Eugene weekly., July 17, 2003, Page 10, Image 10

robin hood
will a reluctant kulongoski and his merry
band finally give the poor tax reform?
BY ALAN PITTMAN
obin Hood may have robbed from the rich and gave
to the poor, but Oregon does just the opposite.
R
Oregon effectively taxes its wealthiest 1 percent of
families at a rate one-third lower than the poorest 20 per-
cent of state families, according to a study this year by the
Institute on Taxation and Economic Policy (ITEP). The
wealthiest families averaging $672,400 of income pay 6.1
percent of their income in combined state income, proper-
ty and excise taxes. The poorest families averaging $9,300
in income pay 9.4 percent of their income in state taxes.
Such unfairness appears ripe for reform and tax reform is
a major topic in the state as Oregon struggles to fund schools
and basic services with billions in red ink. But while most
agree on the need for reform, there’s little agreement on what
exactly “reform” means. For some reform means more
10 JULY 17, 2003
breaks for the rich and yet higher taxes for the poor. For oth-
ers it means taxing the rich to help the poor. For some reform
means more taxes. For others it means less.
“Everybody wants tax reform, but that means a hundred
different things to different people,” says Tim Hibbitts, one of
the state’s leading pollsters. “I don’t know how you stitch
together a majority coalition.”
Stitching a majority vote to mend Oregon won’t be easy.
But there’s a lot of ideas on how to do it, and a growing num-
ber of people say the key may be taking from the rich to give
to the poor.
reverse robin hood
The unfairness of Oregon’s tax system is made worse by
the state’s many questionable tax breaks for the wealthy and
businesses, according to studies by the Oregon Center for
Public Policy (OCPP), a progressive think tank, and Fund
Oregon’s Future Today (FOFT), a coalition of 50 progressive
groups pushing for tax reform.
The wealthy cash in on a host of tax breaks in Oregon
including:
• Wealthier Oregonians that itemize their deductions get
$300 million a year through a break that allows them to
deduct their federal income taxes from their state taxes.
About 74 percent of Oregonians with incomes under $40,000
don’t benefit from itemized tax deductions. Among people
with incomes over $100,000, 95 percent itemize.
• Oregon spent $22 million in 2001 helping wealthy
homeowners with incomes more than $200,000 pay their
mortgages by allowing them to deduct their loan payments.
About $21 million a year in such deductions goes to owners
of second homes.
• The income tax kicker benefits mostly the rich. In 2001
the richest fifth of Oregonians reaped two-thirds of the kick-
er money.
• Oregon gives $18 million a year in tax breaks to house-
holds earning more than $100,000 to help cover medical
expenses.
• Oregon gives yacht owners $14 million in property tax
exemptions a year.
Big business in Oregon also gets big breaks, including:
• State Enterprise Zone and Strategic Investment pro-
grams give corporations about $80 million a year in property
tax breaks.
• Oregon spends about $12 million a year on a Pollution
Control Tax Credit that pays industry for projects that they are
legally required to do anyway.
• Oregon gives corporations about $35 million a year in
tax breaks to support their foreign operations.
• The state taxes large corporations’ income at 6.6 percent
while taxing small businesses and individuals at 9 percent.
• Oregon business were recently given a state break to
accelerate depreciation of their purchases, a $52 million a
year windfall.
All these big business breaks have left the state with the
lowest business taxes in the West, according to a study by the
Association of Washington Business. Last year, more than 80
percent of Oregon’s corporations used enough income tax
loopholes and dodges to qualify for the minimum payment of
$10, according to the FOFT coalition.
Many of the business breaks are supposed to create jobs,
but there’s little evidence of that. Ed Whitelaw, a UO profes-
sor and one of the Northwest’s leading economists, recently
told EW that study after study has shown that corporate incen-
tives don’t do much to improve the economy. “We’ve know
[that incentives don’t work] for decades, yet people keep get-
ting suckered into it,” Whitelaw says.
The unfairness is only getting worse. During the last
decade, the tax burden on Oregon’s low income families
increased by 2 percentage points to 9.4 percent of income.
The wealthiest Oregonians saw a slight decrease in taxes,
according to OCPP. In 1990, businesses paid more than 40
percent of the cost of running state schools. Now they pay
less than 30 percent.
poor taxes
Many of the leading proposals for tax reform in the state
Legislature would only make the system more unfair.
House Bill 3500 has the backing of some moderate
Republicans and some Democrats. The bill would trade a 5
percent sales tax for a reduction in state income taxes.
OCPP found that even if the sales tax exempts groceries
and other necessities, the bill would result in an average tax
increase of $227 for the poorest 20 percent of Oregonians and
an average tax break of $21,000 for the richest 1 percent.
The problem is that sales taxes hit the poor much harder
because they tend to spend all their money while the wealthy
save most of their money. Income taxes hit the poor compar-
atively less because they are based on a percentage of
income. Washington state has a sales tax but no income tax
and has the most regressive tax system in the nation, accord-
ing to ITEP.
HB 3500 “is a double hit to tax fairness,” says Tim
Nesbitt, director of the Oregon AFL-CIO, a leading member