Legislature should be disciplined on tax breaks: Agenda 2013 (Address Oregon's tax structure)

The Oregonian Editorial Board By The Oregonian Editorial Board The Oregonian
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on February 05, 2013 at 5:12 PM, updated February 05, 2013 at 9:21 PM
vicki berger.JPG View full size Rep. Vicki Berger, R.-Salem.  
The 2013 Oregon Legislature convened this week intent on looking under every rock in search of money to fund schools and other public services. The most tempting rocks in the legislative quarry are the ones labeled tax exemption.

Exposing tax exemptions to the light of public debate is a good exercise. As recent experience with tax credits shows, closely examining tax breaks on a regular basis helps ensure that taxpayer money is directed where it can do the most good. And, if nothing else, winnowing exemptions could help simplify the state's tax system.

Agenda 2013


Address Oregon's tax structure

Grow jobs and income

Improve educational funding and function

Build the bridge

Protect and expand personal freedom


Read more about the editorial board’s priorities for Oregon.

But don't expect the Legislature to find buried treasure. Compared with proposed reforms to the Public Employees Retirement System, potential savings from scaling back tax exemptions are small. For example, the elderly medical deduction -- a possible target -- has a two-year budget impact of only $187 million.

Tax breaks come in different forms. Tax exemptions or deductions (home mortgage interest, for example) reduce the amount of income that is taxed. Tax credits (such as for child and dependent care) directly reduce the tax paid.

The Legislature already has a process for reviewing tax credits. Most of the state's tax credits sunset on a rolling basis every six years, effectively forcing review and debate before they can be renewed. The approach, the product of a bill passed in 2009, has earned praise, and some in both parties would like to see it extended to tax exemptions.

A required regular review of tax exemptions, whether through sunsets or another method, would be a positive step. It would increase transparency and promote accountability to ensure that tax measures accomplish their intended purpose without unintended consequences. But, the Legislature also should take an immediate look at tax exemptions using these guidelines:

Changes should be consistent with the state's goals. For example, some have pointed to deductions for contributions to the Oregon 529 college savings plan as a tax break that disproportionately benefits upper-income taxpayers. But given decreased state funding of universities and increased tuition payments facing students, it would be counterproductive to eliminate a tax break that makes college more affordable.

In total, adjustments to the tax code should make filing state tax returns simpler
for Oregonians. Rep. Vicki Berger, R-Salem, vice-chair of the House Revenue Committee, says she is reluctant to make changes that separate Oregon from the federal tax code because it adds complexity. She's right. It's better to focus on exemptions unique to Oregon.

Changes should promote, not hinder, economic growth.
The home mortgage interest deduction is the elephant of tax exemptions. But scaling it back -- few would propose eliminating it -- with the housing market still in recovery would be foolhardy.

Eliminating or adjusting a tax break should save enough money to make a difference.
All exemptions should become subject to periodic review, but the immediate emphasis should be on those that could produce savings to be used on priority programs in the next biennium.

It's also important that legislators not oversell what can be accomplished through reducing tax exemptions. A rigorous review should produce savings but not enough to single-handedly shore up schools or improve mental health care.

"People want a magic bullet that's going to solve the problem," Berger said. "There isn't one."

Meanwhile, meaningful long-term benefits can best be realized through comprehensive tax reform. At best, scaling back tax exemptions is a small down payment on that important task.