Oregon’s $400 Million Question

Depending on which side of the coin you view it from, Measure 41 is about hundreds of dollars — or hundreds of millions.

The measure would reduce annual income taxes for most Oregon households by about $140 a person. Since most Oregonians would qualify, the tax breaks would add up to about $400 million a year less for schools and state services.

That gives voters a tempting but high-stakes choice: Assuming they’d like some extra dollars in their own pockets, do they want them badly enough to risk cutting schools, public safety or other services they might need or want?

Supporters say the answer is yes because the tax cut would benefit the vast majority of Oregon taxpayers and would help stimulate the economy.

“Most taxpayers are saying ‘We don’t feel government is spending our money well,’ ” said Russ Walker, Oregon director for FreedomWorks, the Washington, D.C.-based organization that headed the effort to put the measure on the Nov. 7 ballot.

Opponents, however, caution that the modest savings are not worth the long-term impact on services, particularly the reduced money for education and social services.

“Everybody would get a tax cut, and we would just see our schools and higher education systems fall to the bottom of the pack in terms of funding,” said Sen. Ryan Deckert, D-Beaverton, chairman of the Senate Revenue Committee.

The proposal lets Oregonians choose between taking the current exemption credit on their state tax return or taking deductions equal to those they get for exemptions on their federal tax return.

Walker said he went to anti-tax activist Bill Sizemore with several initiative ideas and asked for his input on how to word them, including the one that became Measure 41.

With Sizemore’s wording in hand, Walker said, his organization went ahead with the proposal because it wanted “a tax cut that would impact as many people as possible.” Loren Parks, the Henderson, Nev., resident who heads a medical equipment business based in Aloha, provided nearly all of the money for the petition drive.

The state Legislative Revenue Office says about four of five tax filers would get at least some benefit from the proposal, with the break averaging about $291 a year per household. The savings depend largely on the number of exemption credits claimed on a tax return.

No one would pay more in state taxes because of Measure 41. Since Oregonians may itemize their state taxes as a deduction on their federal returns, however, the measure would result in lower itemized deductions — and higher federal taxes. That means Oregon itemizers would pay roughly $40 million more in federal income taxes for tax year 2007, the legislative revenue office estimates.

The biggest impact, however, would be on Oregonians’ state taxes.

Thanks to state tax revenues that have topped projections, Measure 41 isn’t expected to affect the state’s current budget, which ends June 30, 2007, six months after the measure would take effect.

The 2007-09 budget is a different picture. That’s the plan to be finalized by the governor and Legislature next year. Measure 41 would cut tax revenues by $813 million for that two-year cycle, and by $885 million for 2009-11, according to estimates from the Legislative Revenue Office.

About 90 percent of the general fund budget goes for education, human services and public safety, so “that’s where the cuts are going to come from,” said Senate Majority Leader Kate Brown, D-Portland.

That has legislators starting to talk about whether they will need to consider other sources of revenue if Measure 41 passes. Possible ideas include raising the cigarette tax or holding on to the corporate income tax “kicker.”

Currently, Oregon’s cigarette tax raises about $60 million a year for the state to spend. Withholding the corporate kicker would give Oregon an extra $200 million to spend in 2007-09, but business leaders have said they want lawmakers to put the money into a rainy day fund.

“I also think there will be a conversation about tax reform,” Brown said.

House Majority Leader Wayne Scott supports Measure 41, saying he doubts any services would be cut if it passes. The Canby Republican said the state’s latest revenue forecast predicts the state will have about $2 billion more in tax revenues available to be spent in the 2007-09 budget than the $11.6 billion the state is spending in 2005-07.

The state’s economic model predicts that Measure 41 would reduce the additional tax revenues for 2007-09 nearly in half, leaving lawmakers with about $1.1 billion, or about 10 percent, more to spend in the next budget.

Scott said the tax cut would generate more tax revenue for the state by injecting more money into the economy.

“It is a stimulus that does what a stimulus is designed to do,” he said.

Opponents of the measure predict it would lead to big cuts in future funding of schools. They project that the Legislature would spend $337 million less on schools in 2007-09 than it would without the income tax cuts. Based on current school funding, that would translate to $29 million less for Portland Public Schools, $21 million less for Beaverton, and $23 million less for Salem, according to estimates of the Oregon Education Association, the teachers union.

The Defend Oregon Coalition said the measure would provide little benefit to many seniors — particularly low-income seniors –and would cut funding for programs that serve them.

“Some Oregonians won’t benefit at all from this, and then their access to prescription drugs and services will be reduced,” said Becca Uherbelau, a spokeswoman for the coalition. The group includes AARP, Oregon PTA, the Oregon Business Council and a number of public employee unions and other labor groups.