Oregon Enacts Legislation to Scrutinize Some Tax Subsidies, But Could Go Further


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Oregon Governor Ted Kulongoski recently signed legislation requiring the "sunset" (or forced expiration) of most tax credits offered by the state.  Tax credits related to the environment, agriculture, or business will expire at the end of 2011, if new legislation is not enacted.  Education, housing, and community service related credits will cease to exist after 2013, without legislative action.  The same goes for credits dealing with medical care, child care, and families after 2015.

Of course, the plan is not necessarily to allow all these tax breaks to expire, but instead to provide the legislature with an impetus for taking a closer look at these provisions.  Ideally, after a closer look, state lawmakers will then be able to more objectively decide whether renewing them is worth the cost.

This reexamination can be thought of as an attempt to mirror the reviews that occur when agricultural, housing, education, and other types of ordinary spending programs are reconsidered during the appropriations process.  Since tax credits oftentimes are enacted with fairly specific goals, a review of their merits could be quite pointed, and potentially very useful.

This is particularly important in Oregon, where any law increasing taxes (and that includes any law repealing a tax credit) usually requires a supermajority vote of three fifths of the state house and senate. So once a tax credit is enacted, it might be around forever if it doesn't have an expiration date.

But the reform signed by the Governor does not go far enough because there are many other types of tax subsidies (subsidies provided through the state's tax system) that do not take the form of credits, and these are not affected by the new law. For example, the state's home mortgage interest deduction is arguably due for an overhaul, but this new law does not provide state legislators with any impetus to review such targeted tax deductions.

It's nice to see lawmakers acknowledge that they need to pay more attention to the money they're doling out through the tax code, but this reform could be much stronger.

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