Opening the Tax Floodgates

Hold your wallets. Oregon Democrats ruling Salem want to raise your taxes.

Many states saw Democrats wiped out in the 2014 elections. But Oregon gave its Democrats more muscle. The House and Senate have bigger Democratic majorities and, with a friendly governor, they can push through pretty much whatever they want.

What they want to do is raise taxes. If there's a way state government has missed collecting more money from Oregonians, Democrats seem willing to find it.

Democrats have introduced bevies of bills that would raise taxes, hike fees, trim deductions or otherwise replumb the state's tax system. The bills could impact people who buy gas, get a tax break on their mortgage, or pay income tax. In other words, practically everyone.

Democrats make a good case: Oregon is still coming out of the Great Recession and needs to strengthen its schools, social services and the delivery of health care. 

Republicans worry that too much of Oregonians' money will be washed away by an unchecked Democratic majority. The Senate Republican caucus has forecast a "tax tsunami."

There's a tension bigger than partisan sniping, however. Underlying everything is the question of tax fairness and redesigning Oregon's income-tax dependency so the state budget doesn't get slammed every time the economy sours. 

On those questions, Democrats are not of one mind. 

"I want to talk about ways to bring stability to a system that is far too volatile," says Sen. Mark Hass (D-Beaverton), chairman of the Senate Finance and Revenue Committee. "Some of my colleagues want to find ways to raise $2 billion in new revenue. Those are two totally different mindsets."

Some tax ideas are familiar. Others are simply odd.

Here are five places where the debate about taxes in Oregon will land.

The Pay-as-You-Pump Tax

Otherwise known as the state gas tax, which now stands at 30 cents a gallon. (The feds add another 18.4.) Gas taxes raise $500 million a year and are the primary source of transportation funding, but they largely go to bailing out the Oregon Department of Transportation, which is essentially broke after years of heavy borrowing for construction projects.

One of the takeaways from last week's Oregon business summit, which brought together politicians and business leaders, was a bipartisan commitment to fund the building of new roads and the fixing of old ones.

Gas prices are in free fall, which could make a tax hike more palatable. "That makes people think they can increase the gas tax," says pollster Adam Davis of DHM Research. "It's something they think they can do because of the price drop.” 

Jason Williams, executive director of the Taxpayer Association of Oregon, which is opposed to a higher gas tax, acknowledges his group tried and failed in 2009 to stop a 6-cents-a-gallon gas-tax increase by referring it to voters. Williams says his group will be better prepared if lawmakers repeat the move.

"We were told then a gas-tax increase would fix our transportation problems," Williams says. "In reality, they spent it all and now they are back for more."

What's likely to happen: Business leaders like transportation taxes, and that will embolden legislative leaders and Kitzhaber to increase them.

The American Dream Subsidy Tax

Also known as the home mortgage interest deduction. Reformers such as the group Tax Fairness Oregon don't like this federal and state deduction, which disproportionately benefits high-income earners by subsidizing the loans they take out to buy homes. The mortgage deduction costs the state's general fund $650 million a year in forgone taxes.

The rationale for the deduction is that it encourages home ownership. But studies have shown that in countries such as Canada that don't allow homeowners to deduct their interest payments, home ownership is just as high as in the U.S.

"The home-interest deduction does not promote home ownership," says Jody Wiser of Tax Fairness Oregon. "What it does is support the purchase of ever-larger homes and increases our carbon footprints."

One legislative proposal would limit mortgage interest deductions to $10,000. That's dead on arrival because 62 percent of Oregonians own homes. Another proposal ending the vacation-home interest deduction for those earning over $125,000 is an easier target—but has powerful patrons.

What's likely to happen: Impassioned pleas from social-service and schools advocates, who will glow afterward from this politically radioactive idea.

The Save-the-Polar-Bears Tax

Better known as the low-carbon fuel standard. The standard requires sellers to lower the carbon content of transportation fuels, either by blending with biofuels, incorporating renewables or purchasing credits.

Lawmakers in 2014 couldn't muster enough votes to renew Oregon's standard, which expires by the end of 2015. The Oregon League of Conservation Voters played a big role in Democrats' November victories. Now the OLCV and other enviros want the standard extended. It's also a big priority for Kitzhaber.

"The practical effect would be to reduce carbon emissions by 4 percent overall statewide," says OLCV executive director Doug Moore.

Critics say the standard would drive up gas prices to cover the high cost of alternative fuels. "The low-carbon fuel standard is a hidden gas tax," says Paul Romain, a lobbyist for the Oregon Petroleum Association. "Our polling says people don't like it."

Romain says he also doesn't like the idea of a carbon tax, which taxes fossil fuels. But he says at least that's more transparent. There are a couple of carbon-tax proposals pending. The idea is that the state would levy taxes on fuel suppliers and utilities to compensate for the environmental damage fossil fuels cause. But most people who love the idea of a carbon tax concede Oregon is not yet ready for one.

What's likely to happen: The carbon tax will fail. The low-carbon fuel standard will breeze through the Senate, where it died in 2013, but faces slower going in the House, whose members are less familiar with it.

The Boot-the-Kicker Tax

The kicker is the state's unique constitutional money-back provision that refunds taxpayers, but only if tax receipts exceed state estimates by more than 2 percent.

The last time Oregonians saw a kicker was in 2007, when taxpayers got an average refund check of $609. The kicker—when it comes around again—will be as a credit on your state tax return.

Williams of the Taxpayer Association of Oregon says scrapping the kicker would allow government to spend every dime it gets—even money that hasn't been budgeted. "Taxpayers should be very afraid," he says.

Democrats hate it as a money-sucking 1970s dinosaur of tax reform gone haywire. Plus, keeping kicker money funds education and social services. "We would definitely support getting rid of the kicker,” says Wiser. 

What's likely to happen: Ending the kicker requires a vote of the people, nearly all of whom benefit from the sporadic windfalls. Democrats may see too much risk for too little gain.

The High-School-Dropout Tax

No, lawmakers aren't planning to tax that dude holding a cardboard sign by the freeway exit. Instead, this concept, sponsored by the House Revenue Committee, would raise personal and corporate income taxes if high-school graduation rates fall below set levels.

Taxes would fall proportionately when graduation rates rise. The proposed tax would be triggered in either direction when then state superintendent of instruction releases figures annually for the state's 198 school districts.

Davis, the pollster, says that Democrats may be mistaking their strong November performance as voter enthusiasm for more taxes. Asked how he thought they'd feel about linking taxes to graduation rates, Davis was nearly speechless. “Oh, my God,” he says. 

What's likely to happen: A courtesy hearing followed by crickets.