Guess Where Oregon Spends More Money than Anywhere Else (Hint: It’s not K-12 schools)

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Last week, Scott wrote an article about the Governor’s proposed budget. He chiefly noted advocates’ disappointment that the proposal (at least, in its first iteration) does not address the $32 billion in tax giveaways that Oregon spends each budget cycle.

In response, one reader wrote:

I’m curious about all those “billions” that the article says Oregon gives away in tax breaks. I recall Romney exaggerating the benefits of closing some tax loop holes — instead of raising taxes on people who could afford to pay their share — but he wouldn’t be specific and we all know how that ended. Where are the $32 billion in tax breaks that the Governor failed to close, and which ones are ripe for eliminating?

While we appreciated the comparison to Romney’s made-up numbers — no, really! It made for a great morning laugh!–  the fact is that the $32 billion in tax giveaways is not only a well documented total figure, the Oregon Department of Revenue actually produces a report each biennium detailing the cost of each of the 378 tax expenditures specified by Oregon law.

But R-Money comparisons aside, it’s a good question. Analysts and advocates have become increasingly interested in the system over the years, as many of Oregon’s elected leaders have appeared to largely ignore it, resulting in tax expenditures growing unchecked and out-of-pace with state spending on other programs, like schools.

Over the last five years, tax expenditures increased by 12%, while school spending decreased -5%
Oregon’s tax expenditure code is a list of 378 different tax breaks, writing exceptions into Oregon’s law for certain income, property, and other items. While some of the tax expenditures are good, common sense ideas (like the earned income tax credit, which provides relief for low-income, working families), others appear completely baffling (did you know that boat owners can take a tax credit exemption for each of their boats?)

Overall, Oregon’s tax expenditure code costs the state $32 billion each budget cycle, while Oregon collects about $14 billion in total taxes and other revenue. To put it plainly: Each budget cycle, the state spends more money on tax giveaways than it receives in tax collection.

And while the total amount of tax giveaways is astronomical, what’s potentially more concerning is the rate of growth.

During troubling economic times, Oregon has slashed budgets to our schools, human services, public safety, and other vital programs, all the while allowing tax expenditures to grow unchecked. In 2009, during a country-wide recession, Oregon’s budget was primarily balanced through budget cuts, furlough days, and layoffs, even while adding new tax breaks and allowing old tax breaks to grow. As a result, between 2009 and 2011, total tax expenditures grew by another $3.4 billion.

It should go without saying, but an additional $3.4 billion of tax expenditures meant $3.4 billion less for Oregon’s most important programs. The ballooning costs of tax expenditures resulted in the equivalent of -25% loss of funding across each of Oregon’s state programs and services:

 


The impact of allowing tax breaks to grow unchecked, from 2009-2011.

So what’s to be done? Policy analysts have been offering suggestions for years, ranging from caps and limits to means-testing to simple accountability and review. Here’s just one set of recommendations from the Oregon Center for Public Policy, which suggests all of the above.

But the truth of the matter is there are many ways in which our state could manage our unruly code of tax expenditures. Depending on the method of reform, savings would range dramatically: from $320 million (if we cap deductions) to $3.4 billion (if we limit tax expenditures to the 2009 rate) and beyond. So the problem is not how — but when. Because previous budget years have resulted in little to no tax expenditure reform — even while our schools, senior and family services, and other important programs suffer.

Luckily, it’s a new year and a new budget cycle — and we’re still in the earliest stages of this biennium’s budget proposals. The Governor started the budget conversation early– releasing his proposal last week– so there’s still time for additional suggestions. Hopefully tax expenditures will be the next component that gets a thorough review.


 

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