Proposed by initiative petition to be voted on at the General Election, November 7, 2006
Ballot TitleALLOWS INCOME TAX DEDUCTION EQUAL TO FEDERAL EXEMPTIONS DEDUCTION TO SUBSTITUTE FOR STATE EXEMPTION CREDIT
RESULT OF "YES" VOTE: "Yes" vote allows personal income tax deduction equal to total federal deduction for all exemptions to substitute for state exemption credit; reduces revenue to state.
RESULT OF "NO" VOTE: "No" vote rejects allowing personal income tax deduction equal to total federal deduction for all exemptions to substitute for state exemption credit.
SUMMARY: To determine taxable income for federal personal income tax, taxpayers generally may claim deduction ($3,100 maximum in 2004) for each exemption; exemption exists for taxpayer, spouse, each dependent. For state income tax purposes, taxpayers currently may not claim deductions based on federal return's exemptions but may subtract exemption credit ($151 in 2004, multiplied by number of federally-allowed exemptions) from state income tax liability. Measure authorizes a deduction on state income tax return for each dependent, taxpayer, and spouse claimed as exemption on federal return; the deduction shall be no less than total deduction for all exemptions on federal return; exemption credit may substitute for the deduction if lower tax results. Reduces revenue available for state expenditures; provides no replacement revenue. Other provisions.
ESTIMATE OF FINANCIAL IMPACT: This measure will reduce state budget revenues from personal income taxes. The reduction will be approximately $151 million for 2006-07. In 2007-08 the measure will reduce state budget revenues by $385 million and reduce the 2007 personal income tax "kicker" by $151 million. The measure will reduce state budget revenues $407 million for 2008-09 and $430 million for 2009-10. The annual impact will increase over time due to population growth and increases in the amount of the federal income tax personal exemption, which is indexed for inflation.
The measure will require $114,750 in state expenditures to pay for the cost of implementation.
The measure will have no direct financial effect on local government revenue or expenditures.
See Voters' Pamphlet for Explanation of this Financial Estimate.
Explanation of Estimate of Financial Impact
This measure changes the way Oregon law treats "personal exemptions" for income tax purposes. The measure would change the "personal exemption" tax credit to a tax deduction. A tax credit is a dollar-for-dollar reduction in the amount of tax due. A tax deduction reduces the amount of income that is used to calculate the tax due.
In 2005, the personal exemption tax credit was $154 for each personal exemption on an Oregon tax return. The tax deduction would have been $3,200 for each exemption if the measure applied in 2005. Most taxpayers will pay less state income tax under measure. Some will see no tax change. No taxpayers will pay more state income tax under this measure than under current law. Most taxpayers will pay more federal income tax ($40 million per year) because their state tax deductions on their federal tax returns will be less.
The measure will reduce state income tax collections, which are used to pay for state and local services such as public education, public safety and health care for low-income Oregonians. In the first full fiscal year that the measure will be effective (2007-08), state income tax revenue will be reduced by $385 million, about 6% of total expected revenue. A state surplus refund ("kicker") is expected to be paid in the fall of 2007. The measure will reduce the amount of the "kicker" refunds by $151 million in that year. Beginning in 2008-09 the measure will reduce state income tax revenue by about 6.5% each year - $407 million in 2008-09; $430 million in 2009-2010.
Secretary of State Bill Bradbury
State Treasurer Randall Edwards
Lindsay Ball, Director, Dept. of Administrative Services
Elizabeth Harchenko, Director, Dept. of Revenue
Debra Guzman, Local Government Representative
(The estimate of financial impact and explanation was provided by the above committee pursuant to ORS 250.127.)