Bold actions needed to address state's $1.6 billion deficit
Last week, budget and revenue leaders in the Oregon House released a bold proposal to invest in Oregon's education system, called the Education Investment Initiative, and it is based on the tax reform framework presented to the Joint Tax Reform Committee. Oregon is facing a $1.6 billion deficit for the 2017-19 biennium, which has forced this discussion. It's important to understand why there is a need for tax reform and why it focuses on the role of corporate taxation in Oregon.
Underlying the current deficit is a long-term, structural imbalance caused by choices both legislators and voters have made over many years, including property tax reduction, pension obligations, mandatory prison sentences, and declining corporate tax revenue. A major turning point was approval of Ballot Measure 5 in 1990, which shifted the responsibility for funding K-12 schools from local property taxes to the state general fund. As a result, the income tax became the primary funding source for education, human services and public safety.
In keeping with the Joint Tax Reform Committee framework, the restructure would scrap Oregon's corporate income tax system and replace it with a new Commercial Activity Tax of 0.95 percent on business sales in the state. This rate would only apply to companies with more than $5 million in Oregon sales; those with less than that would pay a flat $250. So, why do we need to focus attention on the corporate side of the equation? Here are a few reasons why the restructure must move in this direction:
* 87 percent of the state general fund comes from personal income taxes, while corporations only pay about 5 percent, down from 18 percent in the mid-70s.
* Each year, fewer Oregon businesses pay taxes. For instance, we have seen a decline in C Corps from 35,500 in 1990 to about 30,000 today.
* A comprehensive analysis shows businesses pay the lowest state and local taxes in the nation.
Another work group has been meeting for more than two months to also address the cost containment side of the equation. There will be $400-600 million in targeted cuts in state expenditures. There will also be $200 million in tax relief for low- and middle-income households. Taken together, this reform package will raise more than $2 billion, and a minimum of 75 percent of those new funds would be dedicated to education.
Without bold action, Oregon is facing years of painful cuts. The Education Investment Initiative will allow us to make strategic new investments in our schools and support a strong equitable economy for everyone. It will dedicate billions to our schools, fulfilling the promises we've made to the next generation. By investing in schools, we will finally provide young Oregonians with the education they and their future employers need to be successful. The Initiative will add weeks to the school year, reduce class sizes, and allow districts to restore vocational and technical training that is so important to keeping students in school.
I feel that this package begins the discussion that will put our state on a path to fiscal stability for the first time in decades.