Guess Where Oregon Spends More Money than Anywhere Else (Hint: It's not K-12 schools)

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Last week, Scott wrote an article about the Governor's proposed budget. He chiefly noted advocates' disappointment that the proposal (at least, in its first iteration) does not address the $32 billion in tax giveaways that Oregon spends each budget cycle.

In response, one reader wrote:

I'm curious about all those "billions" that the article says Oregon gives away in tax breaks. I recall Romney exaggerating the benefits of closing some tax loop holes -- instead of raising taxes on people who could afford to pay their share -- but he wouldn't be specific and we all know how that ended. Where are the $32 billion in tax breaks that the Governor failed to close, and which ones are ripe for eliminating? 

While we appreciated the comparison to Romney's made-up numbers -- no, really! It made for a great morning laugh!--  the fact is that the $32 billion in tax giveaways is not only a well documented total figure, the Oregon Department of Revenue actually produces a report each biennium detailing the cost of each of the 378 tax expenditures specified by Oregon law.

But R-Money comparisons aside, it's a good question. Analysts and advocates have become increasingly interested in the system over the years, as many of Oregon's elected leaders have appeared to largely ignore it, resulting in tax expenditures growing unchecked and out-of-pace with state spending on other programs, like schools.


Over the last five years, tax expenditures increased by 12%, while school spending decreased -5%

Oregon's tax expenditure code is a list of 378 different tax breaks, writing exceptions into Oregon's law for certain income, property, and other items. While some of the tax expenditures are good, common sense ideas (like the earned income tax credit, which provides relief for low-income, working families), others appear completely baffling (did you know that boat owners can take a tax credit exemption for each of their boats?)

Overall, Oregon's tax expenditure code costs the state $32 billion each budget cycle, while Oregon collects about $14 billion in total taxes and other revenue. To put it plainly: Each budget cycle, the state spends more money on tax giveaways than it receives in tax collection.

And while the total amount of tax giveaways is astronomical, what's potentially more concerning is the rate of growth.

During troubling economic times, Oregon has slashed budgets to our schools, human services, public safety, and other vital programs, all the while allowing tax expenditures to grow unchecked. In 2009, during a country-wide recession, Oregon's budget was primarily balanced through budget cuts, furlough days, and layoffs, even while adding new tax breaks and allowing old tax breaks to grow. As a result, between 2009 and 2011, total tax expenditures grew by another $3.4 billion.

It should go without saying, but an additional $3.4 billion of tax expenditures meant $3.4 billion less for Oregon's most important programs. The ballooning costs of tax expenditures resulted in the equivalent of -25% loss of funding across each of Oregon's state programs and services:

 


The impact of allowing tax breaks to grow unchecked, from 2009-2011.

So what's to be done? Policy analysts have been offering suggestions for years, ranging from caps and limits to means-testing to simple accountability and review. Here's just one set of recommendations from the Oregon Center for Public Policy, which suggests all of the above.

But the truth of the matter is there are many ways in which our state could manage our unruly code of tax expenditures. Depending on the method of reform, savings would range dramatically: from $320 million (if we cap deductions) to $3.4 billion (if we limit tax expenditures to the 2009 rate) and beyond. So the problem is not how -- but when. Because previous budget years have resulted in little to no tax expenditure reform -- even while our schools, senior and family services, and other important programs suffer.

Luckily, it's a new year and a new budget cycle -- and we’re still in the earliest stages of this biennium's budget proposals. The Governor started the budget conversation early-- releasing his proposal last week-- so there's still time for additional suggestions. Hopefully tax expenditures will be the next component that gets a thorough review.



 

Comments

Anonymous, you might look here, at Oregon's Tax Expenditure Report, http://www.oregon.gov/gov/priorities/Documents/2013-15_Tax_Expenditure_R.... See what you would eliminate.

I'll share with you some of the tax expenditures I'd kill were I in charge of the world. This first group are actually up for consideration in the coming legislative session (see page 7 for the full list). See numbers 1.401, 1.402, 1.433, and 1.460. I'd also means test the Political Tax Credit 1.458. I expect some of these will end or change. But these don't add up to much money.

