Done deal

The Portland City Council has voted unanimously to approve the building of the OHSU aerial tram.

It also voted 3-2 to buy out residents along the street below who don't want to live under an aerial tram.

Perhaps the most alarming news to emerge from the hearing was testimony that the real budget for the construction, originally pegged at $15 million and recently increased to $28.5 million, is going to be more like $40 million. And counting.

And that the tram's operating budget is going to be more than $3 million a year. And that there's still going be lots of increased street traffic on account of various shuttle buses that will be running up and down the hill in addition to the tram.

Congratulations to Homer Williams and all the other developers who will profit enormously from the massive outlay of scarce city tax dollars that this project will entail. And to their political fixer, wherever he may be hiding.

(Via a helpful pointer to the City Council webcast from Portland Communique.)

Flash: Estate planning news

My day job has to do with tax law, particularly as it applies to estate planning for the wealthy. And there is big, big news for the estate planners of America tonight. The U.S. Court of Appeals for the Fifth Circuit has ruled in favor of some taxpayers whose late mother had set up a family limited partnership (an FLP, as it's known in the trade) to avoid federal estate taxes. The court held that section 2036(a) of the Internal Revenue Code did not apply to the arrangement, and so the value that was subject to estate tax was much less than what the government contended.

For those of you interested in such things, the Fifth Circuit's opinion in the case, Kimbell v. United States, can be found here.

Show me the money

I've been away for a few days, so readers, help me out: Has anyone yet seen the official tally on how much the Multnomah County income tax brought in? It was supposed to be $127 million, with $7 million in collection expenses.

I've seen county estimates that 80 percent of those expected to file, did file by April 15. I don't know whether to trust that number or not -- I'm sure the estimated number of returns could have gotten adjusted here and there to reflect reality.

But it's impossible to fudge the $127 million number, which County Chair Diane Linn mailed to every household in the county last year. How much of that actually showed up?

And if the number hasn't been published yet, why are our local media letting the county off the hook about it?

Show's over

Well, tonight concludes another school year's worth of tax classes, taught by yours truly. This semester included Partnership Tax -- bitchiest course in the law school curriculum, IMHO -- at 8:00 to 9:30 at night, two nights a week. It wasn't so tough on me; check the times of many of my posts to this blog, and you'll see that 9:30 p.m. for me is like other folks' noon. But it isn't so for most of the students, who labored over some positively gnarly tax technicalities with me at the ends of some very long days.

Hey, whatever -- classes are out, for better or worse. It's on to exams, and then to summer. My first lectures of the fall term are more than four months away.

I've got the best job in the world.

So, how'd we do?

I hear a deafening silence so far regarding how much Multnomah County collected in the first year of its new, supposedly temporary, individual income tax.

The estimates that County Chair Diane Linn mailed to every household in the county last September said that it would bring in $128 million a year, with $7 million of it to be spent on collection.

I've said all along the county would never collect that much, because it didn't make mandatory wage withholding part of the new tax system. Income taxes don't work without withholding, and since withholding's not required for the Multnomah County income tax, most employers won't do it.

And a lot of taxpayers just haven't paid, and aren't going to unless the collector shows up at their door. The last figures I saw, in early March, showed that only $22 million had come in. Now we're nearly a week past the April 15 deadline for payment of 2003 taxes. All the local mail from last week has been delivered by now, and one would think the envelopes would have been opened and the money counted by now. And so far, no word on how much tax actually came in.

Until an official announcement, it's anybody's guess, but I'm thinking around $90 million at most. That's less than three quarters of the projections. I'm sure the Sisters of Hawthorne have been working furiously on a spin for that one.

Expect a lot of angry folks who paid, when they hear how many didn't. Not angry enough to vote to repeal the tax -- the petitions being circulated now won't pass, although it will be close. But angry enough, and with low enough morale, that political consequences will eventually be felt.

That's what happens when you have an income tax system run by a bunch of rookies.

And notice that it's too late to get a decent mandatory withholding system in place in 2004. The year is almost one-third gone, and employers and their payroll clerks (or payroll services) need a couple of months to ramp up. So the situation isn't going to get any better until 2005 at the earliest.

Which is supposed to be the third and final year of this tax.

Caution: Paying attention will raise your blood pressure

Yesterday's New York Times served up a heapin' helpin' of alarm and outrage.

Level yellow: The IRS has been adding political messages about the glories of the Bush administration tax policies onto its official notices to taxpayers. Four April 9 news releases from the tax collection agency included this little tidbit:

America has a choice: It can continue to grow the economy and create new jobs as the president's policies are doing, or it can raise taxes on American families and small businesses, hurting economic recovery and future job creation.

Trust me, readers, I know something about this -- this is the worst politicization of the IRS since Nixon sicced the agency's auditors on his political enemies 30 years ago. The tax system is already teetering on the brink of a major disaster, and this administration picks now as the time to turn official IRS notices into a free medium of political campaigning. Very, very dangerous stuff. This behavior is stupid and reckless. It's got to stop immediately.

Level red: Political "scientists" are now putting human guinea pigs through MRI experiments to see what parts of their brains light up when political television ads are played before them. You talk about a distortion of the democratic principles on which this country is based -- this takes the cake. We're starting to make Orwell look like Pollyanna. Special shame goes out to the sick and desperate humans who are actually subjecting their brains to gratuitous radiation in the "cause" of perfecting the TV campaign ad. What losers.

