedicate a hotel tax to state parks ... combined with other tax sources dedicated to parks, it might be enough to get parks off the general fund completely, and free up a bit more of the general fund forever.)

        • (Show?)

          I have a simpler idea. Just raise the income tax rate on the top end of the scale. Why propose yet another "targeted" tax without even bothering to look into the figures to find out if what you're proposing pencils out? Who cares if the parks are paid for out of the general fund or not? If you take them off the books and fund them from a room tax you're still in a bind if revenue falls below expectations.

          The eight billion dollars tourists (both from Oregon and without) spend in the state is taxed indirectly through the income tax on business profits.

          The figure of half the trips came from a 2004 study commissioned by the state. The Oregon Tourism Commission's estimate of the tourism industry is $7.7 billion.

          • (Show?)

            Raising the top income tax rate is the kind of big picture solution we need. Of course, it will face the usual opposition, but a deal that might help get it through is dropping the tax on lower incomes.

            Right now the 5% and 7% brackets barely exist; they're at the same breakpoints they were in the 1930s. We could deliver some tax relief to lower-income taxpayers by expanding both brackets to something meaningful, and then indexing all brackets for inflation. Pay for it and bring in additional revenue with a new 11% bracket on the top 1% or 2%.

  • (Show?)

    Gas tax goes up $0.06/gal in January.

    The largest single expenditure in Oregon's upside down budget is salaries and benefits. That is where the savins will be found.

    Chuck deludes himself and others thinking that there is more revenue to be squeezed from other people.

    • (Show?)

      Sure, eliminate income for the very people who are now spending all they earn. That'll help with creating more demand.

    • (Show?)

      Add another nickel to the gas tax to pay for road and bridge repairs. That should create jobs right away while dealing with a necessary maintenance backlog, and a nickel increase on a $2.75 - $3.00 purchase would barely be noticeable.

      • (Show?)

        to deal with the billions in the roads necessary maintenance backlog it will take a lot more then a few cents try $2 a gal. and did you know that in New York the taxes on a pack of Cigarettes is $4.35 . yes we taxes a pack a buck they tax it 4. thats the level of taxes we need

    • (Show?)

      over 50% of the state budget goes for schools and I am not talking Pers. salaries of none school state works is less then 10% of the budget. I looked at it youy should. and no I do not think the voters of this state will take a cut is schools or jails . that means you cut from less then 30% of the budget. therefor you will have to rise taxes

  • (Show?)

    The O sure has their agenda. It's not Oregon's agenda. It's not good for this place, at all. I wish they'd stop. I wish they'd actually think about what's good for Oregon. Instead they pander to big business. Sad.

  • (Show?)

    Full disclosure - I work at DOR but I only speak for myself. One perspective I have not seen or heard is the need to provide the DOR adequate staffing. Unfortunately, the agency heads have a history of not advocating for more positions. Even when asked directly. So, more and more is piled on existing staff. And now, between additional tasks, vacancies, hiring freezes and furloughs, staff are struggling to meet current demands. At the same time, the agency has become increasingly top heavy. Generally, it's a 3 to 1 or 5 to 1 ratio. DOR takes $1 in funding and turns it into $3 or $5. In some cases, more. Sounds like a good return on investment to me. BTW - the agency plan to close all field offices and lay off 130 staff is on hold but still on the table.

  • (Show?)

    I try never to read the Oregonian because it continually and I mean continually puts out the same story with only the same limited vision. The other day there was an article from the New York Times News Service with a completely ludicrous story on how Obama single handedly forced the GOP to be obstructionists. A similar article was also in the Washington Post. I sincerely hope there is no one sitting on his or her ballot because of some perceived wrong. I think the liberals have been wronged but I also think the GOP will create a monstrosity of our lives if they get back in.

  • (Show?)

    Lea - yes, I was surprised to hear that DoR was cutting back. I'm not quite sure how that was justified (while I understand across-the-board cuts, cutting the revenue stream seems counterproductive). I would love to hear from some of our legislative or gubernatorial leadership that read this blog about that move.

  • (Show?)