What does? We should also end number 1.307, which allows senior in Oregon to pay zero taxes on all of their Social Security income, no matter how wealthy they are. The federal tax code only provides that benefit for relative low income seniors. Oregon follow that law, and I'd continue it. But ending Oregon's special tax break for Social Security Benefits for amounts above the federal limits would bring the state $534 million. That's enough for five weeks of school. I'd also end number 1.306, the additional medical deduction for elderly, anothe $187 million. This gives a benefit to seniors that others who might be far poorer don't have. That's age discrimination, and even though I am a senior, I don't think it's right.

I'm as disappointed as Dave. I read the article fully expecting to learn what the tax breaks were. Except for Earned Income Tax Credit and something to do with boats, I learned squat - except that you don't like tax breaks. How 'bout sharing some specifics? Bob in Portland

Hi Dave,

We support making the tax expenditure code accountable and controllable, just like every other state spending program in Oregon is. When there is a budget crunch, legislators cut budgets to schools and human services and every other spending program *except* for tax expenditure spending. We believe the Governor and Legislature ought to include the tax expenditure code in their budget considerations. We have not (and have never) suggested that tax expenditure reform would solve all of the state's budget problems -- but we recognize that it would make our budgeting more fair, more accountable, and would at least help to restore funds to important programs.

Revenue researchers are currently going through the expenditure code looking at specific proposals. You will probably see more specifics in the near future.

-Alina Harway, Our Oregon Communications and Research Manager

Alina:

I appreciate your taking the time to respond to my comments. I'm sure we have similar budget priorities and see the same human needs. I just thought you were being unfair by simply dismissing the Governor's budget proposal -- a budget in which he was trying to raise some difficult issues about raising educational achievement in the state and beginning to tackle PERS reform -- which you dismissed in your original piece by claiming that all these untapped (and unspecified) billions were available if he had the guts. I'm in favor of tax reform, but just like the Republicans are trying to do today at the national level, I don't think it is a quick solution for government's immediate need for revenue. It's complex and ought to be pursued separately from next January's budget discussions. I have been disappointed that neither of your two pieces so far have come close to being specific about what subsidies you would cut, who's interests would you ignore, and how much we could raise by eliminating tax breaks for boat owners, for example. It felt like you were trying to join the "no cuts, no austerity" crowd by going after a Governor who was trying to avoid further cuts. Let's not beat this to death. I don't intend to make a habit of this. Dave in Portland

Hey, you can make fun of my reference to Romney's bogus call for closing tax loopholes -- instead of raising taxes on people who can afford it -- but you still haven't shown me or others where those savings wlll come from . . . and if they will really make our schools and social services whole again. Your blind insistence that closing tax expenditures will solve our problems sounds to me a little like the Republicans in Congress who are using slight of hand tricks to avoid raising tax rates. They would cash in middle class homeowner and charitable deductions to make their point. I assume you are not jumping on the GOP bandwagon in order to eliminate those pesky tax expenditures.

So far, you haven't been specific enough for anyone to know what you are talking about, except maybe exempting the earned income tax credit, which apparently you like. You also refer readers to a 2 1/2 year old article put out by the much respected Oregon Center for Public Policy. But that piece too talks in generalities, worthy as most of them are, and sort of reviews the various public policy issues. Again, no specifics. Your main complaint is that a lot of money -- $34 billion -- goes out in tax expenditures. Also, you're upset that tax expenditures are rising faster than other things in the budget. So what? What are your priorities, other than a simple hatred of tax breaks, and is it politically feasible to squeeze enough out of those giveaways to the rich to offer real relief to schools and people who are hurting? Remember, you started this by attacking a very specific budget plan that the Governor laid out earlier this week. I would of really liked to know what deductions you would of killed, and how much would they have supplemented Kitzhaber's proposed revenue figures. But instead you have offered two polemics so far about "billions" in unnecessary tax breaks, and the only detail you've provided is to mention some puny break for boat owners. Just like Romney, I think you should put up some numbers. Dave in Portland

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