He read my mind

Finally, one of the candidates for mayor of Portland has said something specific that speaks to me. And it's James Posey. His thought is this:

Posey, a small-business man, advocated getting rid of the Portland Development Commission based on urban renewal money, which he said goes too often to the city's rich and powerful.

As a Portlander who pays urban renewal property taxes into the great PDC slush fund, only to see it buy theaters for the Pearl District and aerial trams for Homer Williams, I say, right on, James Posey!

And if we can't abolish the PDC (I'm sure the deck is stacked to make that next to impossible), we ought to tear it apart and put it back together in such a way that our (and Uncle Sam's) tax dollars go to projects that a majority of Portland voters support.

If my ballot were on the kitchen counter today, I'd be blackening the circle for Posey. Actually, at this point, a vote for any candidate except Mr. Moneybags is a vote for a runoff. And that's a very good vote.

Will it play in Portlandia?

There sure is a lot of interest in Bush's, Cheney's, and Kerry's tax returns. It's been a busy weekend on the old hit counter for this blog.

Which leads me to thinking... Wouldn't it be great if we could see the tax returns of the current crop of candidates for Portland municipal office? If I could get them in a pdf file, I'd host them, and we could all spend some time analyzing them.

What do you say, readers? Should we start telling the mayoral and City Council candidates that our inquiring minds want to see their tax returns? At least as to their Multnomah County income tax returns, I'd say we have a moral right to know!

Equal time

By popular demand, I have taken a look at John Kerry's 2003 federal tax return, and I must say it is a measure of the man himself. That is to say, pretty boring!

Kerry and his ketchup-fortune-heiress spouse file separate tax returns, and they release only his to to the public. Under the tax laws, items pass so easily between spouses that it's very difficult to judge either one's wealth by looking at just his or her return. Thus, it's hard to get too excited about anything on JFK Lite's return, since his wife obviously wears the money belt in the family.

Why do the Kerrys file separately? Surely it must be for privacy. It seems unlikely that this arrangement saves the couple any taxes.

In any case, the Democratic candidate for President is no slouch in the income department. He lists $147,818 in salary, $89,220 in royalties, and a $145,805 capital gain for the year. He received $11,141 in dividends on stocks, $1,250 in taxable interest, and $871 of tax-exempt interest. Throw in a $104 tax refund that he got from Massachusetts, and his gross for the year was $395,338.

On the deduction side, John Boy looks as though he led a pretty typical American life. He paid $8,381 in state income taxes, and $3,326 in interest on a home mortgage. Most significantly, he shows a $43,650 deduction for gifts to charity. After his deductions take a "haircut" on account of his high level of gross income, he's left with a taxable income of $346,664. Like Dick Cheney, he falls into the ever-widening alternative minimum tax (AMT) trap. And so his tax for the year (before a foreign tax credit of $84 for taxes paid to the U.K.) winds up to be $90,659 (not including interest, which he very well may owe because he had too little taken out during the year and wound up having to write a check for $63,298 to Uncle Sam).

As reported on his original return, Kerry's tax was 22.93% of adjusted gross; 22.88% of gross including tax-exempt interest; and 26.15% of taxable income. However, after correction by his accountants (see below), Kerry's tax was 25.86% of adjusted gross; 25.8% of gross including tax-exempt interest; and 29.49% of taxable income. The comparable percentages for President Bush and Vice President Cheney were as follows:

Bush: Tax was 27.67% of adjusted gross; 27.67% of gross including tax-exempt interest; 31.29% of taxable income.
Cheney: Tax was 19.59% of adjusted gross; 12.5% of gross including tax-exempt interest; 30.54% of taxable income.
Kerry: Tax was 25.86% of adjusted gross; 25.8% of gross including tax-exempt interest; 29.49% of taxable income.

Based on a comparison of those first two percentages, it's interesting to note that the wealthiest of the three, Dick Cheney, had by far the lowest tax rates. He certainly didn't get that rich by being dumb! (Bush and Kerry, on the other hand, weren't far apart.)

Anyway, getting back to Kerry, he's a trust fund baby, being the beneficiary of no fewer than four trusts. These are what produced most of his $12,000 or so of investment income. One of the trusts also produced run-of-the-mill capital gains for him of about $2,600. But his big capital gain was his $175,000 profit on the sale in March 2003 of a one-half interest in a painting by Dutch baroque era painter Adam Willaerts. The sale price of Kerry's half was $675,000, and his tax "basis" in it was $500,000. That's a $1,350,000 painting, folks. (Apparently it was purchased in May of 1996 for $1 million.) It's not clear from the return who owned the other half of the painting, or whether their share was sold. Anyway, it must be nice.

Kerry's accountants miscalculated the tax on the gain on the sale of the painting. It should have been taxed at 28 percent, instead of the 20 percent rate that they used. Kerry has already filed an amended return and paid another $11,577 in tax to clean up this blooper, for a revised federal tax bill (before foreign tax credit) of $102,236.

