June 7, 2017
June 7, 2017
Budget Holes and New Taxes
By Anthony K. Smith
State economists recently released Oregon’s May Revenue Forecast. This is the official report that policymakers use to balance the state budget, so these projections will have a very real impact on the decisions that are made in Salem between now and the end of the legislative session, scheduled to adjourn for the year by July 10.
Several points of interest came up during the revenue forecast presentation. First, Oregon’s economy is still doing fairly well – unemployment rates are low, but growth is beginning to slow.
Second, tax revenues continue to roll into the state coffers in better-than-expected numbers. Not only is Oregon’s Tax Kicker projected to kick, but even after accounting for the dollars that would necessarily be returned to taxpayers, state economists are expecting an additional $200 million for the 2017-2019 budget cycle.
According to a recent Pew research report comparing of each state’s tax receipts in the third quarter of 2016 with its peak quarter of revenue before the end of the recession, Oregon has achieved the strongest post-recession revenue recovery in the country at 32.7 percent. Taking second place was North Dakota at 28.3 percent. In total, 31 states have seen their revenues come back to pre-recession levels or better after being adjusted for inflation.
This shouldn’t be a big surprise. The one thing we know for sure about Oregon’s tax structure is that when the economy is doing well, the state brings in a whole lot of money. In fact, for 2017-2019, we’re on pace to bring in well over $1 billion more than we had for the 2015-2017 budget.
If based on this realization, you assumed that the Oregon Legislature has spent the last several months focused on maintaining and improving our current economic successes, you would unfortunately be wrong.
Before the legislative session even began, the predominant conversation happening in and around the Capitol building has been about raising revenue – and not just raising revenue, but creating a “stable and adequate” revenue structure to provide government services. This was the promise of Measure 97. Oregonians didn’t buy it – and for good reasons.
Evidently, over a billion dollars in new revenue is not enough. To maintain current service levels, the state says it needs an another $1.4 billion. This figure, although it has changed several times in the last couple of months, has always been reported as a “shortfall” or a “budget gap” in the media, leading Oregonians to think that somehow during Oregon’s economic recovery, taxpayers haven’t been paying their fair share.
This couldn’t be further from the truth – and the evidence is indisputable as demonstrated by the Pew report. The so-called “shortfall” is a result of the cost of government far out-pacing our economic growth.
So now you must be thinking that if the Legislature knows that the cost of government is the problem, they must be spending all their time on cost-containment. For a moment in late April, you were right. Gov. Kate Brown implemented a modest cost-savings plan and a group of legislators from the Joint Ways and Means Committee released a framework for significant short- and long-term savings.
And then they created a new joint committee – not a “Committee on Maintaining and Improving Economic Growth,” not a “Committee on Cost-Containment.” They created the new Joint Committee on Tax Reform, and its idea of tax reform starts by giving a wildly unpopular concept a new name.
The committee may want to call it a “business privilege tax,” or a “commercial activities tax,” or even the “Oregon Education Investment Initiative,” but what it’s proposing is another gross receipts tax, only this time they are targeting nearly every business in the state, not just C corporations as was the case with Measure 97. Similar to that ill-fated ballot measure, proposals under consideration, today, would impose a tax on a company’s gross sales, purchases made by Oregonians for products and services sold within the state, without regard to profit.
Oregon’s small businesses reject this approach. The state needs to demonstrate that it can operate within its means, whether times are good or bad. We are lucky that at least for the time being, things are still pretty good.
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