Oregon Public Broadcasting

The states of Oregon and Washington give away more money in the form of tax breaks than they bring in, in the form of taxes.

That's made tax loopholes a tempting target for lawmakers trying to fill multi-billion dollar budget shortfalls. But each special tax break has vocal defenders -- business interests, but even everyday people.

In Oregon, homeowners deduct the interest on their mortgages from their state incomes taxes. Washington exempts food from the state's sales tax.

Our statehouse correspondents in Olympia and Salem looked into state tax loopholes. We hear first from Chris Lehman in Salem.

Chris Lehman:

Most of Oregon's 380 separate tax breaks go to individuals.  A lot of them are there because the state's tax code mirrors the federal government's.  So, generally speaking, when Congress hands out a tax break, so does Oregon.

It's a concept known as federal conformity.  Lawmakers like Democratic Representative Chuck Riley of Hillsboro say it's time to stop playing follow-the-leader.

Rep. Chuck Riley:  "Federal conformity simply means that we believe Congress knows better than we do.  And I don't believe that that's necessarily the case for Oregon."

Riley has proposed ending the Oregon portion of several tax loopholes.  But closing them can be a political landmine.

Washington Governor Chris Gregoire found that out after her 2004 campaign.  Olympia correspondent Austin Jenkins picks up the story from there.

Austin Jenkins:

Here in Washington there are nearly 600 tax loopholes - or preferences as they're officially called. Back in 2004, then candidate Chris Gregoire talked often about closing loopholes - especially one for gold bullion.

Chris Gregoire: "Let's have a fair, hard-nosed assessment about those, let's make sure they ought to stay or go, let's have some reform there. That's realistic."

But as it turned out, once in office, that wasn't realistic. How many tax loopholes did she close during her first term? Zero, as she admitted to me in an interview on TVW - Washington's C-SPAN.

Chris Gregoire: "There were those four years ago who said you really ought to go after to this, we put up a group to do it and back they came with every reason for whatever it was."

Reporter: "Even gold bullion?"

Chris Gregoire: "No one had an interest in doing anything."Chris is that the general feeling in Oregon too?

Chris Lehman:

Pretty much. In fact, the leading proposals here wouldn't actually outright end any tax breaks. They’d simply give each one a sunset clause, requiring it to come up for review every few years.  

That's an idea supported by Chuck Sheketoff of the Oregon Center for Public Policy.

Chuck Sheketoff:  "At a minimum, when the sunset came up for a renewal, the Legislature would be re-educated on why we have that tax break, which I think is helpful."

But others in the capitol disagree.  Jim Craven is a lobbyist for dozens of high-tech companies.  He warned a panel of lawmakers against taking on more than they can chew.

Jim Craven:  "I think you're asking for an enormous job and a task that may preclude you from doing anything else during session in this room."

In Washington, they are reviewing each tax break.  But that's going to take a lot longer than one Legislative session, right Austin?

Austin Jenkins:

That's right Chris. A couple of years back the Washington legislature created something called the Citizen Commission for Performance Measurement of Tax Preferences.

That's government-speak for figuring out which exemptions are working and which ones are not. But get this: because there are so many exemptions on the books, the review is scheduled to take ten years.

Democratic State Representative Ross Hunter chairs the House Finance Committee. He says tax loopholes get a bad rap. Take for example Washington's sales tax exemption for food.

State Rep. Ross Hunter: "We don't want to put a tax on food because it's bad for poor people. Everything is a loophole, that's how the tax code works is you impose a broad tax and then you try and do specific exemptions so that you don't have bad effects from that."

Hunter also notes that in Washington state it's even harder today to undo tax exemptions. That's because of a 2007 voter-approved initiative. Now it requires a two-thirds vote of the legislature or a vote of the people to raise taxes - and closing loopholes counts as a tax hike.