Kerry received a $89,220 royalty during the year (on his book, apparently) via the Helen Reese Agency in Boston. Unlike Lynne Cheney, who paid Medicare tax on her book royalties, Kerry took the position that his author activities are sufficiently limited that the royalties do not rise to the level of "net earnings from self-employment." Very interesting. If Kerry had reported the royalties the way Cheney had, he would have paid well over $2,000 in additional tax on them.

We're told that Kerry intends to donate the after-tax proceeds from the book to charity. By waiting until 2004 to make the donation, however, he has insured that the charity winds up with less than it would have gotten had he either (a) donated the copyright and let the charity collect the royalties, or (b) donated the royalties in the same year that they were received, thus negating the income tax on them entirely. Not good planning, John! (I recall that Hillary bungled her book royalty donation in a similar fashion a few years back.)

Unlike the Cheneys, Kerry lists his tax return preparation fee as a miscellaneous itemized deduction, which means he got no deduction for it. Also unlike his Republican rivals, Kerry has disclosed all of the statements attached to his return. From them we get some additional juicy tidbits of information. He gave $85 worth of junk to Goodwill; $15,000 cash to the NE Shelter for Homeless Veterans; and $10,000 cash to something called Liberty House. Another $18,650 went in cash gifts to unnamed "miscellaneous" charities.

The outfit that prepares Kerry's return, Federal Street Capital Partners (fee: $620), adopts the practice of listing a number of items that might have been deductible, but in fact weren't, based on Kerry's relatively high level of income. For one, there's a $9,025 medical expense listed. Tongues will wag: Botox or cancer treatment? There's a $610 item for "union and professional dues." I assume the Senate isn't a collective bargaining unit (although there's an idea), and so this must be some kind of professional dues. Trustees picked up $1,886 in fees and expenses, which is fairly modest compared to the monster "miscellaneous" expenses that show up on the Bush and Cheney tax returns.

Then Kerry pops onto the return a $3,000 deduction identified only as a "sec. 162(a) bus. exp." -- a "miscellaneous" business expense. There's no explanation of what this is, and the IRS instructions for this form don't list business expenses as one of the types to be deducted on this line. Kerry didn't file as the sole proprietor of a business, and so one wonders what this expense could have been. If it related to his job as a senator, it should have been thrown in with the dues, and it would not have been deductible.

To sum up, If I were an IRS agent, I'd have three questions for the candidates: For Kerry, I'd see if Medicare tax wasn't owed on those book royalties, and I'd want to know what that $3,000 business deduction was all about. And I'd definitely need to see more about Cheney's tax return prep fees.

But those are all chump change items, ladies and gentlemen. Bottom line: These guys are loaded! (As is John Edwards, were he to join this group.)

The ides of April

I've been so absorbed with Dick Cheney's taxes these last couple of days that I have neglected my own. Today's the day for TurboTax to do its handiwork and print out all the forms that the Bogdanskis need to file. Then the checkbook comes out.

We've got no fewer than six envelopes, folks, and six checks:

Federal 2003 income tax return
Oregon 2003 income tax return
Multnomah County 2003 income tax return
Tri-Met 2003 self-employment tax return
Federal 2004 income tax quarterly deposit
Oregon 2004 income tax quarterly deposit

Not to mention the tax on the gas that I'll have to buy to get me out on my taxpaying errands. And whatever other sly ways the government will have to squeeze some more change out of me today. If it were up to the mayor, there'd probably be a pay turnstile on the front door of every house.

The bastards! Ah well, 'tis the price we pay for civilization.

See you at Kinko's or the Post Office. When I get back, I may blog a little about John Kerry's tax return. Then I might get drunk.

BTW, if the desperate among you need an extension of time to file your federal income tax return, you have to ask for it today. You may now be able to get your extension by phone or on line, as the IRS explains here. If that fails (and knowing the IRS, it just might), the paper form you need to mail in today is here. Oregon state extension information is here. Good luck.

Insomnia?

Here's a cure -- a blog for tax professors.

Actually, for tax types like myself, it's an interesting read. It's put together by Paul Caron, award-winning tax prof at the University of Cincinnati and a heckuva smart, and nice, man.

Good luck with it, Paul. But be forewarned, as others have learned, blogging can be addictive.

When I was 57, it was a very good year

A review of President Bush's and Vice President Cheney's 2003 federal tax returns, which were released to the public yesterday, reveals another financially successful year for two rich old boys from Texas.

Bush's tax status was virtually unchanged between 2002 and 2003. For the latter year, he had income of almost $400,000 from salary, around another $400,000 of interest income, $23,000 of dividends, and around $2600 of royalty income. He and his spouse took roughly $95,000 of itemized deductions, up from about $84,000 last year, with the increase largely attributable to a "miscellaneous" expense that wasn't disclosed on the portion of the return that was released to the public.

The First Couple paid $227,494 in federal income tax for '03 on a taxable income of $727,083. That's an effective rate of 31.29 percent of taxable income, and 27.67 percent of their gross. The rates the previous year were 34.75 percent and 31.39 percent, respectively. The decrease is no surprise -- the Bush tax cuts tend to favor rich, married, single-wage-earner couples like George and Laura. In fact, under the tax laws in effect when Bush was elected in 2000, the Bushes' taxes for 2003 would have been more than $260,000.

And so the Bushes are paying around $35,000 less in federal income tax now than they would have in 2000.

