Just before Christmas, the United States Congress passed, and President Donald Trump signed into law, the first significant tax reduction and simplification since President Ronald Reagan’s presidency. I use the term “simplification” purposefully because “tax reform” is a term that is a bit bold to apply to this substantial reduction because most of the tax code remains in place and the primary reform is found in increasing the standard deduction to $12,000 ($24,000 for married couples) and thus reducing the number of individuals who will have to itemize deductions.
A real tax reform package would have started from scratch with a design that would have required everyone to pay some amount for taxes (you really don’t have a democratic form of government if the majority can impose the tax burden primarily on the minority), that was self-enforcing to a substantial degree (sales tax, value added tax, gross receipts tax) and that avoided creating a monstrous bureaucracy to administer (the Internal Revenue Service has 100,000 employees and there are even more people in the private sector to try to understand the proliferation of minutiae and contradictory rules and regulations promulgated by the IRS).
Be that as it may, the increase in the standard deduction decreased the burden on taxpayers substantially by eliminating the need to itemize deductions. I have noted in the past that I have a relatively simple economic situation. My income consists of my stock market investments and my social security benefits. I do not have a business that requires me to track revenue and expenses. I do not have any partnerships or exotic investments in mining, oil production or even real estate rentals. My deductions consist of my charitable contributions and my taxes paid, which combined exceed the standard deduction. And despite that it takes me nearly twenty hours spread over three or four days to accumulate, calculate and complete my state and federal tax returns. The increase in the standard deductions eliminates my need for that mind numbing exercise. An overwhelming number of taxpayers will get that same relief under the new federal law.
Well, not so fast. Not in Oregon. Oregon’s miniscule standard deductions for state income tax purposes will still require the itemization of deductions and thus the mind numbing exercise will continue for those living in Oregon and other states that put taxes before citizens and government growth before individual needs. You will not be able to file your taxes on a “postcard” but not because of Mr. Trump and the Congressional Republicans but rather because of Gov. Kate Brown (D-OR), the Democrat controlled legislature and tax consuming public employee unions who fund the Democrat Party.
Before we go any further though I want to remind you that Oregon’s Democrat congressional delegation – all six of them – were among the most vociferous opponents to the new federal law. The drank all of the Kool-Aid dished out by House Minority Leader Nancy Pelosi (D-CA) and Senate Minority Leader Chuck Schummer (D-NY) and asked for seconds. One of the particularly grading criticisms is that the elimination or reduction in the amount of deductions for state and local taxes constituted “double taxation” – taxation on the income used to pay state and local taxes. And all done without any acknowledgement that Oregon does precisely the same thing with regard to the deductibility of federal incomes taxes – it limits the total amount which then diminishes to the point of elimination as your income increases.
Oregon has one of the most regressive income tax plans in the nation. A mere $5000 in income separates the bottom tax bracket at 5% and the top tax bracket at 9%. (Actually, the Democrats added a new tax bracket of 9.9% in 2012 for those earning in excess of $125,000 using there preferred method of increasing taxes on a minority so that the majority is held harmless – nice trick which they have sought to use repeatedly thereafter.) Because Oregon is dominated by the Democrat Party and controlled by the public employees unions whose inflated retirement boondoggle (PERS)) and gold plated healthcare plans are driving Oregon to the edge of bankruptcy making the need for increasing tax revenues insatiable. High taxes and irresponsible spending are driving businesses and retirees out of Oregon. (Oregon’s leading Democrats deny this by saying they have seen no evidence of an outward migration but that is only because they have never asked. They may want to take a look at the list of business leaders who have served as leaders in the plethora of Portland’s business associations and track their moves shortly after retirement and prior to any significant vesting of long term compensation.)
So for those of you living in Oregon, while most will receive a tax reduction under the federal tax law, because your Democrat government is one of those high tax and spend states your benefits will be reduced. Tax simplification will be denied you unless your Democrat doominated government adjusts the standard deduction for a majority of its tax paying citizens. The question is whether those Democrats can overcome their Trump Derangement Syndrome to do something beneficial for their citizens or they will continue their self-flagellation at having lost the presidential election. My bet is the latter.
But it’s the quality of life in Oregon that makes all of this tax and spend nonsense bearable. Right?