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OP-ED: Looking at the need for real tax reform in Oregon

OP-ED: Looking at the need for real tax reform in Oregon

SC2013_DJC_320x320Mike SalsgiverSoon after these comments are published, Oregon voters will decide the fate of the second major proposal to reshape state taxation in less than a decade. But this month’s column isn’t focused solely on Measure 97 (although I will say it is bad economic and tax policy, poorly-drafted, divisive, misleading, and not going to accomplish what its sponsors are telling voters it will) or the ongoing dangers of ballot measures in general (and those dangers are many).

The late Russell Long, a longtime U.S. senator from Louisiana, was chairman of the powerful Senate Finance Committee. All tax-related legislation flows through this committee. Long used to have a saying about how his fellow citizens viewed the increasingly-complex tax code: “Don’t tax you. Don’t tax me. Tax the fellow behind the tree.”

Most taxpayers agree with Long.

Unfortunately, developing and passing a tax code at any level of government isn’t quite so simple.

Another former Senate Finance Committee chairman – Oregon’s own Bob Packwood – used to say in speeches all around the state and across the country that taxpayers want their tax code to be three things: fair, simple and efficient.

Unfortunately, we can have only two of those principles. If the code is simple and efficient, it’s unlikely to be fair. If it is fair and simple, it’s not likely to be efficient. And so it goes.

In 1986, Packwood teamed with then-House Ways and Means Committee Chairman Dan Rostenkowski of Illinois, to draft the Tax Reform Act. After a period of prolonged recession, that act was the centerpiece of a set of federal economic, fiscal and tax policies that set in motion the longest period of economic growth in American history.

Today, Oregon’s elected leaders and citizens are facing a similar challenge.

Oregon has an imbalanced tax system. It’s one of only five states in the nation that levies no sales or use tax. The state government’s receipt of personal income and corporate excise taxes go to the state’s General Fund budget, the growth of which is controlled by state law. Because our state’s revenues are so substantially driven by the income tax, the treasury is flush with cash during strong economic times, and in serious deficits when the economy is bad.

But the major challenge facing Oregon today is not a revenue problem. Instead, we are facing a spending problem. Despite revenue growth exceeding $1 billion for the current biennium, because of unsustainable growth in Oregon’s Public Employee Retirement System (PERS) and costs shifted to the state by the passage of the Affordable Care Act of 2010, the state will be facing a budget deficit of nearly $3 billion.

Conversations with various legislators of both parties reveal that if Measure 97 passes, the revenue generated from it – after legislation is passed sometime in 2017 – will not be directed to education, senior services and health care, as claimed by the measure’s sponsors. Instead, those revenues will be used to fill this new budget hole. It is also likely that the drafting of the implementing legislation for the measure will lead to a massive fight by business stakeholders and other interests seeking exemptions from the measure. Any exemptions approved by the Legislature will reduce the total revenue coming into the state’s coffers.

Over the past 20 years, various Oregon governors have appointed a number of task forces to study, evaluate and recommend changes to the state’s tax code. Despite thousands of hours of work by community and business leaders and others from across the state, the Legislature has given little, if any, attention to the results of these task forces. Their collective body of work sits on dusty shelves and in digital files rarely read by anyone except policy wonks and tax experts.

And, almost unbelievably, after the last Tax Reform Task Force completed its work in 2009, the Legislature did not hold a single hearing on its conclusions and recommendations. I don’t know why any citizen would ever volunteer to serve on such a task force again.

Since 2009, although the Legislature has held some hearings, and despite the strong efforts of Senator Mark Hass, D-Beaverton, chairman of the Oregon Senate Revenue Committee, no real progress has been made to review and restructure Oregon’s tax system.

As a result of this inaction, the inevitable problems caused by the almost exponential growth of retirement and social service programs has led to other government priorities being strangled. These include K–12 education, higher education, public infrastructure investments, natural resource management and others.

If Measure 97 fails, the same $3 billion problem will exist for the new Legislature in 2017. And when February arrives, legislators will face a fundamental set of questions: what do we want and how are we going to pay for it?

It will be up to the Legislature and the governor to solve the real underlying economic problem. The solution will lie between a combination of spending reductions, program restructuring, modifications to PERS, and to true structural tax reform. It will not be easy, but it will be a critically necessary set of tasks to complete.

The options to improve Oregon’s tax system are not mysterious and they are not particularly new. In such an environment – in the face of a failed Measure 97 – recommendations from the past will need to be re-examined. We will be hearing about further changes to our property tax system, the role of income taxes, deductions, exemptions, improved modeling, and other concepts. And despite nine large electoral failures over 90 years, we can be certain that discussions to adopt a true (not hidden) sales tax will begin again.

True tax reform will be difficult and exhaustive work, but it must be done. For without true reform of Oregon’s tax system, the underlying issues driving the inexhaustible need for more and more revenue will never be addressed.

Only by working collaboratively to address Oregon’s underlying economic challenges and structural problems will our elected leadership successfully move to put the state back on a strong, stable and sustainable path to true economic growth.

One way or the other, the discussion will begin in February 2017.

Mike Salsgiver is the executive director of Associated General Contractors’ Oregon-Columbia chapter. Contact him at 503-685-8305 or mikes@agc-oregon.org.

This article originally appeared in the DJC and can be found here (subscription required).

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