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Oregon, with nations worst tax structure, needs help

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(Recently we held) the first meeting of the Revenue Restructuring Task Force, a new entity charged with studying our state's current tax system, analyzing strengths and weaknesses and submitting recommended policy changes to the 2009 Legislature.

The task force is the result of HB 2530, a bill which I sponsored because I believe Oregon has the worst tax structure in the nation. And I am increasingly convinced that if we do not have the courage to radically change our tax structure soon, Oregon will forever be consigned to economic mediocrity.

Our tax structure is crippling for the following reasons: 1) it punishes work, savings and investment at some of the nation's highest rates, therefore discouraging these endeavors; 2) it provides little in support or encouragement to families with children - Oregon's most valuable long-term asset; and 3) its volatility and unpredictability places state government in a permanent, structural budget crisis.

First, income tax rates on our work, our jobs, are among the highest in the nation; and the Oregon tax rate on investment gains is the highest in the nation. If you believe taxes affect behavior, and that whatever activity we tax we get less of, then it's easy to conclude that Oregon's tax structure stifles incentives for productive work and investment.

Our tax structure is also family-unfriendly. For an average working family with kids, the only 'benefit' of the state tax code is a paltry $159-per-child tax credit. Yet don't we all agree that children are our state's most important asset? From an economic perspective, this sentiment is absolutely true. Children are the ones who will pay all future taxes and provide all the future economic underpinning that provide the rest of us with security as we age. And parents are the ones who make the financial sacrifices now to raise these children - sacrifices largely ignored by the state.

Finally, Oregon's tax structure makes consistent legislative budgeting nearly impossible. The problem is its feast or famine nature. Oregon fiscal history shows that when the economy is good, personal income tax receipts far outpace economic growth. When the economy slows, income tax receipts are much slower. This rollercoaster effect makes it difficult for our school districts to plan with any consistency. The turbulent tax system has also resulted in a 10-year divestment from higher education, reversed only this year. Yet even with stronger support in 2007, our current tax system virtually guarantees that colleges will suffer with every small change in the economy.

Oregon's system is bad, but there is a solution: revenue neutral tax reform. Tax reform that lowers the rate of taxation for every working Oregonian, lowers the cost of savings and investment, promotes economic growth, provides tax relief for every Oregon family and flattens the peaks and valleys of state tax receipts. Tax reform that recognizes what we tax is just as important as how much we tax.

A new structure could look something like this: a 50 percent reduction in personal income taxes, a 50 percent reduction in capital gains taxes, and a $500-per-child tax credit for every family. To keep changes in the tax system revenue neutral, the tax rate reductions would be offset by a 4 percent to 5 percent tax on all consumer purchases except food, medicine and medical services. Further, these rates would be established by the people of Oregon via constitutional amendment. As such, only the people of Oregon, not the legislature, would ever be able to change the rates.

Of course nobody likes consumption taxes, including this writer. But isn't a tax paid by choice, like a consumption tax, inherently better than an income tax in which we really have no choice?

And the good news with this sort of system is that if you live and work in Oregon, you will see a tax reduction. A reduction largely recovered with new revenue from the hundreds of thousands of tourists who visit Oregon each year as well as those in Oregon now who, unfortunately, work in the underground economy.

The bottom line question is, simply, can we do better than the current system? As the task force moves forward I would appreciate hearing your thoughts and ideas.

Scott Bruun, R-West Linn, represents District 37, which includes a portion of Lake Oswego, and can be reached at 503-650-6958 or by visiting his Web site at www.rep.scottbruunstate.or.us.