Legislators Could Tweak Tax Breaks to Balance Budget

Oregon legislators are homing in on tax credits as they try to balance the state budget this session. House Co-Speaker Bruce Hanna, R-Roseburg, said this week the state will have fewer tax incentives by the end of the session.

To that end, legislative leaders formed a Joint Committee on Tax Credits to look at ways to save money be reducing or eliminating tax breaks. It will meet next week for the first time to begin analyzing tax credit bills.

At least a dozen tax credits are set to sunset and a few new ones are proposed. The co-chairs of Ways and Means will designate an amount in their proposed budget for tax credits. The Joint Tax Credits Committee's task is to look at how much those tax credits will cost the state in lost revenue and develop a package that matches the allocation in the state budget.

The committee will have to strike a balance of increasing the states's revenue during a budget shortfall without cutting tax credits that stimulate the economy.

According to the "2011-13 Tax Expenditures Report" produced by the Oregon Department of Revenue, personal and corporate tax deductions and credits will cost Oregon $12 billion in the next two-year budget cycle.

About 95 percent (a projected $10.5 billion for 2011-13) of those tax credits are for individual taxpayers. Mortgage interest tax credits, the largest chunk, eat up about $1.6 billion. Limiting individual tax credits will be a tough sell to constituents and a hard thing to defend on the campaign trail.

About half the income tax credits result from Oregon's connection to federal tax code. The state must honor those credits as long as Oregon is connected to the federal code, which it traditionally is. The legislature voted to disconnect temporarily from the feds in anticipation of huge tax breaks offered through the federal stimulus program. After serious debate this session, the legislature chose to "reconnect" starting in 2010 for personal income taxes and in 2011 for corporate taxes.