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Monday, October 13, 2008

Measure for measure

With just over three weeks to go until the ballots are counted, it's time to get serious about looking at the ballot measures that will be before us Oregonians momentarily. There are a dozen of these, and with the ballots ready to hit the mailbox, we'd better cover them at a clip of at least two a day.

We've already mentioned Measure 59 on this blog; it would change the Oregon income tax law to allow an unlimited deduction on one's Oregon income tax return for federal income taxes incurred in the same year. Let's roll that one in with the other tax measure, No. 56, largely eliminating the "double majority" rule, into a single post to kick things off. Both measures involve taxes, and both are reruns of past initiative battles.

Measure 59, the unlimited state income tax deduction for federal taxes, has been voted down in the past (most recently in 2000, I believe), largely on the ground that it's a tax cut for the rich. I'm not sure that's a fair characterization. As a practical matter, it represents a state income tax cut for Oregonians who pay more than $5,600 in federal income taxes in any given year. Are they all what you would call rich?

According to my algebra, to owe more than $5,600 in federal tax, a married couple would need to have federal taxable income of more than $42,683; a single taxpayer would need federal taxable income above $37,025. If you factor in the standard deduction and personal exemptions (with no dependents), a married couple would need total income of more than $60,583 to benefit from Measure 59; and a single taxpayer would need total income of more than $45,975.

I don't know about you, but I don't call a couple making $61,000 or a single person making $46,000 rich. (I tend to agree with Obama, who draws that line at $250,000.) Granted, Measure 59 would give a cut to everyone at the $61,000 level and above, including the truly well-to-do among us. But at least to some extent, it's a middle-class cut.

Perhaps the greatest attraction of this measure is its theoretical purity. As I've written here before:

You can't pay taxes to the state out of the money taken from you by the federal government. Failure to allow full deductibility amounts to a state tax on a federal tax....
If Measure 59 passes, the state legislature will no doubt have to make up the revenue by imposing higher tax rates than it currently does on high-income taxpayers. Instead of a top marginal rate of 9 percent, they'll probably have to have a top marginal rate of, say, 12 percent. But it would be a 12 percent tax on an honest tax base -- not 9 percent on a dishonest tax base, which includes money that the feds take away before we get to see it in our take-home pay.

Passage of Measure 59 might also trigger a serious discussion of Oregon's tax system -- essentially a flat-rate, high-rate income tax, with no general sales tax -- which wouldn't be a bad thing, in my view. I know, I know -- the bad guys put it on the ballot, it went down before, and it benefits the wealthy, but I'm inclined to vote for it as a middle-class tax cut and a blow for honesty in taxation.

That brings us to Measure 56, which would eliminate the "double majority" requirement currently contained in the state constitution for ballot measures that would raise property taxes. Under current law, in order to pass a property tax increase, a measure must gather a majority of the votes cast, and a majority of the registered voters who are eligible to vote most vote in the election. The only exception is for November elections in even-numbered years, when members of Congress are elected (and every fourth year, of course, the President). As I recall, this requirement has been on the books for 12 years.

The double majority rule, which Measure 56 would get rid of, does lead to some anomalies. The one that's most often pointed to is the fact that people too lazy to vote get to cancel out the votes of those who show up and vote to increase taxes. But here's another one, even crazier: By voting "no" on a tax increase, you're actually helping to pass it, because you help the turnout exceed 50 percent. If you didn't vote at all, you wouldn't be adding to the turnout numbers. And so if you really want to help defeat a tax increase, you must first determine whether a majority of eligible voters are going to show up. If you're confident they are, then you should vote "no." But if you think the turnout might miss the 50 percent mark, then the best thing to do is not vote. Crazy, and possibly unlawful (if anyone would bother to challenge it on these grounds in court).

Anyway, Measure 56 would get rid of the double majority rule for any election in May or November in any year. Under current law, property tax increase measures can be passed without the double majority only in November every other year.

