A costly tax break that would force deep cuts in public services, Measure 59 on the November ballot would give the richest Oregon households — millionaires on average — a tax break averaging more than $15,000 and middle-income families a tax break averaging just $2, according to an analysis released today by the Oregon Center for Public Policy.
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Measure 59 would allow an unlimited federal tax deduction on state tax returns. Oregon voters rebuffed a similar tax measure in 2000.
“Measure 59 is a raw deal for Oregonians,” said OCPP policy analyst Michael Leachman, explaining that relatively few in the state pay enough in federal income taxes to use up the maximum deduction already allowed under Oregon law. “It’s a scheme slanted heavily in favor of the state’s wealthiest households.”
While the wealthiest 1 percent of households would get about half of the total tax break under the Measure 59 scheme, fewer than one out of four taxpayers would get any tax benefit, according to the OCPP analysis.
“Most Oregonians get nothing but significant cuts to important public services,” said Leachman.
OCPP puts the cost of the measure at “somewhere between $1.1 billion and $2.4 billion.” The lower range comes from an OCPP estimate that conservatively assumes that Congress will pass temporary, short-term adjustments to the Alternative Minimum Tax (AMT) and that some of the tax cuts passed during the Bush Administration that are set to expire in 2010 will be extended.
The top end of the range comes from the state Legislative Revenue Office, which assumed no changes to the AMT and the expiration of all of the Bush tax cuts.
“Either way, Measure 59’s hefty price tag will squeeze Oregon’s budget,” said Leachman, co-author of the report No Gain, Just Pain: Most Oregonians would not benefit from Measure 59, but they would lose public services.
Even under OCPP’s more conservative $1.1 billion estimate, the cost of Measure 59 is equivalent to cutting the salaries of all Oregon K-12 public school teachers by 70 percent, according to the Silverton-based think tank.
OCPP also concluded that Measure 59 would make Oregon’s income tax system unfair. The report said that each additional dollar earned by the most well-off family would be taxed less heavily than each additional dollar earned by a family with a modest income.
Specifically, the report noted that under Measure 59, a married-couple family of four with taxable income of $202,300 would be taxed at 6.2 percent on each additional dollar, while a family with taxable income of only one-tenth that amount — $20,230 — would be taxed at 9 percent on each additional dollar.
“The deduction makes our income tax quite regressive,” said Leachman. “A tax system that asks least of the well off is not one that will promote opportunity and prosperity for all Oregonians.”
OCPP noted that most states do not allow any deduction for federal income taxes. According to OCPP, if Measure 59 passes, Oregon would join Alabama, Iowa and Louisiana as the only states to allow an unlimited deduction.
The Oregon Center for Public Policy is a non-partisan research institute that does in-depth research and analysis on budget, tax, and economic issues. The Center’s goal is to improve decision making and generate more opportunities for all Oregonians.