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.