It's a close call, but on balance I like having all the property tax increase elections held at once. Under the old system, we used to get bombarded with the bureaucrats' requests for money several times a year, which both hid the combined impact of the tax boosts and allowed them to pass in low-interest elections in which only the government union people showed up. The world hasn't ended under the double majority requirement, and the more I see governments like the City of Portland squander tax dollars on developer and construction company welfare, the less inclined I am to support their revenue-raising initiatives. I'm inclined to vote no on Measure 56.

Comments (27)

I agree on both.

If govt were a little better caretaker of public monies, I'd be willing to pay more, but I haven't seen any public official ever say here's what we are doing to give you more bang for you tax dollars. Which is sad, since the really good uses of money like roads and schools never have enough, but things like streetcars always seem to have enough money.

By voting "no" on a tax increase, you're actually helping to pass it, because you help the turnout exceed 50 percent. If you didn't vote at all, you wouldn't be adding to the turnout numbers.

Query: What if I vote for, say, President, but I do NOT vote on the tax measure. Does that add to the turnout figure?

I agree with Jack and Steve. If I go over my budget, I don't just get to squeeze more money out of my employer. I have to take the money from somewhere else, or make due.

So should it be with government. Use your existing funding in a non-wasteful manner, then we'll talk about increasing it.

Excellent analyses on both measures. Thanks for going to the core arguments for both, as well as for pointing out their impacts without putting an ideological face on them.

Oregon does not include income from Social Security in taxable income, but some recipients of Social Security have to include a portion of their Social Security income in their federal taxable income.

Measure 59 states in part, “This section applies only to (i) federal income taxes paid on income tax subject to tax in Oregon, and (ii) federal income taxes, including capital gains taxes, paid by individuals.”

Because Social Security income is not income subject to tax in Oregon, Social Security recipients would have to determine how much of their federal tax is attributable to Social Security income and subtract that amount from their federal tax deduction under this Measure.

For a married couple with federal tax less than the current $5,600 limit, Measure 59 would result in a tax increase.

Social Security income is not the only difference of income subject to tax. I am only using Social Security to serve as an example. Interest on US government bonds is another item that is taxed on your federal return, but not in Oregon.

"For a married couple with federal tax less than the current $5,600 limit, Measure 59 would result in a tax increase."

Explain that one again please?

Steve, I’ll try to explain.

If my federal tax is $4,000 (less than $5,600) and I have to adjust the federal tax deduction for the amount due to Social Security, I deduct an amount less than $4,000. Under today’s rules, I get to deduction the entire $4,000.

How much? I don’t know. Maybe TurboTax will know…

I'm with you on 59. I always thought the State was being dishonest with the way they calculated income since they included money that I had already paid to the Feds in their base. That never did seem fair but evidently they got away with it.

What is funny about this one is that a lot of liberals/progressive seem to have a knee jerk response to anything that Sizemore puts on the ballot. Personally I don't care who does the work to put it on the ballot, I'm just interested in if it is a good idea or not.

I still don't understand, what about M59 says they have to re-claim SS income? It only says you can deduct more than $5600 in Fed Income Tax paid. It doesn't change the type of Fed income tax paid.

OK Steve, one more try.

Sorry I’m having trouble explaining myself. But the measure says that it only applies to income subject to tax in Oregon. Social Security income is not subject to tax in Oregon, but it can be subject to tax on your federal return.

Therefore, the portion of federal tax due to Social Security cannot be deducted under Measure 59, because it is not income subject to tax in Oregon.

Also, US government bond interest is not subject to tax in Oregon, but it is subject to federal tax. Therefore, under Measure 59, federal tax attributable to US government bond interest would have to be subtracted from the amount of federal income tax you would deduct under this measure.

I admit, I may be wrong, but that is the way I am reading the measure.

So will there be a future measure to allow deduction of SS/Medicare withholding from state income tax?


I'm not sure that would be true, all of the Federal tax you are currently paying is subject to Oregon taxation is it not?

Though I'm sure that will be an issue for ODOR to work out.

