TAX NEWS - 2010

Reset Tax Code Spending

On the heels of across-the-board budget cuts comes the Governor's "reset" report raising concerns about a long term revenue shortfall under Oregon's current budget priorities. A similar look at the long term in early 2008 showed we were in fine shape. The difference? The Great Recession hit and it clobbered the economy harder than state economists could imagine while at the same time Oregon continued to fail to save for a rainy day and continued its policy of spending all unanticipated dollars.

Improving this perilous fiscal outlook — shared by nearly all states — requires federal action which has been difficult to obtain. But no matter what the feds do, Oregon can begin by thoroughly cleaning the messiest room in its fiscal house: the one where tax expenditures reside.

As OCPP's latest commentary, Finding Money in Oregon's Messiest Room, explains:

Tax expenditures are the roughly 380 deductions, credits and exemptions contained in the tax code.

Like direct spending programs, tax expenditures cost the state money. The difference is that instead of writing a check from Oregon's treasury to, say, pay part of the cost of installing solar collectors or buying hybrid vehicles, the state lowers taxes for families and businesses who make those purchases.

Unlike direct spending programs, tax expenditures don't go through the regular, priority-setting budget process every two years. While public schools and programs that protect foster kids vie in the legislature for limited tax dollars each legislative session, the tax credit that subsidizes film production in Oregon avoids such competition.

And when, as now, a revenue shortfall prompts the Governor to order "across the board" cuts, tax-code spending programs escape the budget ax.

Another problem with tax expenditures is that they are not always well-targeted. For instance:

- A tax code provision subsidizes owners of multiple homes and million-dollar mortgages, even as the legislature struggles to fund affordable housing for low- and moderate-income families.

- A tax code provision to encourage college savings mostly benefits the wealthy families who can already afford to save and send their kids to college, while the state cuts back on scholarship programs that help low- and moderate-income families.