Cheney's return is always more interesting, because the Vice President is one rich s.o.b. He and his spouse grossed around $1,988,000 from all sources, including $454,000 of salaries, $627,005 of tax-exempt bond interest, $137,644 of dividends, $6564 in taxable interest, $44,500 from Lynne Cheney's consulting business, $327,643 of book royalties, and $302,000 in capital gains on sales of more than $10,000,000 of mutual fund shares in the early part of 2003. (They got out of Treasury bond funds -- "big time," as the Veep himself might say.)

For 2003, the Cheneys had so many tax goodies on their return that they had to pay alternative minimum tax (AMT) -- a special tax designed to prevent taxpayers from overdoing it on tax-favored items. This cut into the tax benefits of their deductions substantially. They wound up owing $248,369 in income taxes (including AMT, but before a foreign tax credit of about $7,000) on a taxable income of $813,266. That's an effective tax rate of 30.54 percent of taxable income, 19.59 percent of their adjusted gross income, and only 12.5 percent of their total gross, including the interest on their tax-exempt bonds. They did pretty well on those counts compared to '02, when the percentages were 35.45, 28.72 and 17.67, respectively.

I struggled to calculate what the Cheneys would have had to pay on their 2003 income under the tax law as it existed in 2000. The calculations get pretty hairy, what with the AMT and the capital gains preference. (The Bushes haven't had any capital gains to speak of in the last two years.) My best efforts result in a would-be 2000 tax on the Cheneys of $287,000, rather than the $248,000 they actually paid under the Bush tax cuts. That's about a $39,000 tax savings this year for the Second Couple from what they would have paid under Clinton.

Charitable contributions for the year? The Cheneys' jumped from about $120,000 to about $320,000, because Ms. Cheney's book royalties, which all go to charity, rose by that much. The Bushes' gifts to charity sagged very slightly -- from $69,925 in '02 to $68,360.

The Bushes stopped listing their daughters as dependents this year for the first time, but they weren't providing their parents with any tax benefit anyway, because the family makes too much money.

One mystery in my review of the Bush and Cheney tax returns is that they are partially incomplete. The forms released to the public do not include the many explanatory statements that were attached to the returns. As any IRS agent will tell you, those attachments are an integral part of the return, and they are covered by the perjury statement that the taxpayers sign. (Although the Bushes don't sign their returns -- they have someone at their bank do it for them under a power of attorney.) But the separate statements don't get published as part of the annual White House tax return disclosure ritual.

An intriguing item on the Cheneys' returns: they deduct their tax return preparation fees on Ms. Cheney's business schedule. That way Ms. C. doesn't have to pay 15 percent plus in self-employment (Social Security and Medicare) tax on the money she pays her tax accountants at KMPG. A smart move, but is it kosher?

UPDATE, 4/15, 4:15 a.m.: The plot thickens on the Cheneys' tax return preparation fee, just discussed. Several alert readers have commented to me off-blog about how much advantage the Cheneys might have gained by having that expense deducted on Lynne Cheney's business schedule, as opposed to listing it as an itemized deduction. There are a couple of advantages, and they appear to add up to even more than the 15-percent-plus in saved Social Security and Medicare taxes that I speculated about in the above post.

First of all, a correction on my part. It turns out that Ms. C. had already paid the maximum tax into Social Security for the year on account of her book royalties and her day job. And so she didn't save any Social Security tax by clever placement of the tax prep deduction; she wouldn't have owed any more Social Security tax than she actually paid, regardless. However, she did save Medicare taxes (just under 3 percent) by the deduction of the tax return prep fee on her business schedule.

More significantly, however, if that expense had been listed as an itemized deduction instead of a business deduction, it would not have been deductible by the Cheneys for AMT purposes, whereas it was fully deductible for that purpose (saving 28 percent of the deduction in tax) on the business schedule. Bottom line: The couple appears to have saved tax of more than 30 percent of the tax return prep fee by the way they listed it. (A couple of additional, indirect tax savings were suggested, but they'd be really tiny.)

Some of my correspondents join me in questioning the correctness of how the Cheneys played it. It's not a lot of money for tycoons like them -- maybe $1,000 or so in tax -- but I'd sure love to hear someone explain how the couple's tax accountants are entirely an expense of her consulting business.

One possibility is that the tax preparation fee listed on her business schedule is only part of the overall amount they paid to have their taxes done. Perhaps the rest was deducted as an itemized deduction (but not for AMT purposes) on those mysterious attachments that don't get released with the rest of the tax forms. Without those statements, I guess we'll never know.

See how the other 1% lives

The Bush and Cheney 2003 personal tax returns are out. Here's Bush's. Here's Cheney's. I'll expand on this story, as I did last year, after I've had a chance to look them over.

What's this under the sofa cushion?

RoguePundit's got the bead on a great story. I had heard a talk radio guy ranting about this one yesterday afternoon, too, as I struggled through rush hour traffic.

It turns out that the Oregon social services department yesterday revealed that it has just miraculously "discovered" $120 million that was lying around unnoticed. And so fully two-thirds of the deep cuts that we all were guilt-tripped about when we voted down Measure 30 aren't going to have to be made after all.

Well, isn't that special?