Um, wouldn't it be a lot smarter to vote no on deductibility for federal taxes until knowing exactly what will come down in its stead? Our half-assed approach to running taxation via the initiative system is what has put us into extremis already.

I could see voting for the deductibility measure IF and only if it included the other shoe in the same initiative: the proposal to make up the revenue. Absent that, it IS just a tax cut, even as our state budget careens into the red and getting redder by the minute. And, yes, the bulk of the benefit will go to the people who pay the most federal income taxes, which includes a whole lot of people who will be able to pay a whole lot of people to make sure that the revenue replacement comes from a whole lot of people other than them.

As for voting to retain the double majority, why don't we quit screwing around and require registered voters to return the ballot (voted or not) and eliminate the double majority and all other bias rules?

That is, instead of letting the state waste all the expense of maintaining the rolls and printing and mailing the ballots and the voter guides to non-voters, why not require that all registered voters return the ballot before election day, to validate/update the registration rolls and ensure that the elections office is doing its job? The registered voter is free not to bother voting on any or all races, but they get a fine if they don't return the ballot. IIRC, the Australians have a mandatory ballot-return rule, and it isn't a big issue.

What I think is offensive about the double majority comes down to simple math. If 50% + 1 voters vote and 50% + 1 of them vote yes, the measure passes. If 50% - 1 voters vote and 100% of them vote yes it fails.

The trouble I have with the argument that it just puts all those measures onto the General Election ballot when more people vote is that local tax measures get lost in the noise of the General Election, and get even less attention and scrutiny than they would at another time.

I never fail to be amazed how people fall for the "tax fairness" argument in connection with what's called Measure 59 this year (and which went by different names in previous elections).

Aside from making themselves rich off initiative campaigns funded by Loren Parks, Sizemore, McIntyre, Mannix and the rest of that crowd have only one goal, and it's the same one that Grover Norquist has promoted nationally: slash government revenue by any means possible as a way to force cuts in government services. That's all that matters. If they can make a "tax fairness" argument, they'll do that. If they can't make that argument, they cook up something else about wicked public employee unions, or lazy bureaucrats, or the Resentment du Jour. That's all modern Republicans know how to do.

I hardly care whether someone earning $50K gets a tax cut, and earning over $250K gets a tax clearcut in their favor.

Rather, restore the original progressive sensibility in State Income Tax. It was enacted with individual rates at 6%, 7%, 8% and 9% according to earned income, (and business rates similar). Until the McIntire / Sizemore / Mannix subversives got their nationalistic fundings and fronted for Norquist to scorch-Earth Oregon's revenues. Now, as a practical matter, effectively businesses pay 6% and individuals pay 9%, more or less as flat rates. Re-enact the original progressivism. Then bring M59 back for review.

The "double-majority" has been unconstitutional from Day 1. Abolish it NOW. As much as M56 undoes a part of the vote suppression, I'm all for it.

The old fraud would say "who knew there was an election? nobody knew we were supposed to vote, special elections, for schools." That fraud argument pushed the dbl.-maj. with unanimous media misrepresentation over on a hoodwinked electorate. In those days, illiterate voters might not know there was an election, (and TV didn't say), but that was then, and today we have Vote-by-Mail -- FIRST and BEST in the Country, and every one is notified of every election; plus, today we are the internet so massmedia programming cannot suppress elections and news.

Dbl.-maj.'s reason for being is over, no longer the case. Abolish the double-majority.

An example I recall of LIARS programming: On the school board special election day in March, 1998, a caller asked LIARS Larson to remind everyone it was election day. LIARS said he forgot. The caller said the Vote-by-Mail ballot must have reminded LIARS, what did he do with his? LIARS LIED and said he didn't get a ballot. The caller said LIARS' wife's Vote-by-Mail ballot must have reminded LIARS. LIARS LIED and said she didn't get a ballot in the mail, either. What a LIAR LIARS is.


So I vote YES- M56, and NO- M59, same as the Oregon PTA, and the League of Women Voters against M59.

