Tax credits are a popular topic these days. Many people are concerned about the amount of foregone revenue to the state as a result of tax credits, and ask whether the state could better spend these funds on basic services. Tax credits and deductions cost us almost as much as direct spending does. Given the size and scope of the current budget deficit, many believe that it would be wise to allow some or all tax credits to expire to increase revenue to the state in 2011-2013.
The story surrounding tax credits, state budgets and expenditures is complicated. Many tax credits serve a specific public purpose, and were designed to create incentives for a certain outcome or behavior. There are many types of tax credits – some are purchased by individuals or corporations who have a tax liability with the state – i.e., they owe money to the state. Others are tax credits such as the Earned Income Tax Credit (EITC) which is a refundable credit available to low income families with children. Some are both state and federal deductions, such as the home mortgage interest deduction, and some are state credits, such as the $50 credit for contributions to political causes.
In 2009, the Legislature created a process by which all state tax credits would sunset. Sunset will force review of credits before credits are renewed the Legislature. This process calls for all tax credits to be reviewed by a policy committee, and then by a Joint Tax Credit Committee. The committees are being asked to answer questions about each of the tax credits, such as “what is the public policy purpose of this credit?”; “Who benefits from this credit?”; and “Is this tax credit an effective and efficient way to achieve this policy goal?”.
Neighborhood Partnerships has more than a passing interest in this discussion. NP serves as the agent of Oregon Housing and Community Services for the Oregon Individual Development Account Initiative, which is funded through a state tax credit. Those with tax liability can reduce that liability by making a donation to NP. These donations are pooled, and then used to provide matching funds to Oregonians with low incomes and limited assets who have taken financial education classes and have saved money to purchase an asset such as a first home, a small business or an education. The Oregon IDA Tax Credit is set to sunset on January 1, 2016 and will be reviewed by the Legislature during the 2015 session. This tax credit helps build the assets of Oregonians while also changing financial behaviors. Assets help families get ahead, save for emergencies and create a better future for their families.
NP also convenes the Housing Alliance, which is advocating for three tax credits this session. Two help to build affordable housing, providing direct benefit to low income renters. The first is the Oregon Affordable Housing Tax Credit, or OAHTC. This tax credit can be used to build new housing for low income Oregonians, to preserve existing affordable housing, or to help manufactured home park residents purchase their parks. The second is the Farmworker Housing Tax Credit. This tax credit helps build safe, stable and affordable housing for farm workers and their families to ensure they can live close to where they work. The Housing Alliance is also supporting efforts to expand the Earned Income Tax Credit, or EITC, which puts money directly back into the hands of low income Oregon families with children.
Neighborhood Partnerships supports the new, systematic look at tax expenditures and tax credits. We welcome the opportunity to answer questions about the effectiveness, benefit and impact of the credits that we care about, and we expect anyone advocating for any credit to answer these questions as well. We hope and believe that the Legislature will determine which tax credits provide a public benefit and advance policy goals, and forgo the revenue accordingly.
We know that the decisions we make today – about tax credits or tax expenditures, about raising taxes and about cutting budgets – will shape our state for years to come. Taxes are part of our common responsibility, and also help to create our community well-being. They support the public structures that ensure all Oregonians have access to opportunity, and they keep the public structures we all depend on sound and working well. The state budget must build our future, create jobs and provide opportunities while ensuring that benefits reach every community in Oregon, starting with those most affected by the economic downturn. There is no simple answer – everything must be on the table and discussed. We all have a stake, and we’re all part of the solution. If we want an Oregon that offers opportunity for all its residents, we need to come together to create that future now.