If the pro-tax forces win another election in this state at any time in the coming decade, it will be a miracle.

Governor Ted continues travelling the state with his stump speech about restoring faith in government. Pretty soon he'll be performing it at comedy clubs.

Your tax dollars at work?

The Portland City Council has taken an early, but big, step down the path of campaign finance reform at the local level. According to this entry from my dialing-for-dollars buddies at OSPIRG (which will doubtlessly be balanced off with an account in The Oregonian later this morning), the council voted unanimously yesterday to have the Mayor, Commissioner Sten and City Auditor Blackmer put together a plan whereby candidates for Portland elective offices could get free public money to finance their campaigns. In exchange for those funds, they'd have to agree not to accept donations from any other source.

Although the system would be voluntary, in at least one other place in which it's been tried -- Tucson, Arizona -- no candidate so far has dared to decline the public money and try to run based on private contributions. Apparently politicians fear that that would make them look too beholden to campaign donors' demands. As a consequence, there apparently are no campaign donors down there any more -- except for taxpayers, who pay for the system involuntarily. (Something similar is apparently working in Maine.)

I think campaign finance reform at every level of government is long overdue. Here in Portland, a spotlight is being thrown on this year's elections, including Commissioner Francesconi's million-dollar war chest and some interesting contributions to Commissioner Leonard's suddenly contested candidacy from some people whom he's in a position to make even richer than they already are. In fairness to those two candidates, the public is just waking up to a problem that's been present for many years. Old-timers in Portland have seen many a City Council decision made in favor of corporate and other interests who just coincidentally dropped a well-timed $10,000 into a campaign bucket or two. (You youngsters out there, head down to the library and check out the story of the Hollywood Fred Meyer store sometime.)

But I see a number of issues lurking in Portland's plan for a new system. One of them, of course, is the Oregon Constitution, which is pretty strict about government tinkering with free speech. Maybe the new system could survive a constitutional challenge, since it's nominally voluntary. But it would certainly have to be drafted carefully, with those legal obstacles in mind.

The other super-sized issue is political: whether Portland taxpayers really want to pay for the new system. The plan apparently calls for 0.1 percent or 0.2 percent of each city agency's budget to be diverted to the candidates for office. Supporters of the new system think that Portland voters will go for that, but I'm not so sure. I think that when they actually see how the system will work, the majority of taxpayers may well say no.

I help friends with their income taxes every year, and one question that comes up on every federal tax return is whether the taxpayer wants to designate $3 of his or her taxes for public funding of presidential election campaigns. The idea behind the federal "check-off" is the same noble goal that underlies the Portland proposal -- the desire to eliminate or minimize the influence of wealthy campaign contributors over the candidates after they are elected. Not a single person whose taxes I have done has ever told me to check the box "yes." Indeed, many of them have said something like, "I don't think tax dollars should be used to pay for political campaigns. Let the rich people pay for the campaigns." Paying for political ads is the last thing they want their tax dollars to do. No matter how hard I try to sell "clean" campaigns, they check that box "no," even though, as they well know, it does not affect the tax they owe or the refund they receive.

The proponents of the public financing proposal in Portland might have a better chance of getting their idea approved by the voters -- and it would surely be put up for a public vote one way or another -- if they figured out a way to pay for it without taxing the general population. Maybe some sort of special tax on political consultants, lobbyists, or contractors who do business with the city would be more palatable.

As it stands, however, they're just going to take 0.1 or 0.2 percent of the city budget, which is paid by everybody. (At least, that's if they didn't make a change to the funding portion of the council resolution at the last minute -- we'll have to wait to see the forthcoming news accounts to check that.) They're calling it an "overhead charge" on each bureau, but come on, that's just City Hall blowing smoke you know where. To paraphrase Charlton Heston in Soylent Green, it's tax dollars -- $1 million or $1.5 million per election, they say -- that will no longer be available for traditional government functions. It will mean a couple fewer police officers, a couple fewer people to patch potholes, maybe one less 911 operator.

Already a few negative voices are being heard, and the rhetoric that they're employing shows the nature of the battle that will be waged at the polls if the plan goes forward. As the Portland Tribune reported on Tuesday:

Anti-tax activist Don McIntire said he hasn't seen any details, but he called the concept a "campaign finance scam."

"What they want to do is sock the taxpayers again to give to neighborhood activists who want to run for office," he said. "I don't think it's the government's business to take money from taxpayers to give to candidates."

Thank you, Don -- constructive as always.

I'm all for campaign finance reform, and I hope this effort succeeds. But I think it will have a better chance with a different funding scheme from the one that's been floated so far. Again, what's needed is a system under which only the people who benefit most from their own influence over elections and government pay the tab to keep those systems from becoming overly corrupt.

How about a tax that gets a few tens of thousands a year out of multi-millionaire "consultants" like former Mayor Goldschmidt?

Hurts so good

Who says Oregonians hate taxes?

Hospitals and managed care health plans around here are begging to be taxed. Because they're hoping that the new state taxes will be plowed right back into payments to them for services rendered, plus federal matching payments, under Medicaid (a.k.a. the Oregon Health Plan). Without more Medicaid funding, the health care industry will lose more revenue than it will pay under the new state tax.