Bill Sizemore's position is the exact same as LIARS, and both are opposite mine. You're on their side, Jack.

"wouldn't it be a lot smarter to vote no on deductibility for federal taxes"

Less smart than paying taxes on taxes. Yes, our tax system is screwed up, but why not fix at least one thing?

Yes, our tax system is screwed up, but why not fix at least one thing?

First, because it's NOT "paying taxes on taxes," it's paying taxes on income. Regardless of how the calculation is made, be it on gross or after-federal-tax income, Oregon has to establish a tax basis; there's no inherent reason to prefer after-federal-tax to gross.

The catch in this proposal, of course, is that our tax rates have been set, so switching the basis for Oregon's tax now results in a windfall for the richest of us and a net loss for most of us (as we will be paying the freight for all the lost services and layoffs that will follow if this thing passes).

If this were really about purity-in-tax-logic, the proposal could have included an adjustment to the tax rates so that the change was revenue neutral -- but of course that's not the point. The point is to cripple state government even further, so that Bill Sizemore can carry it over to be drowned in Loren Parks' bathtub.

Second, because we've seen the results of this meat-ax approach again and again, this refusal to actually consider things in their complexity and make careful changes after considering the consequences.

I don't support an income tax at all, and would be happy to support a considered proposal to eliminate it. But this isn't that -- instead, it's simply a proposal to shift a huge chunk of the burden for Oregon off the wealthiest Oregonians and onto the rest. It doesn't reduce state spending by so much as $1 and it gives the biggest break by far to the wealthiest. For what?

INTERESTING -- Arizona has an initiative to establish the double majority requirement for tax initiatives to reduce the number of initiatives ... so apparently this can cut both ways.

How about we all just stop playing games with non-voters' votes and go back to something like democracy (whoever gets the most votes wins).

"it's paying taxes on income."

No it's not - M59 says if you pay $1000 more in Fed taxes than $5500, you can take that off your Oregon taxable income.

Now you pay taxes on income you have not received (Fed Taxes > $5500 per annum). I don't see how it is otherwise besides game-playing with words.

Ditto that Bojack. Yes on #59, and no on #56.

As for Obama he speaks with forked tongue. He talks of middle class tax cut but likely will allow the Bush tax cuts to expire raising middle class marginal rate to 28% from 25%, capital gains back to 20% from 15% and dividends back to ordinary income rate of 28%. Harken back to Bill Clinton. He promised to cut income taxes for the middle class when he was running for pres in '92, but once in office one of the very first things he actually did as president was to raise middle class tax rates. Obama is a replay of the Clinton playbook.

Another thing bout Bama is he's talking of giving folks who don't left a finger a tax credit whether they earn any income or not. Payback for his ACORN supporters. In my book, this is as bad as Bush & Paulson giving money to big banks.

Jack, thank you for such thoughtful scrutiny of these two measures. I happen to agree with both your conclusions, but even if I didn't I'd say that this is the kind of analysis that is sorely lacking in so much of our political discourse.

Taxes on taxes are ethically wrong. Its about time we had a chance to change this.

I don't know whether anyone will see this, since this posting is a bit far down the page now, but everybody should take a look at this analysis:

Sizemore has a habit of writing such sloppy measures that if one passes it ends up in court. This is a great example. This isn't tax "reform." It's just revenue reduction.

Sue: The OCPP simply has it wrong. Read the text of the measure. It merely PROHIBITS the state from taxing money paid in federal taxes. It does not REQUIRE the state to tax anything. If the state isn't taxing your federal income tax on Social Security benefits now, nothing in Measure 59 would REQUIRE the state to tax that federal tax. Stated another way, if Measure 59 doesn't apply to federal income taxes on Social Security benefits, then existing state deductions for those taxes cannot "conflict with" Measure 59, and they would remain intact.

This has been useful reading.

So if I'm stuck in the middle (55k/year) I may save a little now, but open myself up to paying more down the road?

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