    The right wing promotes the belief that the wealthy are over taxed when the trend over the past 40 years has been to shove the tax burden on the middle class and reduce taxes for those who gain the most from our economy. The U.S. right now has an over all level of taxation at the early 1950s level, while supporting a huge military industrial complex with thousands of bases abroad and military goods that no one can eat. We need to realign our priorities, and reinstate a tax fairness. The middle class is getting squeezed. Taxes on luxury consumption should be a part of that equation. The income divide is getting bigger and bigger between the wealthiest few and the middle class, and the tax burden is falling more and more on those least able to pay it. The supply side presumption that the investor classes are going to put their money into job producing enterprises has been shown to be utterly false. The Bradbury idea of an Oregon investment bank has merit in my view.

  • (Show?)

    Chuck, thanks for posting this, it is unbelieveable that folks are saying raising taxes is off the table. And there is also tax code spending. Why do I, just because I'm a certain age, get to deduct all my medical expenses when others younger, but far less affluent than I can't even affort medical,dental,or vision care that I get to deduct in Oregon?

  • (Show?)

    Not a single mention in the post or any response on the very heart and thrust of the editorial:

    "Plain and simple, Oregon can't continue to afford the benefits it now bestows on public employees. Given its budget crisis, Oregon cannot remain the only state that doesn't ask full-time workers to pay part of the health insurance premiums or deductibles for themselves or family members."

    • (Show?)

      Because, as the post and comments point out, the "heart and thrust of the editorial" is a red herring.

      Public employees gave up salary increases in exchange for the extra benefits. If more private workers had a union to represent them, they might have been able to work out something similar. Instead, they just got told to stick it.

      • (Show?)

        The issue is that private-sector employees have no one representing them at the state negotiating tables.

        "The problem has been that, over the long term, management has been too timid," said Mike Greenfield, who served as Oregon Department of Administrative Services director for the last 18 months of John Kitzhaber's second term. "The union has done a very good job of representing employees. The management ... has been a weenie."

        I think the worm may be starting to turn on this whole long-lopsided deal.

        • (Show?)

          The issue is that private-sector employees have no one representing them at the state negotiating tables.

          Huh? Private sector employees are entitled to representation in negotiations with their PRIVATE sector employers.

          Tax payers (regardless of whether they are public or private employees, or employees at all) are represented by the appropriate state government agencies, ultimately accountable to the Governor and the voters. If you don't think management has been aggressive enough in representing taxpayer interests, fine, but if you look at the history of labor-management relations in this state, you'll see a long line of cuts, concessions, give-backs, postponements and general trampling of working people serving tax payers day in and day out. With a generous helping of "blame everything and anything wrong with the State on those evil public sector employees and their awful unions." So the idea that management "has been a weenie" is not supported by the history.

          If you really think that private-sector employees deserve a seat at the public employee negotiating table, then certainly you'll agree to a rep from a public employee union inviting themselves to your next salary negotiation with your private sector employer, right? (Actually, I could see why most of us would welcome the kind of representation and support that public sector workers get from their unions. But a public-employee union would I'm sure be happy to help you set up your own union, or join an existing one in your industry, as opposed to thinking they somehow have a right to stick their nose into YOUR business.)

          • (Show?)

            "If you don't think management has been aggressive enough in representing taxpayer interests, fine, but ...."

            That's exactly what I think, and more and more people with me, just like Kitzhaber's last Administrative Services Director. Your propaganda, disinformation and strong-arming is going to stop working, because the numbers have stopped working and the state is at a major crisis point. I am just going to sit back and wait.

            • (Show?)

              "propaganda, disinformation and strong-arming"

              Any specifics or links you'd like to attach to those words? Or these?

              "the numbers have stopped working and the state is at a major crisis point"

              Because otherwise your assertions are just that.

              And while many will agree that the state faces a budget "crisis" (dilemma, conundrum, shortfall, crossroads, etc.), the question is what to do about it. The OP criticized the Oregonian for ignoring options to raise revenue or eliminate tax code expenditures that aren't working or aren't working well.

              I take it your solution is to beat up some more on the public employees? Gee, how original. Apparently you think they haven't been scapegoated enough already.

