Revenue Reform Must Complement Cost Control

Oregon needs revenue reform as well as better cost management to resolve its fiscal crisis. Oregon’s current tax structure, with its heavy reliance on personal income and capital gains taxes, doesn’t reliably produce the revenues required to fund essential public services. It is too volatile, and it discourages economic growth.

The system has long needed to be more stable. When the economy is strong, so is income-tax-based revenue, but in a recession tax receipts fall off, starving funding for vital services. Oregon’s unique “kicker” law makes revenue fluctuations even worse by rebating tax dollars when revenues exceed forecasts. Oregon has no corresponding policy to cover revenue shortfalls during economic downturns.

In the long run our revenue system hinders economic growth by shortchanging public services essential for business success. But it also inhibits growth by chasing away high-income entrepreneurs and talented individuals who would otherwise locate here and be instrumental in building enterprises that create higher paying jobs.

The Business Plan Is Looking At Reform Options

In addressing the state’s fiscal crisis, Oregon Business Plan leaders have been examining revenue options to stabilize budgets and generate new revenues that will complement savings from cost control measures. Tax policy experts from the State Tax Research Institute and local economists are assisting that effort. Recommendations will be vetted by Oregon Business Plan partners and the results will be presented at the December Leadership Summit. Following that, specific proposals will be readied for the 2019 Legislature to consider. This page will update recommendations as they are adopted.

In a related but separate development, Governor Brown has convened a group to consider how to address funding for Medicaid, which represents a major portion of the overall budget shortfall anticipated for the upcoming biennium. This work group is exploring a variety of health care-related taxes, including health insurance taxes, claims taxes, cigarette taxes, and payroll taxes.

General Revenue and Medicaid Funding Must Be Linked

Oregon Business Plan leadership has stressed that conversations about revenue in general and revenue for funding Medicaid in particular must be considered in tandem, so we can understand the cumulative revenue burdens and how revenue increases will come together to address the fiscal crisis.

The Business Plan process for considering revenue reform is adhering to the following principles:

  • Overall funding levels should be sufficient to pay for schools, health care, and other vital public services.
  • Taxes should be increased only as part of an overall plan that supports economic growth and includes reforms that slow the growth of unsustainable costs in state government, as described above.
  • Revenue stability is critical. The state should build up its reserves quickly enough to guard against inevitable recessions.
  • Any tax plan should boost economic activity and protect low-income Oregonians.
    Proceeds from tax increases should be invested in programs that are proven to help children enter school ready to learn, graduate from high school and complete college; and for funding our commitment to health care access for all Oregonians.
  • For all public investments, we should use clear measures to track progress, improve accountability and reward successes.