Tax Code Sunsets and the Dawn of Majority Rule

Chuck Sheketoff

The recently concluded Oregon legislative session demonstrated that there is an effective tool for reining in out-of-control tax subsidies and loopholes — the sunset provision. A sunset establishes a date by which a law automatically expires.

Sunsets help put our fiscal house in order and restore majority rule — democracy itself. That’s why the next legislature should sunset all forms of tax code spending that currently have no expiration date.

Ever since Measure 25 became law in 1996, the legislature has been hamstrung to control costly tax subsidies and loopholes. Under Measure 25, “bills for raising revenue” require a three-fifths majority vote. Legislation that would end or reform tax subsidies and loopholes often is wrongly labeled as a bill for raising revenue. Thus, a small minority of senators or representatives can block an effort to curb wasteful or inappropriate spending stemming from the myriad of tax deductions, exemptions and credits embedded in our tax code.

But with a sunset, a tax expenditure automatically ends by a certain date and can be scaled back from that date forward by a simple majority vote. With a sunset, a recalcitrant minority cannot hijack our democracy when it comes to curbing tax code spending.

Two years ago the 2009 legislature used a three-fifths vote to add sunsets to all tax credits — just one of several types of tax expenditures — that did not have sunsets. The 2009 legislature also directed future legislatures to always include a sunset when creating or renewing a tax credit spending program.

The 2011 legislature learned the value of sunsets. They let some tax credit spending programs expire and with simple majority votes, they scaled back a few and revamped ineffective or inefficient ones. In doing so, revenue that would otherwise have been spent on wasteful tax credits instead could be used to fund education, health and human services and public safety.

While the 2009 legislature’s sunsetting of all tax credits was an important accomplishment, they didn’t finish the job. They failed to sunset the plethora of other tax code spending, such as tax exemptions, subtractions and deductions that continue each year unabated, regardless of whether they make sense.

Take just two examples of subsidies that make no sense and have no sunset date. The senior medical deduction disproportionately subsidizes wealthy seniors for their health care costs while providing almost no benefit to low-income seniors. Similarly, the mortgage interest deduction — whose price tag has doubled in recent years — helps only about 13 percent of taxpayers earning less than $40,000 per year, even though that group represents more than half of all Oregon taxpayers. Meanwhile, it subsidizes owners of multiple homes and million-dollar mortgages.

Legislative efforts to reform these misdirected subsidies are practically dead on arrival, so long as lawmakers know that a small, obstinate minority can block reform.

Much has been said about how the 2011 legislature tackled some prickly issues in a bipartisan manner. But make no mistake: the 2011 legislature’s ability to curb some tax code spending would have been impossible had sunsets not restored majority rule in those decisions.

In the 2012 session, the legislature ought to use their much-touted camaraderie to place sunsets on all other forms of tax code spending — deductions, subtractions and exemptions. The sunsets will allow a bipartisan majority to control that spending and make democracy shine.

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 July 27, 2011