Tax plan squeezes senior citizens

When politicians cast about for someone to pony up more for government, you don’t expect them to single out senior citizens.

Gamblers, yes. Smokers, for sure. But the over-65 crowd? Senior citizens tend to pay keen attention to their tax bills. And they vote in large numbers.

But that’s exactly what Oregon lawmakers did.

Most of the money in the Legislature’s $800 million tax package comes from an income tax surcharge. But in a little-noticed provision, House Bill 2152 also hands more than 100,000 older taxpayers an extra tax increase by applying an income test to the state’s special medical deduction for the elderly.

It’s not small change, either.

The average tax increase for a single filer with an adjusted gross income of $50,000 to $60,000 would be about $270.

Senior citizen advocates, worried about the loss of services in the budget crisis that spawned the tax package, went along with the changes in the Legislature. But opponents are collecting signatures to ask voters to reject the tax package in a special election Feb. 3.

It’s hard to gauge the effect that senior citizens upset about the tax increase might have on the election if the tax referendum makes the ballot.

Older citizens vote in greater numbers than other voters, but their position on the tax package is more likely to be determined by their view of the larger issues of taxes and spending than on the package’s specifics, said Bill Lunch, a political scientist at Oregon State University.

If the bill survives the referendum drive, the tax increase for senior citizens would represent an unusual crosscurrent. The trend for the past 20 years has been to exempt more senior citizen income from taxes, even as the overall population ages.

Under federal tax law, which Oregon uses as the basis for taxable income, taxpayers who itemize can deduct medical expenses above 7.5 percent of income. The Legislature expanded this to include all medical expenses for senior citizens in 1991.

The changes to the senior citizen medical deduction in HB2152 would raise $42 million for 2003-05 through increasing the qualifying age from 62 to 65 during three years and phasing out the deduction for higher incomes.

Single filers with adjusted gross incomes of $15,000 a year, and joint filers with incomes of $30,000, would lose 60 percent of the deduction. It disappears completely at $50,000 for single filers and $100,000 for joint filers.

According to the Oregon Department of Revenue, 162,000 returns claimed the deduction in 2001. The average deduction was $1,854 for single filers and $3,033 for joint filers.

Elders receive tax advantages At least 103,000 taxpayers would see some reduction from the income phase-in, and 24,500 would lose it completely. It’s unclear how many more would lose the deduction as a result of increased age threshold.

The deduction is one of several tax advantages enjoyed by senior citizens in Oregon. In all, senior citizen tax breaks are estimated to cost the state more than $1 billion in the 2003-05 biennium.

The biggest chunk comes from a constitutional ban on taxing Social Security income, overwhelmingly approved by Oregon voters in 1985. Federal retirees pay no state taxes on their pensions, and retired state and local workers receive an extra pension benefit to compensate for the state taxes they pay. And retirees receive a tax credit.

The issue will only grow in importance as Oregon’s population ages, the tax base erodes, and demands for services to the elderly intensify.

“We all know the demographics of 2010 and beyond,” said Paul Warner, the state’s legislative revenue officer. As baby boomers retire, the over-65 population in Oregon is projected to more than double from 440,000 in 2000 to more than one million in 2030.

The prospect of more senior citizens paying a shrinking share of the tax bill adds fuel to the case for reducing the state’s heavy reliance on income taxes, Warner said. Senior citizens, who tend to spend a high percentage of their income, probably would shoulder a greater share of the tax burden under a sales tax, he said.

“It only underscores the need to look at the income tax as the engine for our revenue system.” said Rep. Lane Shetterly, R-Dallas, Revenue Committee chairman and one of the chief architects of the tax package.

Shetterly said one reason the package ended up including a tax increase for senior citizens was the absence of opposition from the intended target. In fact, no one testified against the loss of the deduction, he said.

“We were all fighting the war on other fronts,” said Jim Davis, a lobbyist for several senior citizens groups. “We were fighting for the survival of our services.”

Services versus taxes The Oregon Center for Public Policy, a think tank that speaks up for low-income people, issued a report saying the tax break was worth about $36 million in the next two years to households earning more than $100,000 — coincidentally about the same as the cost of the “medically needy” program, which was being cut from the budget.

“We watched it, but it’s hard to defend wealthy people getting a tax break for heath care while poor people are getting nothing at all,” said Jacqueline Zimmer Jones, who lobbies for senior citizen issues.

The trade off is not so clear-cut, Zimmer Jones said. All it takes is one stroke or other catastrophic health crisis to push a relatively well-off senior citizen into poverty.

And voters may simply look to their pocketbooks for political inspiration.

“Medical costs are rising so much faster than anything else,” said Russell Dunham, 68, a retired grocer from Prineville. “Every time I get a little increase in my pension, insurance premiums go up, and it puts me more in the hole.”

Dunham said he was opposed to limiting the medical deduction, and was likely to vote against the measure if it lands on the ballot.

Russ Walker, Northwest director of Citizens for Sound Economy, a Washington, D.C.-based group that is backing the referendum drive, said lobbyists in Salem might not represent the average senior citizen voter.

“One of the problems is, traditional senior groups tend to come down on the side of liberal politicians,” Walker said.

Other senior citizens think they should pay a little more for their own health care, if they can afford it.

“I don’t think middle-income kids should have to pay for their parents,” said Dorothy Teresi, 79, of Estacada. James Mayer: 503-294-4109;