Twisting Measure 59
Here's a followup to our post of last week in support of Measure 59, which would allow an unlimited deduction on one's Oregon income tax return for federal income taxes paid (as opposed to the $5,600 maximum deduction for federal taxes under current Oregon law). A group out there that opposes the measure -- something called the Oregon Center for Public Policy (OCPP) -- late last week decided to start telling the world as loudly as it could that Measure 59 would unintentionally raise Oregon income taxes on some of the state's elderly. It is drawing this conclusion based on a strange legal theory that doesn't sound right to us at all, and it relies on a casual e-mail from a state bureaucrat who does not appear to have given the legal question much serious thought.
Measure 59 is designed to cut Oregon income taxes. That is its clear intent, and to say that a court would interpret it to raise taxes is unrealistic. There are a lot of things that can be said in opposition to Measure 59 -- it would force the state legislature to rewrite the tax laws to make up for lost revenue, and it would benefit the upper-middle class and wealthy -- but whatever is said about the measure ought to be accurate. To state that the elderly will pay more Oregon taxes under Measure 59 is almost certainly wrong, and definitely reckless.
If you can stand the wonky tax law stuff -- which alas, is what you need to understand in order to to see what's going on with this -- here goes:
The OCPP states: "Because Measure 59 'supersedes any existing law or rule with which it conflicts,' it would no longer permit the state deduction of federal taxes paid on Social Security." Balderdash. That's based on the assumption that a court would find a "conflict" between Measure 59, which requires the state to allow a deduction for federal taxes, and the part of existing Oregon law in which the state already allows a deduction for federal taxes. Is that a "conflict"? Not in my dictionary, and I doubt in the dictionaries of the Oregon Tax Court and Supreme Court.
Measure 59 prohibits the state from imposing a state income tax on any of the federal income taxes that Oregon taxpayers pay, if those federal taxes are imposed on income that is taxed on both state and federal returns. Since Social Security benefits are not taxed by the state, Measure 59 does not apply at all to any federal taxes paid on Social Security benefits. (The feds don't tax all Social Security benefits, but for some taxpayers, they do.)
Under current law, the state generally allows a deduction for up to $5,600 of federal taxes paid in a given year, including any federal taxes on Social Security benefits. According to the OCPP press release, since the current Oregon deduction is not as broad as Measure 59 would require, the entire Oregon deduction "conflicts" with Measure 59, and so the entire existing Oregon deduction would be thrown out -- even the part having to do with the federal tax on Social Security benefits. As a result, according to the OCPP, Oregonians who pay federal tax on those benefits would (a) lose their Oregon deduction, and (b) therefore pay more Oregon tax.
Both (a) and (b) are highly suspect propositions. First, how can Measure 59 "conflict" with the existing deduction for federal taxes on Social Security benefits? Measure 59 by its terms does not apply to the federal taxes on those benefits at all. Under Measure 59, given its clear intent, it would be highly unlikely that a court would find a "conflict." Instead, it would allow the current Oregon deduction (up to $5,600) for federal taxes on Social Security benefits, and then on top of that an unlimited Oregon deduction for federal taxes on other types of income.
On what does the OCPP base its conclusion that there would be a conflict? Last Friday, Chuck Sheketoff, author of the breathless OCPP press release, copied me on an e-mail message he says he got on September 22 (interesting that he sat on it for a month) from Catherine M. Tosswill, Deputy Legislative Counsel for the state. She wrote to Sheketoff:
If you take a taxpayer who (a) is currently paying less than $5,500 in federal income taxes, (b) has income which is taxable at the federal level but not taxable in this state and (c) has other income which is taxable in Oregon, they could end up paying more in state tax than they are now. Under Measure 59 they would have a smaller subtraction from federal income. (People with no income taxable in this state would be unaffected, as might some people with only a small amount.) Measure 59 purports to supersede "any existing law or rule with which it conflicts." This would include ORS 316.680 and 316.685, assuming one views the current language as in conflict with the measure. It might also mean that taxpayer paying somewhat more than $5,500 in federal tax would also end up paying more in state tax, if they lose enough of their federal tax subtraction under this scheme.Note that Ms. Tosswill never takes a firm stance on the "conflict" issue. She says that Social Security recipients "could end up paying more in state tax," and that's "assuming one views the current language as in conflict with the measure." Her message essentially assumes the conclusion that OCPP wanted to hear, and they ran with that assumption as if it were a certainty, on the day the ballots were mailed out.
The other false impression being left by the OCPP is that all the folks who would supposedly lose the deduction would wind up paying more Oregon tax. They're throwing around the figure 120,000 Oregonians, which seems high. (That's about 23 percent of the Social Security recipients in the state, if you leave kids and disabled people out of the count.) Remember that if Measure 59 passes, everyone will get to deduct all the federal taxes that they pay on income that's taxed by both the state and the feds. For many folks who pay tax on their Social Security, the Oregon tax that they would save with the new expanded deduction is more than they would supposedly lose under the OCPP's crabbed finding of the supposed "conflict."
Whatever reasons guide your vote on Measure 59, don't buy the "seniors will pay more" line. It does not appear to be supported by reality -- just reckless assumptions.