Word from Washington, D.C. is that such taxes won't count toward the federal match for too much longer, and so the "providers" of health services are urging the state to be quick about it. "Tax me! Hurry!"

It sure looks like the upcoming "special" session of the Legislature is going to be dealing with more than just the relatively sterile study of tax reform that was first proposed. Besides the hospital tax, gay marriage will doubtlessly be on the agenda somewhere.

Take me out to the bankruptcy

The Portland minor league baseball team has been taken over by its league as part of a last-minute reshuffling in preparation for its 2004 season at PGE Park. As taxpayers of Portland know only too well, city government sank tens of millions into renovating the stadium, borrowing the money and signing an operating contract with the team's owners that was supposed to pay off the bonds.

But it hasn't. The renovation was much too expensive (luxury boxes for minor league ball?), and public interest in the team is nowhere near what it will take to service the debt. (The rest of the same bond issue threw many more tens of millions at doubling the size of the largely empty Convention Center.)

Mayor Katz, who along with Commissioner Erik Sten and Katz's then-economic development aide Sam Adams engineered the renovation financing (in secret negotiations with the baseball operators), had this to say yesterday about the latest development:

I am obviously very pleased that the Pacific Coast League, TIAA-CREF [the bondholders] and Portland Family Entertainment [previous owners of the team] have all reached agreements in principle to transfer ownership of the Portland Beavers AAA baseball team and the Portland Timbers soccer team to the PCL for the 2004 season.

Much hard work has gone into these negotiations, but there is still more work to do.

This is one of the pet code phrases that the mayor utters when she votes for something. "There is still more work to do." The problem is, most of the time no one can figure out what she means. And if it's a threat of some sort to the party who's negotiating with her, that party inevitably calls her bluff, and she folds.

Over the next several days, the City and the PCL will be finalizing the terms of an operating agreement for the use PGE Park by the two teams.

"Finalizing"? As in, good for at least the next six months?

It is essential that this agreement be reached next week in order for the City Council to have time to approve such an agreement prior to the Beavers' scheduled opening day game on April 16.

The City looks forward to that agreement being finalized and signed by the parties involved. After that, the City will begin work with the PCL on a longer-term arrangement for the use of PGE Park by the Beavers and Timbers.

So much for "finality."

All minor league baseball fans in Portland should be very encouraged by the PCL's commitment to maintain AAA baseball in Portland.

Yes, all 672 of them are ecstatic.

This speaks very well of our community's support for professional baseball and soccer.

Earth to Vera! Earth to Vera!

Lonnie got to sign off on this one

We got a nice little postcard today from the Multnomah County commissioners. It was inviting us to a series of open public forums on the constitutionality of same-sex marriage -- JUST KIDDING! It was reminding us to pay the new Multnomah County income tax.

The county is so funny. Rather than say, "Don't forget, it's a legal obligation to pay, and failure to pay could result in criminal or civil penalties," it instead explains all the good things that the tax revenues do. It's as if they're asking people to vote on it again.

Perhaps the most revealing corner of the card is a pie chart on how much in tax the county has collected and distributed through last Friday. It's $22 million, out of the $127 million that's supposed to come in by April 15. In other words, so far only 17 percent of the projected revenue is in.

Of course, there will be a big inflow right around April 15. But will the county make it anywhere near $127 million? Doubtful. I think it will be more like $90-100 million.

One big reason for the shortfall: no mandatory withholding of the tax from wages. Income taxes don't work well without it.

Not in the eyes of Uncle Sam

While my gay friends are still thinking about why their partner hasn't popped the question yet, I've been getting ready to field the inevitable tax questions that will come my way once they tie the knot.

The most obvious one is whether same-sex nuptials will be recognized for federal tax purposes. And the answer appears to be no.

Section 3 of the federal Defense of Marriage Act states:

"In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word 'marriage' means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."

Of course, this goes beyond tax issues. But from a tax standpoint alone, marriage can be worth a lot of money these days. Many couples now enjoy a bonus by getting married. Alas, that bonus is unavailable to gay marrieds.

O.k., on to the next one: How about on our Oregon state and Multnomah County income tax returns? I don't have the answers to that one yet.

Cleaning up Oregon's tax mess

I'll bet you didn't know that the Oregon Legislature is about to hold a series of public hearings on reform of Oregon's tax system. I hadn't heard a word about them until my state representative just informed me by e-mail that these are the cities and dates:

Joint Committee on Tax Reform Hearings:

Tuesday, February 24 - Newport
Wednesday, February 25 - Eugene
Tuesday, March 2 - Beaverton
Wednesday, March 3 - Portland
Wednesday, March 10 - Medford
Monday, March 15 - Baker City
Tuesday, March 16 - Pendleton
Wednesday, March 17 - Redmond

No word yet on times and exact locations. For some reason, these "public" hearings are being handled like a state secret.

