Why limit tax credit auctions to exclusive few?

The state could use the tax system to encourage state programs to compete for extra funding

December 7, 2022 5:45 am
Oregon Senate floor session

In the 2023 legislative session, Democrats will need Republican support to raise taxes. (Amanda Loman/Oregon Capital Chronicle)

This is the time of year when solicitations for charitable giving arrive with appeals not just to the better angels of our nature but to our more mundane aversion to paying taxes.

Our tax system is explicitly designed to subsidize charitable giving. So, as in the iconic holiday movie, It’s a Wonderful Life: When we ring the bell of generosity, another tax deduction earns its wings, at least for the angels among us who get to itemize those deductions.

But this is also a time of year when Oregon’s tax system reverses that sequence by selling tax credits. In the spirit of holiday sales, bidders get to buy tax credits at a discount. Then their money goes to support whatever program the Legislature has promoted for the auction. And another tax cut takes flight on angels’ wings.

This is what we’re seeing now with the latest of two, state-run auctions in which Oregon taxpayers get to bid on tax credits. The latest auction, underway this week, provides financial support for low-income college students. 

But, beyond the inequities that invariably arise when dealing with tax credits, the mechanism by which taxpayers get to direct their tax dollars to specified public purposes is intriguing. It’s also empowering, which is why it’s worth asking why that power is restricted, by its very design, to a small subset of Oregon taxpayers.

These tax credit auctions work as follows:

The Legislature sets aside a specified amount of funding for programs in the form of tax credits to be offered at auctions. The auctions start with a minimum bid of 90 cents on the dollar. Bids are received, tax credits are awarded to the highest bidders, and their payments are distributed to the budgets of the advertised program. Bids have averaged 96 cents on the dollar for the college aid program over the last four years.

This is not a movie I’d rate highly on Rotten Tomatoes.

First, the tax payments involved are legally required to be paid in full without a discount. So why give a tax break to Mr. Potter, the movie’s iconic town oligarch, when he’d otherwise have to pay his taxes in full? The tax credits are not, to use a term I’ve heard in Salem, “budget dust.”  U. S. Bank netted $420,000 in Oregon tax credits in one 2021 auction

Second, these auctions are practically invitation-only. The minimum bids are $500, which discourages more than a third of personal tax filers whose tax bills are less than this amount from participating. And unless you have a tax advisor or subscribe to Bloomberg Tax news, you’ve probably never seen a trailer for their latest offerings.

But before we despair about the fiscal management of our own version of the movie’s Bedford Falls, it is worth considering that giving taxpayers a say over where to spend at least some of their tax dollars is a worthy idea – provided their say is not limited to an invitation-only crowd of the wealthiest among us.  

This can be done communally, as when public bodies reserve a portion of their budgets to be allocated by citizen assemblies – an idea proposed by the Portland Charter Commission for the city’s 2025 ballot. Or it can be done individually, as when states allow tax filers to direct a portion of their payments to school choice programs. Oregon allows individual taxpayers to donate a portion of their tax refunds to specified charities or to turn over their kicker rebates to the State School Fund. But, except for its tax credit auctions, Oregon has no mechanism for allocating ongoing tax payments to specific programs. 

What if we used our tax system to encourage state programs to compete for extra funding? Administrators would learn to make their case to the public, the public would learn more about these programs, and budget writers would gain a better sense of their constituents’ priorities. Or we could put new ideas, like baby bonds, on the list, and see how Oregonians respond. 

In every legislative session, even in recessionary times, there has always been at least 1% of the budget in play. That share will amount to $125 per tax filer in the next budget period, enough for a gift card to engage all taxpayers in the hands-on experience of steering their government. 

Currently, the state’s tax credit auctions exist for only two programs – the Oregon Opportunity Grant program for need-based college aid, and, wait for it, the Oregon Made program, which provides financial incentives for movie and TV production in Oregon

So maybe it’s time to apply some of those movie production incentives to finance a remake of “It’s a Wonderful Life” here in Oregon. We can at least imagine how a program that gives Oregonians a say in budgeting a modest portion of their tax dollars can improve lives in our own Bedford Falls. We can call it the Better Angels program, no tax credits needed for admission.

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Tim Nesbitt

Tim Nesbitt, a former union leader in Oregon, served as an adviser to Governors Ted Kulongoski and John Kitzhaber and later helped to design Measure 98 in 2016, which provided extra, targeted funding for Oregon’s high schools.