Let's turn the tide on a broken tax structure

By Kris Nelson, MBA, and Tom Gihring, Ph.D. Kris and Tom are members of Common Ground OR-WA, a chapter of Common Ground USA, dedicated to promoting prosperity by reducing taxes on labor and capital and using the value of land and other natural/public resources to pay for essential governmental services.

Tackling big-league tax reform is now the governor’s ambition. Whether he’ll fall back on the stale haggles over a tax that defaults into a further drag on our economy or boldly open the door to approaches that will grow local economies, cultivate durable jobs, and stabilize funding for essential public services is a pivotal question.

If the recent legislative session sheds light on future prospects, House and Senate committees could consider proposals for tax structures designed as much for economic improvement as for equitable revenue generation. The general sales tax has widely demonstrated its crippling effects – what economists label as “dead-weight loss” – on struggling state economies. On the other hand, states and countries that have placed fees on fossil fuels have prospered. Ireland found, for example, that a tax on dirty energy enabled them to propel clean industry forward as they reduced the drag of the income tax. Likewise, British Columbia has garnered over 60 percent voter support for its carbon emissions tax that helps switch the marketplace toward efficient fuel use, now entering its fifth year.

In the last days of the session, the Legislature passed and the governor signed SB 306 to analyze the economic and revenue effects, as well as trade-offs, of a tax on fossil fuel use. This signals a new direction in funding and follows the governor’s initiation of a new energy agenda. The Legislative Revenue Office will deliver a preliminary evaluation of the sufficiency and tax-offsetting issues before the upcoming session in February.

Isn’t it time we discuss this openly as a form of incentive taxation?

Another proposal, heard in the House Revenue Committee, would invite fresh air into the asphyxiating property tax structure we have endured for over twenty years. Imagine what an “ideal tax” would look like: it would stimulate local economies by encouraging business growth and community redevelopment, make housing more affordable, dampen rampant inflation of land values, achieve equitable and uniform participation, and wrap effective limitations in revenue growth around it. We know these results are possible because many communities in Pennsylvania as well as Multnomah County some 80 years ago showed how to turn the property tax into an economic engine similar to how we design Enterprise Zones – without revenue losses.

There’s no refuting the fact that a tax on improvement values stifles investment in buildings and businesses; that is why Enterprise Zone rules are designed to suspend the improvement portion of the property tax rate. If we can encourage capital investment by shifting the property tax onto publicly created land values, we will minimize the economic drag of the property tax. Furthermore, doing away with the inequitable rate limitations of Measures 5 and 50 and replacing them with revenue limits instead would solve the strangling compression problem of local funding measures that make it impossible to support basic services.

The Oregon House introduced in the last session a process to uncover the “hidden” economic and sustainable funding effects of a lower tax rate on improvements and a compensating rate on land values. The Legislative Revenue Office would analyze these effects and report them to a two-party task force with citizen members. Since the bill, HB 2509, had no opposition among the Revenue Committee members, the study could still proceed, an interim study group could be appointed to review the results, and recommend how to move ahead with a package of bills to fix the inequities and disincentive of the ailing property tax structure we now have.

In principle, legitimately created value belongs to the creator of that value; a differential-rate land weighted tax upholds this. Unlike a tax on buildings, a tax on land value raises revenue without distorting production or consumption, so cities can prosper using this community-wide version of an Enterprise Zone. Land price appreciation is a community-given asset, reflected in true market assessments; it is real money to property owners. What could be more fair? Tax the speculative value of my property which I didn’t create, but don’t raise my taxes because I invested in major renovations.

Isn’t it time the governor shows leadership by appointing a study group to move to a permanent solution to the property tax woes we inadvertently inherited?

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