HB 2315 - An Incremental Approach

Rep. Brent Barton, D-Oregon City, introduced House Bill 2315, a measure to set aside tax revenue into a couple of reserve accounts against future “rainy days” to stabilize schools and social services. This is a common sense measure; any financial entity – household, state, multi-national conglomerate – should have a mechanism and a piggy bank for accumulating reserves.  The only reason not to support such a bill was voiced by Rep. Cliff Bentz, R-Ontario, who correctly observed that the measure was an “incremental approach to a much broader problem.”

You can have a well-oiled machine for directing revenue and a shiny, stainless steel vault for collecting it.  If the revenue stream is inadequate to begin with, it really won’t make much difference.  You can tinker with the deck chairs or the too-few lifeboats.  You’re still going down on the Titanic.

Oregonians have been stunningly successful with their generation-long “tax revolt.”  But in the words of an ancient and revered cartoon character, “We have met the enemy and he is us.”  It is time to clean up the carnage from that anti-civil war.  Let’s start with a tax base that is sufficient to fund services at a sustainable level.

The Gap that Gave Us the Great Depression

            I have seen this nifty chart – or versions of it – in a few blogs and one print magazine.  It’s actually two nifty charts.  The top chart tracks the average income of the super-rich (the top .01 percent of US families) and compares it to the average income of the bottom 90 percent of families from 1917 to 2006.  The second largest gap – where the highest average was 892 times the lowest average – was in the year before the start of the Great Depression, 1928.  The time of least income inequity was approximately from 1970 to 1978 when the multiple was “only” somewhere slightly less than 200.  But that yawning gap, at a breathtaking 976 times difference between the rich and the bottom 90 percent, returned with a vengeance by 2006 – two years before the start of the Great Recession.  The implication is clear enough: not only is the gap between the richest and almost everybody else inequitable, it is a source of instability in the economy.  The super-rich are that way at our peril and expense.

            The bottom half of the chart tracks income tax rates on top earners over the same period.  The charts are negatively correlated; they move in opposite directions.  The chart annotations say the relationship is deliberate and causal: “High taxes on the rich, in the mid-20^th century, helped keep income from concentrating at America’s economic summit.”  The highest marginal rate was in 1944 at 94%.  It’s currently at 35% ... for regular income, not capital gains.  At that marginal rate, the wealthiest would pay approximately 23% of their income in taxes.  If most of your income is from capital gains, your effective rate is closer to 15%.

            

Curry and Josephine Counties

 House Majority Leader Val Hoyle, D-Eugene invoked precisely the right metaphor when she said, "I don't feel good that we have parts of Oregon that are becoming like parts of Appalachia.”  There are many reasons for the financial death spiral of the poorest counties.  But much seems to be made of the fact that the poorest counties, particularly Josephine and Curry, have the lowest property taxes in the state.  This is an outdated legacy from another time.  Once, timber revenues provided sufficient funds for all county operations and services.  Perhaps the counties should have raised their property taxes but, as observed by the Oregonian editorial board, “It's hard to vote for a tax increase when you don't have a job.”

This is still only the second worst economic depression in 100 years.  During the worst one, there was leadership at the federal level for a more enlightened response.  No one thought to tax the citizens of Appalachia to provide them with adequate services – schools, police, prisons, or emergency response.  If it had been considered it would have been dismissed out of hand as absurd.  Instead the Tennessee Valley Authority built dams up and down the Tennessee River.  This provided jobs immediately in construction and in perpetuity for operation, management and maintenance.  It provided flood control and priceless recreational assets that we enjoy to this day.  The Rural Electrification Act widened the focus to bring electricity to rural areas throughout the country, to backwaters that could not provide the economies of scale needed by the private sector to make the effort possible.

I don’t know the precise modern equivalents of the concrete and steel monuments of the last century.  I know that environmental assets can be managed and that there is some yet-to-be-found balance between – say - commercial logging, and environmental stewardship.  I know that, more and more, critical services like health care can be decentralized and that this by itself can mean jobs.  I know that a fast internet connection can make it possible for many different stripes of entrepreneur to work from anywhere.  I know that high tech in farming, power generation, transportation and tourism can support a rural economy in a way that can protect the environment and provide people with a livelihood.

Punishing Curry and Josephine counties with income taxes because they did not levy the property taxes to support their community will not work.  The quaint New Deal  home remedies of relief, recovery and reform might – but not right away.  And the needed revenue will not be found in the cash strapped rural counties.  That stable revenue base has to come from outside.  It will take imagination, leadership and investment at the state and federal level to see the way through this long dark tunnel. 

SEIU on loopholes and the banks

This post is substantially a re-blog of a post by Hannah Hoffman, who blogs about the state workforce for the Statesman Journal.  She provides this SEIU press release issued on May 22 about a demonstration at the state capital to be held on the following day.

