Bend Bulletin: Measure 66 roller coaster

Bend Bulletin Editorial
June 2, 2010

As long as your check doesn’t bounce, you can make a lot of misleading claims in the Oregon Voters Pamphlet. You can claim, for instance, that “You Gotta Be RICH To Be Impacted” by Ballot Measure 66, as AFSCME public affairs director Rich Loving did prior to the January election. In fact, Measure 66 will affect both those who pay its new income tax rates and those who don’t. The measure’s most conspicuous effect, of course, is the damage it will do to the state’s economic climate. Why would any high-earner or small-business owner move to Oregon when Washington state, just to our north, has no personal income tax at all?

Meanwhile, as Oregon’s revenue experts acknowledge, Measure 66 will further destabilize the state’s revenue stream. According to the state Office of Economic Analysis, Oregon will probably collect nearly $580 million less than expected during the 2009-11 biennium. The culprit, as always, is the personal income tax, which is both the primary source of general fund revenue and the target of Measure 66. The measure boosted the state’s already high taxes for individuals earning more than $125,000 per year and families earning more than $250,000.It’s too early to tell “what impact, if any” Measure 66 and companion Measure 67 are having on actual collections, according to the report, whose authors predict a “significantly clearer picture” in the fall. But they do know that Measure 66, at least, will make such distressing shortfalls even more likely in the future.

How? The personal income tax is a notoriously volatile source of revenue. Collections soar during periods of economic vitality and plummet during periods of malaise. “In past years,” the OEA writes, “the relatively small number of taxpayers impacted by the measure “” two to three percent “” regularly accounted for two-thirds of the change in tax revenues from one year to the next.” Measure 66, says the OEA’s Josh Harwood, has boosted marginal taxes by 20 percent on that tiny, but influential, group. As a result, according to the revenue forecast, “the state can expect to experience greater positive revenue changes in good years and greater losses in revenue in bad years…. It is likely that the most recent months are examples of the latter.”

While relatively few Oregonians will pay higher taxes under Measure 66, everyone will be affected by increased volatility. Government agencies that rely upon the general fund “” particularly public schools “” will be starved even more dramatically by unexpected budget famines. Unexpected budget feasts, on the other hand, are likely to result in even larger “kicker” returns. No wonder lawmakers are so interested in “kicker” reform.

All of this makes Measure 66 a rare piece of public policy, indeed. Not only has it made Oregon a worse place to do business, but it’s also made the state a more difficult place to do government. That’s what you call a real lose-lose.