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Lawmakers Don’t Shy Away From Taxes

The end of a popular income tax deduction, a new tax on business sales, and a new proposal to raise $22 billion a year in taxes. Whew!
Lawmakers Don’t Shy Away From Taxes

Taxes usually take a back seat during interim meetings of the legislature, especially during election years. However, the hearings this week were an outlier, with the legislature openly discussing an end to a popular deduction, a new tax on business sales, and a looming proposal to raise $22 billion a year in taxes. Whew!

Oregon Secretary of State Shemia Fagan (D) presented an audit of Oregon’s mortgage interest deduction to a joint legislative audits committee. Some advocacy groups, particularly housing advocates, regularly call for ending the policy as a means to raise funds for state-sponsored housing subsidies, claiming the deduction primarily serves as a “subsidy for the wealthy.” Although groups assert the deduction is preferential to the wealthy, the data does not seem to support that claim. According to the audit, households with income between $57,100 and $202,600, which is generally seen as middle-to-upper-middle class, receive 65 percent of the benefit. Still, the tax battles over the deduction are all but certainly going to continue into the foreseeable future.

In the House tax-writing committee, lawmakers received an update on the initial year of the state’s new business tax to finance investments in public education. The corporate activity tax, a modified gross receipts tax enacted during the 2019 session, generated nearly $1 billion in its initial year of collections. According to reports from the Oregon Department of Revenue and Legislative Revenue Office, larger businesses (i.e., firms with Oregon sales activity exceeding $25 million) made up only seven percent of taxpayers but were responsible for 75 percent of the overall tax payments. If the objective of lawmakers was to make “big business” pay its “fair share,” there seems to be no doubt the tax is doing so.

In the legislative health care committees, which are typically not a venue for controversial tax discussions, legislators heard from a group preparing a proposal to replace private health insurance with a single-payer system. Although the speakers took great lengths to minimize any discussion of the taxes necessary to finance their proposal, the numbers are staggering. The group seeks to raise $57 billion in new funds each biennium by raising income tax rates up to 24.5 percent, creating a new employer payroll tax with rates up to 11 percent, and repurposing existing state and federal funds for public insurance. If approved by the legislature, these tax increases would represent a tripling of the state’s general fund.

It’s easy to dismiss the single-payer insurance proposal as untenable and politically impossible, but a constitutional amendment on the ballot this fall may change the underlining politics. During the 2021 session, the legislature referred an amendment to voters establishing a constitutional right for every resident to access “cost-effective, clinically appropriate, and affordable health care.” The constitutional language includes a provision requiring the legislature to balance health care alongside funding for public schools and other essential public services. Without any known organized opposition to the ballot measure, it seems likely to receive support from voters. Some healthcare advocates are likely to argue that the electorate’s support for the amendment mandates the legislature to move toward universal coverage.

The legislature will convene for another series of interim hearings before the election, from September 20 to September 23. All legislative hearings will remain virtual until December due to ongoing construction at the Capitol. The presiding officers say the construction is running on schedule and the building will reopen to normal activities for the December interim hearings on December 7.