Over the years, Oregon's volatile tax system has been the subject of dozens of studies, with legions of recommendations on possible changes. But none of the plans passed muster with voters, leaving a spending system in perpetual shortfall, propped up by property taxes for local governments and income taxes for the state, enough to keep public services flush when times are good, and begging when the economy turns sour.
Now, though, a new 30-member group led by government union officials is girding itself for another comprehensive look at tax reform. "This is, or should be, the primary focus of the 2009 session," said state Sen. Frank Morse, R-Albany, who long supported changes to the tax system.
So far, it's not yet clear what shape tax reform might take. But at least one intriguing proposal has surfaced, championed by conservative Republicans such as Rep. Dennis Richardson of Central Point.
The idea is an offset, reducing an existing tax and replacing it with a different one, so that individuals don't pay more, but the overall system is more insulated from the economy's twists and turns.
One possibility is a phasing out of property taxes for all residents who own property assessed at less than a certain amount, be it $1 million or $10 million, or somewhere in between. In its place would be a sales tax, perhaps set around 5 percent, and shared at least in part with cities and counties, who currently rely on local property taxes for much of their funding.
Andy Shaw, a policy analyst with the League of Oregon Cities, said municipalities across the state are intrigued by the idea, after struggling with restrictions on the growth of property taxes, which by law can't increase more than 1.5 percent per year. But property taxes are at least a stable, predictable source of income, he added, making it a risky proposition for local governments to give up a large chunk of that revenue.
Sales taxes, proponents say, allow governments to capture revenue from sectors of the economy that are currently virtually tax-free, such as the so-called ``underground economy,'' fueled by under-the-table cash payments, and the state's flourishing tourist industry.
Taxes have long been a fraught topic in Oregon, with the state's voters repeatedly turning back any attempt to institute a sales tax. Elections in the state can be lost over a candidate's support for tax increases.
But Morse and others think Oregonians are ready for a serious discussion of tax reform.
For one, they say, Oregonians got a serious dose of the downside of the state's current system when the 2002-03 recession hit hard. Schools closed down early, prisoners were let out of jails, and the Oregon Health Plan was pared way back, because the income tax revenues coming in just weren't paying the bills. With that experience still relatively raw, the need for reform may have come into sharper focus, Morse and others said.
"We are still counting on the most volatile revenue system that you could invent to sustain critical programs," Morse said. "And that volatility will return. It is just a matter of when."
(registerguard.com)