State workers and care providers to Kitzhaber: “Get Oregon’s money back”
Hundreds expected at capitol rally to demand that banks, corporations pay up
SALEM, Ore. (May 22, 2013)—Hundreds of state workers, publicly funded care providers and other concerned Oregonians will march up the capitol mall tomorrow to demand an end to corporate tax loopholes and big bank malfeasance. The march will take place amid one of the more bitter state budget battles in recent memory--a budget fight in which public employee benefits have been a popular scapegoat on both sides of the aisle.
"Our state economy has been dealt a one-two punch, and politicians want to blame it on the guy lying on the mat," said Keary DeBeck, a state worker at the Department of Justice and co-chair of the SEIU 503 bargaining team. "First Wall Street banks threw our economy into recession through fraud and corruption, then corporations stagnated recovery by fighting tooth and nail against paying their fair share of taxes. And how do politicians respond to their unchecked greed? Give away more corporate tax loopholes, turn a blind eye to the banks, overcrowd our schools, underfund vital services, and go after the benefits state workers have sacrificed for."
According to a recent analysis by Service Employees International Union, Wall Street banks have stolen at least $110 million from Oregon by manipulating London Inter-Bank Offered Rate (LIBOR) interest rates. The LIBOR scandal is among the largest financial frauds in history. It has impacted virtually every Oregonian, from kids in overcrowded classrooms, to new graduates suffocating in student loan debt, to seniors retiring into poverty.

Tomorrow, hundreds will march up the capitol mall to demand that the legislature close corporate loopholes, and Gov. Kitzhaber use the full power of his office to go after Wall Street banks and get Oregon's money back.

SJR 36 and SB 824

Public policy is especially perplexing when it veers crazily away from what you thought you knew.  In high school economics, when studying principles of taxation, one learns that to be effective, taxes should meet certain criteria.  Many people would agree that equity or fairness is important.  An inequitable tax, over the long term, might become less and less effective as people turn away from it and ignore it or subvert it.  But equity is difficult to define and might be a matter of point of view.   Some may feel that an equitable tax is a tax that is the same for everyone – either a set amount or a set percentage.  Others may feel that it is fair for the burden to fall more heavily on those most able to afford it.  A third view is that a fair tax is a tax on someone other than yourself.

Another principle attached to the idea of fairness is a progressive tax.  A progressive tax is one already mentioned – a tax that falls more heavily on the wealthy and less heavily on those least in a position to pay it.  Progressive taxation is well supported in America and is based on two seemingly widely shared assumptions:  The poor need relief and protection from the burden of taxes.  The rich not only can afford a higher burden of taxation; their wealth and privilege oblige them to support the customer base, the body politic and the civic infrastructure that has provided the foundation and source of their good fortune.

In Oregon, the people have rejected a sales tax numerous times.  A sales tax is regressive – the opposite of progressive tax.  The poorer you are, the larger percentage of your income is spent on material things that would be subject to a sales tax.  A wealthy person may buy several houses or cars, luxury items, and things of every description.  But finally, they are not hungry any more; they can only drive one car at a time; or live in one house at a time; all their material needs are met and they still have some large fraction of their total income beyond what they need to live comfortably.  As a percentage of income, a sales tax falls far more heavily on a poor person than a rich one.

Oregon has a state income tax and, compared nationally, it is considered relatively progressive.  Some states have no income tax and rely on other, arguably more regressive, sources of income.  But Oregonians have made a number of choices, many in the name of broad tax relief, that have either been regressive in nature or have narrowed the revenue stream needed to fund the services that they have demanded through their habits or the ballot box.  Measure 5, which provided property tax relief, also provided a shock to the state’s revenue base from which it still has not recovered.  The Kicker provides that tax money will be returned if the money collected exceeds projected revenues.  Voter mandated criminal sentencing guidelines have resulted in a squeeze on every other part of the budget because of the necessity to provide for a rapidly expanding prison population.  There is a volatile mismatch between revenues and the demand for government services – schools, social safety nets, public health, public infrastructure.

In April, State Senators Mark Hass and Ginny Burdick and Representative Tobias Read  – Democrats all – introduced two proposals aimed at “starting a discussion” on broad tax reform in the state.  Senate Joint Resolution 36 would direct a state sales tax.  Senate Bill 824, among other things, would reduce the state income tax and provide a tax break for business investment – ultimately, a subsidy from taxes. These new initiatives, in effect, would establish a regressive tax, diminish a progressive tax, and provide an incentive for business investment, having transferred the cost of that tax break to low income earners.   Go figure.  I hope these overtures succeed in starting a discussion.  They at least provide a model for what is not equitable, fair or effective.