              Funny thing is, it's only anecdotal, but some of the best customer service that I have personally received over the last 12 months (possibly much longer) has come from employees of government agencies, state, federal and local. Some of the worst has come from employees of private companies.

              Coincidence?

              • (Show?)

                "Plain and simple, Oregon can't continue to afford the benefits it now bestows on public employees. Given its budget crisis, Oregon cannot remain the only state that doesn't ask full-time workers to pay part of the health insurance premiums or deductibles for themselves or family members."

                • (Show?)

                  Quoting the editorial in question isn't exactly presenting facts or arguments to support it. It's just repeating was already been said.

                  See, I can change a few words and make an assertion, too:

                  "Plain and simple, Oregon can't continue to afford the tax benefits it now bestows on corporations and its richest citizens. Given its budget crisis, Oregon cannot remain one of the only states that doesn't ask the wealthiest taxpayers to pay more for the infrastructure and services that benefit themselves and the companies they own."

                  The benefits Oregon provides its workers were received in exchange for pay cuts. In addition, 30 or 40 years ago, MOST employees, INCLUDING those in the PRIVATE sector, received such benefits. Multi-thousand dollar deductibles were unheard of. You really think it is right for workers to pay hundreds of dollars every month for health insurance AND then have to pay the first $3,000, $4,000 or $5,000 of fees, charges and costs out of their own pocket? This doesn't happen anywhere else in the civilized world--why do American workers deserve such treatment? Aren't we as good as workers in Canada, France or Germany?

                  We need to bring the pitiful state of private sector "benefits" in line with those the public-sector unions have been able to hold on to for their members. We then need to restore public-sector salaries to be competitive with those in the private sector. THEN we might have some chance of rebuilding the middle class. Or do you think America's greatest days are behind us, when one middle-class income could pay for a decent new car, a good home, good schools, health-care, and a full-benefit traditional retirement plan?

                  America's wealth has been systematically stolen from the workers who create it by the richest 1/2 of 1%. And your solution is to reduce living standards for more of the middle class, just because they work in public service? For what? More tax cuts for millionaires and billionaires?

                  • (Show?)

                    I used the Oregonian's summary because many of us have argued with facts and details for years. They at least finally get it. And they're printing it. In a lot of terrific articles and now editorials. We in the private sector cannot afford both our own medical insurance and yours; ditto retirement. The state employment site asserts that public sector salaries are higher than private sector. And really, is the fact (fact, not opinion) that Oregon is the only state giving state employees a free ride on medical costs not compelling to you at all? I think it will be politically compelling.

                    Per OLMIS public sector wages are greater than private sector. Per anyone, 150,000+ private sector jobs have been lost in this recession and a few thousand public sector jobs added.

                    All of this screams "unsustainable." Good luck with that "tax the rich" way out.

                    With great luck it'll even prove out that old saying about payback.

                    • (Show?)

                      What's unsustainable is expecting to bring back America's middle class while letting the wealthy siphon off all of our wealth.

                      Instead of taking on the real crooks, they'd prefer we attack each other over who has a bigger piece of a drastically shrinking pie. (The pie they allow us to have, that is. Their pie has been growing by leaps and bounds since we first fell for that crap by electing Ronald Reagan.)

                      I'm sure they are very proud of you.

                      • (Show?)

                        I never voted for Reagan. And old rhetoric is not going to trump current reality.

                        • (Show?)

                          Every one of the GOP/Tea Party's candidates support and believe in the same failed policies (and old rhetoric): if we just cut taxes (especially on the rich) and cut government spending that helps people (but spend gobs on our corporate buddies in the defense industry and helping corporations ship jobs overseas) and cut government regulations (that protect the environment, worker and consumer health and safety) then everything will be swell again.

                          We have 30 years of proof that these policies only make the rich richer and everything worse for everyone else, but that doesn't prevent Chris Dudley and every other GOP candidate from pretending that they're just the ticket.

                          Whether you personally voted for Reagan or not doesn't matter. (As an aside, I can't believe you were old enough...) The lies that he sold the American people are alive and well and being sold again by today's GOP, who hopes you don't bother to look up the history and see how they worked out. That's the "current reality" the tea baggers have absolutely no grasp of.

