Monetary Policy: It's a Matter of Priorities

Oregonians' priorities. That ought to be the legislature's guide when it comes into session in January and confronts a revenue shortfall by deciding where to spend Oregon's precious tax dollars.

In today's harsh economic landscape, what more important priority can there be than helping low-income, working families with children make ends meet?

The revenue shortfall has some lawmakers promising no new spending on tax subsidies and loopholes, but that's unlikely to occur. Every session, even when faced with a revenue shortfall, the legislature has created a new, or extended or expanded an existing spending obligation through the tax code. It's hard to believe that history won't repeat itself.

Thus, the only question is whether the new, extended or expanded tax code spending will match up with Oregonians' priorities.

That's why the Oregon Center for Public Policy has pulled together a coalition of about 100 organizations -- social service providers, small businesses, local governments and unions -- calling on the legislature to improve the Oregon Earned Income Tax Credit (EITC). This coalition thinks that if anyone ought to get new tax subsidy spending, it ought to be those working families who struggle to get by despite their work effort.

Look at four examples of the alternatives the legislature will face.

First, film production. The tax credit subsidy doesn't directly help woo Hollywood moguls. Rather, the subsidies for Hollywood come from a special pot of money funded with contributions, mostly from wealthy Oregonians. They receive a tax credit at least 5 percent greater than their contribution. In other words, the tax credit subsidy scheme costs the rest of taxpayers more than it would cost to fund the Hollywood moguls directly as a budget item.

Should helping wealthy Oregonians get a guaranteed 5 percent return on their "investment" trump helping a family earning near minimum wage make ends meet? Most Oregonians surely would prioritize funding an improvement of the EITC.

Second, research and development. We spend money through the tax code subsidizing corporations' research and development. We spend the tax dollars even if the R&D is central to a corporation's existence, has little social value or is going to a profitable company. And given that we subsidize just 5 cents on every qualified dollar, it's hard to argue that it provides a real incentive to Oregon businesses to conduct R&D that they otherwise wouldn't conduct.

Should giving money for R&D to corporations, even ones sitting on billions of cash, trump helping low-income working families with children make ends meet? Most Oregonians surely would prioritize an improvement of the EITC.

Third, solar energy, electric cars and energy conservation. Today, our residential energy tax subsidy is not means tested, so a disproportionate share of the money subsidizes purchases by Oregon's wealthiest taxpayers.

Oregonians might well prioritize spending tax dollars in these areas, but should helping a millionaire put up solar panels or buy an electric car trump helping low-income working family with children make ends meet? Most Oregonians surely would prioritize an improvement of the EITC.

Last, new markets tax credit. A proposed state new markets tax credit (NMTC) would match a federal subsidy for real estate development by the same name and make the federal and state subsidy total 78 percent of investors' costs. The NMTC essentially would be a giveaway to wealthy venture capitalists who fund real estate developments (think "The Nines" hotel in Portland).

Should Oregon prioritize a subsidy for wealthy commercial real estate developers ahead of help for low-income working family with children?

Most Oregonians surely would prioritize an improvement to the EITC.

It is a safe bet that the 2011 legislature will spend some money through the tax code, regardless of Oregon's overall revenue shortfall and other budget decisions. And when they do, let's hope they spend it on helping low-income working families with children by improving the state EITC. It's the right priority.

 

Chuck Sheketoff is executive director of the Oregon Center for Public Policy.