Study: Tax cut would cost less than projected

By David Steves
The Register-Guard

SALEM — Tax-cutting Measure 59 would take a much smaller bite out of state revenues than what government officials have projected, according to a new study released Monday.

But even so, the report’s author said, Measure 59 would do unacceptable damage to state-funded education, health care and public safety programs.

The study, produced by the Oregon Center for Public Policy, concluded that the initiative could reduce income tax revenues to Oregon by as little as $1.1 billion in the first biennium it’s fully phased in. That’s less than half the $2.4 billion impact projected by a committee of state and local officials charged with assessing the financial effects of measures on the Nov. 4 ballot.

“The reality is it will be somewhere between $1.1 (billion) and $2.4 (billion). And we’re saying that what it turns out to be really doesn’t matter, because $1.1 billion is significant. It’s a lot,” said Chuck Sheketoff, executive director of the Silverton-based nonprofit agency, which assesses how public policies affect low- and middle-income Oregon households.

Measure 59 is nearly identical to 2000’s unsuccessful Measure 91. Both were sponsored by conservative activist Bill Sizemore.

Like Measure 91, this year’s Measure 59 would abolish Oregon’s cap on the amount of federal income taxes that can be subtracted from state returns.

When voters in 2000 rejected Sizemore’s proposal, they passed a less far-reaching version put on the ballot to give voters an alternative. It lifted the cap from $3,000 to $5,000 and allowed it to grow at the rate of inflation.

Currently, households can reduce their state income taxes by the first $5,600 they pay in federal income taxes.

By allowing those with federal income taxes above $5,600 to subtract the full amount from what they pay to the state, revenues would fall by $1.1 billion starting in 2011-13, the first biennium when it would be fully in place, according to the public policy center.

Sheketoff said the estimate assumes that all of President Bush’s tax cuts would be kept in federal law and that Congress takes action to help middle-income households avoid the alternative minimum tax. The state’s official projection of $2.4 billion assumed that the Bush tax cuts would expire and that Congress would make no changes regarding the alternative minimum tax.

Even with its more conservative projections, the center warned of “major cuts” if Measure 59 passes. To illustrate the scope of a $1.1 billion revenue reduction, it called that amount equivalent to:

The state’s current two-year appropriation to its seven public universities.

A 70 percent cut to the salaries of the state’s public school teachers.

The annual cost anticipated to ensure access to health care for all Oregonians.

Sizemore said it is far more reasonable to offer a range of possible outcomes if his measure passes than to put out just one projection based on certain assumptions. And while he said the earlier state projection was “absurd on its face,” he also quarreled with the way the Oregon Center for Public Policy arrived at its conclusions about the range of possible revenue reductions.

“I’m disinclined to acquiesce to even the more conservative estimate because there are still assumptions made that may be faulty,” he said, noting that the center made no adjustments for the economic benefit of giving a full deduction for federal income taxes. By his logic, the beneficiaries’ money would be plowed back into the economy, creating more jobs and income that would lead to increased state tax collections.

The center’s study also asserts that Measure 59 disproportionately benefits the richest Oregonians. Because 78 percent of households pay less than $5,600 in federal income taxes, they already receive a full deduction and wouldn’t benefit from Measure 59, the report found.

Among the remaining 22 percent, the benefits would be concentrated among the wealthiest; the report said that the top 5 percent of Oregon households — those with average income above $233,600 — would pocket 76 percent of the tax savings under Measure 59.

But Sizemore said that even with that concentrated benefit at the top, his measure would extend to middle-income households as well as to the wealthiest the same full deduction of federal income taxes that lower-income households enjoy today.

“This is merely the logical next step in implementing this policy,” he said. “We ought to be fair to everybody.”

Scott Moore, spokesman for the Defend Oregon campaign opposing Measure 59, said Sizemore’s measure would unfairly hurt lower- and middle-income households by reducing public services. As a result, costs for education and health care will shift from the state to families as they pay fees, lose subsidized health care and bear more costs for textbooks and programs that schools no longer provide, Moore said.