UPDATE, 2/21, 1:38 am: The Oregon School Boards Association (you know they'll be there) has some more information about this on its site. These hearings commence at either 5 p.m. or 4 p.m., depending on the city. And the OSBA has at least a partial list of venues:

Newport – Tuesday, Feb. 24, 5:00 p.m., at the Agate Beach Best Western Hotel [Map/Directions]
Eugene – Wednesday, Feb. 25, 5:00 p.m., at the Campbell Senior Center [Map/Directions]
Beaverton – Tuesday, March 2, 5:00 p.m., at the Southridge H.S., Large Community Rm [Map/Directions]
Portland – Wednesday, March 3, 5:00 p.m., at the Oregon Assoc. of Minority Entreprenuers (OAME) [Map/Directions]
Medford – Wednesday, March 10, 5:00 p.m., at the Jackson County Building [Map/Directions]
Baker City – Monday, March 15
Pendleton – Tuesday, March 16
Redmond – Wednesday, March 17

Bush Tax World

Well, the official congressional scorecard (.pdf) has come in on what one of Bush's pet tax cuts for the rich is going to cost the rest of us. The Joint Committee on Taxation has released its numbers on the revenue impact of the deep tax cut that was enacted for dividends on stocks.

Not to bore you with too much detail, but in 2003, for the first time, dividends on stocks are treated as "capital gains" -- meaning they're taxed at special low rates. For guys like Dick Cheney, that means the tax on the dividends they receive on the stocks they own has been cut from 35% to 15%.

Notice, the tax has been cut by more than half for guys like him.

But not for you. If you work for a living, the federal income tax on your wage income can run as high as 35%, and for huge numbers of folks, it hits 25%. The rates were previously 39.6% and 28%. So your cut is -- cough! -- much, much more modest.

Then there's Social Security tax, which grabs another 7.65% or so. (Your employer pays still another 7.65%, and you wonder if that doesn't come out of your pocket, too.) There's been no change to that at all.

For many wage earners, income taxes run at more than 30%. But if you live off dividends, the maximum tax rate is now 15%, thanks to W, and there's no Social Security tax.

And the cost to the rest of us of that rich guy tax cut? $66.1 billion this year alone.

That's more lost taxes than it costs us to allow every homeowner in the country to deduct the interest on his or her home mortgage.

I'm kind of a hawk when it comes to the war, but I have no respect for a government that runs the money like this. With the hole we are digging, we are going to end up like some of the industrialized world's more marginal economies. And for what? To pad Dick Cheney's wallet? Oh, yeah, I forgot, that's going to trickle down and create jobs for all of us.

This is like a teenager on a drunken road trip to Mexico with your credit cards. Bush-Cheney has got to come to an end.

Dough re mi

The campaign finance web site Oregon Follow the Money has got some interesting details (.pdf) on who gave what to promote or defeat Measure 30.

I understand that this group is also working on a database of giving and getting in City of Portland politics. That would be a most welcome addition.

And she's buying a stairway to heaven

As Rob over at AboutItAll predicted, a couple of pieces in Wednesday's Oregonian really shizzled my bizzle. They were both about the current state of the most foolish public project I have witnessed in my 25 years in Portland (and that's saying a lot), the OHSU aerial tram.

Wham, tram, thank you, ma'am, Vera. This incredible little toy will allow the doctors at OHSU and their lab workers to ride from Pill Hill to their new biotech-wannabe building in the North Macadam district in three minutes, rather than taking a 10-minute ride in a van.

The cost of that convenience? At least $28.44 million to build -- the vast, vast majority of it being public money -- and who knows how much a year to operate. Nobody's saying how much. I'd guess around $1 million a year. Forever.

There are so many problems here, it's hard to tell where to start. From a political junkie's standpoint, the most significant aspect is that the tram will connect one Neil Goldschmidt client, OHSU, with another N.G. client, Homer Williams, whose development has broken ground down on the old brownfields below. Who's your daddy, Oregon? We all know.

Yesterday's paper pointed up two more problems. The first is that the tram folks are $13 million short of the $28.44 million they need to build.

It's so sad. They sold this to the City Council on a $15.5 million budget, with the mayor saying it was going to be a beautiful picture postcard. Now, at $28.44 million, they've got a nasty looking bunch of concrete boxes and plastic towers about which even the Architecuture Dandy (see below) can't find much good to say.

And where is the other $13 million going to come from? Here's the latest rap from the tram people:

The board also asked an informal finance committee to figure out new revenue sources without asking the city for general fund money, and without reducing city funds designated for transportation maintenance and operation.

The guidelines suggest looking for additional contributors from the Marquam Hill community, such as the Veteran Affairs Medical Center and the Portland Shriners Hospital for Children. OHSU committed to $9 million of the original $15.5 million budget.

Other potential sources include possible tradeoffs for federal funding in the urban renewal area; energy tax credits based on the efficiency of tram operations; and additional property tax money generated by the estimated $1.8 billion of development that the tram is expected to help stimulate.

Mike Lindberg, a former Portland City Council member who serves on the nonprofit board, recalled earlier instances when the city faced shortages for Pioneer Courthouse Square and the Performing Arts Center. Instead of cutting important details, the city found additional money, he said.

I repeat, where is the additional money going to be found this time? I'm sure, in the pockets of people who pay (a) local property tax, (b) state income tax, and (c) federal income tax.

Hey, all you folks who voted against Measure 30, do you want public money to pay another $13 million for the aerial tram?

If not, tell your elected officials. Take two minutes to send a message to Mr. Hopes-He'll-Be-Mayor Jim Francesconi here. Randy Leonard can be contacted by leaving a comment to this post -- he's a pretty regular reader here. I wouldn't bother with Vera or Erik, but you might also try Dan Saltzman. And be sure to drop a line to your state representatives about this, too. Their e-mail addresses can be found here and here.

