Time Short to Launch Tax Reform Debate

Governor Kitzhaber is talking privately about tax reform, but the time has come when conversations about what reform looks like must go public.Democratic Senator Ginny Burdick surprised many political observers when she came out against Our Oregon's proposed 2012 ballot measure directing all corporate kicker refunds to K-12 education. Our Oregon, the political arm of Oregon public employee unions, proceeded and successfully placed its initiative on the November ballot.

What was surprising is that Burdick had supported past Our Oregon proposals, such as Ballot Measures 66 and 67 in 2009 that raised income taxes on corporations and wealthy individuals. Burdick didn't criticize the substance of what Our Oregon was doing. She was unhappy because it wasn't a more comprehensive tax reform proposal. Burdick told Willamette Week, “All I can hope is, it doesn’t make the ballot. It will throw a monkey wrench into real financial reform.”

Burdick and other leaders believe only dealing with the corporate kicker will take the wind of out the sails of a larger discussion on restructuring Oregon's tax system, which relies heavily on income taxes that can sag when the economy tanks.

It is too early to tell how Our Oregon's corporate kicker ballot measure will fare at the polls this fall, but it appears Burdick could get her wish about a larger tax reform discussion.

Governor Kitzhaber and his top aides have been holding closed-door meetings with business and labor leaders about what tax reform might look like. Legislators for the most part have been left out of these conversations, which has riled many, especially in Republican ranks.

Kitzhaber is at the point where he needs to decide how he wants to lead on a tax overhaul initiative. He certainly talked about it as a priority during his 2010 campaign.

Tax reform brings a whole lot of hot-button issues to the table: the kicker law (corporate and individual), capital gains taxation, a rainy day fund and even a sales tax. States with more balanced tax systems (around sales, property and income taxes) arguably have a better chance to weather economic downturns. Is Oregon finally ready to have a tax reform discussion that centers on implementing a sale tax?  Oregon voters have rejected sales tax proposals nine times.

If Kitzhaber is serious about addressing tax reform, it seems he has three key questions to answer: how does Oregon have a more public statewide conversation about reform; 2) is it done through legislation or does it go directly to the voters; and, 3) what is the timing?

Many, like Burdick, think now is the time.  Further delay means groups such as Our Oregon will address tax policy on a piecemeal basis.

If Kitzhaber wants to focus efforts during the 2013 legislative session, he must start working with legislators and a broader group of stakeholders soon. There certainly is some political risk trying to have these conversations during an important election season (both parties are trying to seize control of a tied 30-30 House).

It remains to be seen how willing legislators will be to discuss a tax reform measure in 2013. It wasn't' that long ago any mention of a sales tax was toxic. It still may be.

During the 2010 campaign cycle, Democrats shot themselves in the foot by claiming that some Republican House candidates were pushing not just a sales tax, but a 30 percent sales tax. This was proven to be untrue, and cost the Democrats dearly. They lost six incumbent races that year, and the backfire of the sales tax campaign tactic had an effect in some of those races.

After that election, no one — Republicans or Democrats — was eager to utter the words sales tax. In fact, in the 2011 legislative session, there was scant mention of any tax policy. Even the seemingly bipartisan issue of a modest capital gains tax cut to spur the economy was hidden in the drawer in 2011.

Kitzhaber 2.0 has shown he is willing to take up big initiatives. This may be the biggest of all.  

If Kitzhaber is willing and ready to lead, he'll have lots of loyal followers, such as Ginny Burdick. He is starting quietly with business and labor leaders. It makes sense since those are the folks who will put up the bucks to support (or oppose) any tax measure put to voters.

It’s hard to tell if the state is ready for a tax overhaul debate.  It's a tough conversation when many Oregonians are still trying to get back on their economic feet.