                          • (Show?)

                            I'm still waiting to hear whether the fact that Oregon is the only state giving state employees a free ride on medical costs compelling to you in any way?

                            • (Show?)

                              As I've already said, we do that because we made a deal to do that in exchange for wage concessions, so it was in no way a "free ride"--in fact, they literally pay for it, every pay period.

                              More broadly, I think all employers should aspire to provide better benefits to their employees. "Oregon employers (private and public) provide better pay and benefits than those of any other state in the country!" Wouldn't that be something to brag about?

                              • (Show?)

                                All we seem to have bragging rights to are our unemployment levels (in the top five nationally), education levels (bottom ten) and unfunded state budget (top ten).

                                How's that "tax the rich" thing going again?

                                • (Show?)

                                  Worked great in from the 30s through the 70s. I'd say we try it again!

                                  (Newsflash; total tax burden on the wealthiest is at it's lowest level since right before the Great--Republican--Depression.)

                                  • (Show?)

                                    And, therefore, public sector employees in the once independent, now below-average per capita income state of Oregon must have above average compensation and contribute to none of the benefit or retirement packages.

                                    I guess that's not a non-sequitur.

                                    If you say so.

                                    • (Show?)

                                      Apples and oranges:

                                      Apple: Public employees gave up salary increases they had earned in exchange for a commitment to keep benefits 100% employer-paid. (Something that used to be the norm in the private sector, too, but because of the Republican war on labor, most private-sector workers didn't have the power to fight back.)

                                      Oranges: Oregon's budget problems are duplicated in almost every state in the union, so there's no way you can logically blame them on public employee salaries and benefits. (States who treat their employees worse still have budget problems.) And solving Oregon's budget problems shouldn't be done at the expense of the middle class (which is what the vast majority of public employees are). History shows us that taxing higher incomes and the most profitable corporations works much better at creating a healthy economy.

                                      Besides, doesn't it make any sense to you that back when we had higher taxes on the highest incomes, most middle class workers (public or private) received 100% employer paid health and retirement benefits? Since we've cut those taxes, almost all of us have lost those benefits. So... we should keep taxes on the rich low so... they can keep screwing us even more?? I honestly don't get it.

                                      • (Show?)

                                        You still think Oregon's public employees should be the ONLY public employees in the NATION that pay none of the cost of their benefits?

                                        Mind if I borrow your last line: I honestly don't get it.

                                        • (Show?)

                                          I think they all should, and private-sector workers, too.

                                          • (Show?)

                                            All should what? Pay for their own benefit costs? Careful; you don't want me to fall over and hit my head.

                                            • (Show?)

                                              All private and public sector workers should have employer (or tax-payer) funded health and retirement plans. Just like in most of the civilized world. Just like most in America did 30 years ago.

                                              This whole, "You're on your own with health care costs and here's a volatile 401k for your retirement" is a NEW, shortchanging of the employer-employee compact first really settled in the 40s, when employers couldn't afford to give workers raises, SO THEY PROVIDED 100% EMPLOYER-PAID HEALTH BENEFITS INSTEAD. The bait and switch has happened since Reagan, and all it's done is produce insecurity for the middle class, and excess wealth for the top 1%.

                                              • (Show?)

                                                If we realized that we all paid, in one way or another, that would be progress. Much as the word is currently overused, "sustainable" would fit here as well. But the European systems you herald are also suffering from the same maladies that Oregon is.

                                                Where you & I clearly at the bottom line differ is in the class division we think is worth fighting for, or about: middle v. rich, or private v. public.

                                                I last lived in Portland when Multnomah County passed its very own first-west-of-the-Mississippi income tax. I made 8 or 9,000 that year and had to write a check to the county because the teachers' union reneged on their (repeated) promise to contribute to their own (very very expensive and generous) health care benefits. I couldn't believe they would extract money from people like me. That's what I call class warfare, and my class lost. (I also said I would pay it once and I have not lived in Portland since.)

  • (Show?)

    As if on cue, perfect evidence that keeping taxes low on corporations does not create jobs:

    http://news.yahoo.com/s/nm/20101027/bs_nm/us_corporates_cash_moodys

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