Voters should ask why we need Measure 97 tax increases

Dan Lucas_July 2012_BW

by Dan Lucas

Oregon’s Measure 97 will significantly increase the amount of tax revenue for the state.

It is projected by the state’s Legislative Revenue Office to generate $6 billion in tax revenues per biennial budget cycle. That’s a lot – Oregon’s current General and Lottery Funds budget is $19 billion per biennium, and just two budget cycles ago, in 2011-13, it was $14.5 billion.

Measure 97 began life as Initiative Petition 28, which got enough signatures to make this November’s ballot. The $6 billion per budget cycle would be paid by “corporations with sales of more than $25 million a year in Oregon.” The taxes would be based on sales rather than profits, and would impact “large and out-of-state corporations” as well as cherished Oregon hallmarks like Powell’s Books.

Those taxes on businesses are then expected to be passed on to all Oregonians in the form of “price increases”, “‘staggering’ impacts on jobs” – “a loss of more than 38,000 private sector jobs” and also a small dampening of income growth.

This push for a staggering increase in tax revenue appears to come at an incongruous time. Oregon Legislative Revenue Officer Paul Warner recently told a state senator that it was safe to say that Oregon’s total state tax collections are at a historical high. The Oregon budget is the highest it’s ever been – and it has been growing rapidly.

So why we do we need these huge Measure 97 tax increases?

An editorial in the East Oregonian notes that public employee unions “are heavily financing Measure 97.” Supporters of the measure include public employee unions SEIU, AFSCME, OSEA, AFT-Oregon and OEA.

Why would public employee unions be pushing for “the largest tax increase in Oregon’s history?” The measure’s backers say the tax increase is “to better fund Oregon’s schools, health care and senior services.”

Leaving aside the fact that the Legislature can spend the new tax revenues “in any way it chooses,” why are public employee unions pushing this measure?

One obvious reason is that as a result of the additional tax revenue, “public sector employment is expected to grow.” The more pressing motivations, however, are spelled out in The Oregonian which notes that the tax revenue would cover “employee raises and other personnel costs, a shortfall in the public employee pension fund [PERS] and the cost of expanding Medicaid under the Affordable Care Act.”

Oregon PERS currently has an unfunded liability of $21.8 billion, and PERS contributions will climb to $2.9 billion in 2017-19 for all the school districts, cities, counties and state agencies in PERS. An op-ed in the Eugene Register-Guard recently noted “Of all the additional resources available to government during the next biennium, 41 percent will go to PERS.”

As I noted last year “One in four Oregonians is on Medicaid, the government health care payment system for the poor. That does not include older Oregonians who are on Medicare.” Before the Affordable Care Act (ACA, “Obamacare”), Oregon split the cost of Medicaid 50-50 with the federal government. The ACA gave the states the option to expand Medicaid coverage (Oregon Health Plan in Oregon) – with the feds initially paying 100 percent for the “expansion population.” Oregon chose to expand Medicaid coverage, and has an expansion population of around 450,000. The federal government match for the expansion population starts to decrease next year to 95 percent and then continues to decrease down to 90 percent by 2020. Oregon receives $4.4 billion per biennium in federal dollars to cover the expansion population. The reduced federal match represents a major impact to future Oregon budgets.

Oregon has total state tax collections that “are at a historical high” and record-high budgets, but apparently that’s not enough. Oregon could look at slowing the rapid growth of government, or at least look for ways to make government more efficient and to cut all the wasteful spending and boondoggles like the Columbia River Crossing and Cover Oregon.

But that’s not what’s happening. Instead, with Measure 97, taxpayers and consumers are being asked to do all the work.

To read more from Dan, visit www.dan-lucas.com

Related reading: Jack Dean at PensionTsunami pointed out this column from July where Joel Fox writes “no matter what local politicians tell voters, when you see tax increases, think pensions.”

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Posted by at 05:00 | Posted in Measure 97, PERS, Public Employees Retirement System, State Budget, State Taxes | 3 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    What’s most interesting with our economic times may be because money is relatively easy and interest rates virtually nil; folks are saving more of their incomes because earning money on retirement savings without stock market risk is virtually nil. Corporations at the same time are inclined to use their retained earnings and borrowed monies buying back stock instead of making huge physical investment. But the affect on stock market prices is flatening with the slowing of profit growth. The lack of interest income and slowing stock price growth means PERS falls behind the 8% guaranteed return for Tier 1 PERS retirees. The state revenue office is probably most accurate in saying price increases in Oregon will result from measure 97. This is because many corporations with revenues in excess of $25 million have market power within Oregon, as many are oligopolistic or monopolistic. For sure, utilities are guaranteed by state law to earn a 10 percent profit or so; and so, electric and natural gas bills will go up at least by 2.5%. Cable companies enjoy significant market pricing power, too.

    Measure 97 could cause more work to be performed inside a company rather than subcontracting it; and so this could have negative impact on smaller businesses. So, maybe some vertical integration causing the big to get bigger, and the smaller to disappear.

    • bill

      Interesting, thanks!
      I’m guessing the PERS board would like to reduce the assumed rate from the current 7.5% but is hesitant because of the impact on employers. Inevitably the rate must come down unless return on investment comes back up which looks unlikely to happen anytime soon. Likely to see more assumed rate reductions in coming years. From what I have read the assumed rate is not a contractual promise for now obsolete Tier 1 accounts and others have no rate promise. It is a non issue for those already on pensions as they no longer have an account (used to purchase their annuity).

  • barttels

    Nicely compiled and composed, Mr. Lucas.

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