Tax Measures and Tax Reform

Tax reform proponents are not wild about any of the three tax measures on the November ballot in Oregon.When Oregon voters receive their ballots this weekend, they will confront three very different tax measures, which could have an impact on the prospects of comprehensive tax reform in the state.

The ballot measures deal with prohibiting more real estate transfer fees, phasing out the estate tax and modifying the corporate income tax kicker. Proponents of comprehensive tax reform in Oregon worry the measures could remove issues from discussion that could sweeten a broader tax measure.

So far, none of the tax ballot measures has stirred much public debate, overshadowed by the higher profile and more costly fight over two measures to allow privately owned casinos in Oregon.

The three tax measures have received spotty editorial support. Measure 79, which would place a ban on future real estate transfer fees in the Oregon Constitution, has been called overkill since there already is a statutory ban in effect. Measure 84, which phases out the estate tax, has been questioned because there already is a $1 million estate exemption. Measure 85, which redirects corporate income tax kicker rebates to K-12 schools, has been criticized because it won't automatically mean more money for education.

Local government officials seem resigned that the constitutional ban on real estate transfer fees will pass, with financial backing by the National Association of Realtors. Washington County is the only Oregon municipality with a real estate transfer fee in place. While there weren't any nascent plans to challenge the statutory ban on such fees, some local officials have suggested the tool would be appropriate for capital projects such as restoring and modernizing county courthouses.

Backers of the estate tax repeal have branded their effort as ridding the state of a "death tax" that cripples family-owned small businesses. However, the Legislative Revenue Office estimates the repeal, when fully phased in, would result in an annual tax savings of $120 million, suggesting it would have a fairly limited impact.

Opponents of Measure 84 also have identified a potential flaw, which they say could create an unintended capital gains loophole.

Measure 85 is sponsored by organized labor under the banner of Defend Oregon. Labor officials settled on this measure among others at the urging of Governor Kitzhaber who wanted to avoid another divisive bloodbath between union and business leaders. There has been virtually no public opposition to Measure 85.

Kitzhaber may have wished nothing concerning the kicker law had appeared on this year's ballot ahead of the recommendations of his tax reform work group, which has been working behind the scenes.

Based on comments from participants, it is doubtful a major tax reform proposal will emerge from the work group in time for the 2013 legislative session that kicks off next January. Passage of Measure 85 won't have any direct effect on that, but it could deny tax reformers an attractive provision to throw into their plan. That's also true of Measure 84, which has strong appeal in rural parts of Oregon where family-owned businesses tend to dominate.

One argument for tax reform is to lessen Oregon's heavy reliance on a single taxing source and reduce the volatility in state tax collections, which can hamper predictable school funding. The personal and corporate kickers are triggered when state revenues exceed projections, denying state policymakers the opportunity to set aside surplus revenues for rainier economic times. Estate tax and capital gains revenues have a similar unpredictable character that can contribute to economic volatility and rollercoaster budgeting.

Facing the prospect of continuing sluggish economic recovery, voters in Oregon and elsewhere may have their sights set on larger issues, such as federal income tax rates and deficit spending. The three tax-related measures on the November ballot in Oregon have slipped under the political radar for the most part, but their outcomes could loom large later if they take away the stuff that tax reform deals are made out of.