And don't be fooled by this "urban renewal" mumbo-jumbo. Those are tax dollars. Look on your property tax bill -- you'll see them (or ask to see your landlord's bill -- he or she passes that on to you as a renter).

The idea that the Shriners Hospital should pony up is certainly a new one. When the Shriners call me asking for money, I picture my money helping sick kids, not building eyesores for the benefit of West Hills big shots.

The other huge, new problem with the tram appeared on the front page of the Living section, where the O's Architecture Dandy, Randy Gragg, did one of his design "analyses" of the drawings released so far. This guy cracks me up. He gets on his high horse as "architecture critic" -- of the Portland Oregonian, for crying out loud -- and discusses this collection of junk as if he were giving a guided tour of the Taj Mahal.

Hey, Randy. Open up your thesaurus dialog box and tell it to add these two words: tacky and ugly. Ug. Ly. As in, U to the G to the ly-ly-ly.

Picture postcard? Maybe from Newark.

Bounced

The University of Oregon has scratched its plans to build a new 15,000-seat basketball arena on its Eugene campus.

In the announcement today, Dave Frohnmayer, U of O president, said there were problems with financing, and some other issues as well.

One problem that he didn't mention was the faculty revolt that was brewing over the plan to spend $180 million on the new hoops palace at a time when other parts of the school are suffering through tight budgets. Nor was any mention made of the fact that the site of proposed new coliseum was quite controversial.

Another factor that escaped official comment was the fact that Oregon voters, including those in Lane County, resoundingly rejected Measure 30 last week, with many expressing the view that state government is spending too much on frills while the essentials are being neglected.

As head men's basketball coach Ernie Kent (base salary $450,000, plus incentives and bonuses) reminded fans today, the existing basketball building, Mac Court, is a great old place, and the basketball Ducks could do a lot worse than stay there for a while.

UPDATE, 2/12, 2:22 am: I subsequently noticed that this announcement came the day after political boss Neil Goldschmidt told a bunch of employees in the state university bureaucracy to get ready to be laid off. Coincidence? I think not.

Mystery train

Oregonian columnist Renee Mitchell has been giving Portland City Hall an earful lately. As noted here previously, her views on the Portland streetcar -- that it's a grand blowing of public money for the benefit of a few wealthy developers -- parallel my own.

Yesterday the promoters of the streetcar had their chance to defend their precious toy on the op-ed page. The writers were Chris Smith and Janet McGarrigle from the streetcar's "citizens advisory committee." Smith is a neighborhood activist from the Northwest District Association, where the trolley runs; he also opposed the Good Government Initiative, and is mentioned as a potential candidate for the state legislature. McGarrigle is apparently a condo owner down at RiverPlace, who will benefit from the expensive streetcar extension that's about to be built down that way; I believe her spouse is a structural engineer.

Anyway, I won't fisk the whole piece here. I will, however, applaud the creativity of its authors in making arguments roughly along these lines:

1. The streetcar pays for itself because there are parking meters along the route, and they raise more revenue than the streetcar costs to operate.

2. Parking revenues should be counted as tax contributions by the businesses in the neighborhood.

3. The Pearl District development is a good thing, and the streetcar can take credit for the $1 billion of development there.

4. City taxpayers didn't pay the whole construction tab; the federal and state governments chipped in, and property owners along the way paid $9.6 million in special district property taxes out of the $56.9 million construction cost.

5. The majority of the operating funds are paid by Tri-Met, so taxpayers shouldn't complain.

6. The streetcar is a "boon to business" along its lines.

7. The businesses down at RiverPlace deserve a streetcar because it will help them get through the winter months, when few people head down that way for waterfront activities.

You know, if we're going to have a Pearl, and if we're going to build the concrete jungle planned for North Macadam, there has to be mass transit to those areas. But can you imagine how much cheaper it would have been just to run two new bus lines through there?

But then again, new bus lines don't get you quoted in The New York Times, and so for Vera and Erik, they're out of the question.

I still think Renee Mitchell and I have it exactly right.

The other topic Mitchell nailed in recent days is the race for the mayor of Portland. She complains that the two mainstream candidates, Francesconi and Potter, are long on slogans and short on specifics. She didn't sound too optimistic for any kind of dynamic leadership out of either one of them.

You know what? Based on what I've seen so far, neither am I.

Democracy vs. republic

Here we go again. Every time a controversial ballot measure is passed, somebody comes out and opines that Oregon's initiative and referendum system gives too much power to the people. Yesterday it was a bright student from Portland, currently at Columbia University, who wrote in the Tribune.

Oregon's system, which dates back to 1902, is one of the nation's more liberal in terms of the power it reserves to the voting population at large. Governments at all levels hate it, and opponents of the initiative have succeeded in having some important restrictions placed on it. For example, a measure making a constitutional change must be limited to a single subject (or something to that effect). And now, canvassers are not supposed to be paid by the signature any more.

More fundamentally, opponents of the process often say that the average voter isn't as smart as the average legislator, and that we ought to leave the important choices to those who are better informed. Government should not be one big town hall meeting, they say, but instead a republic whose decisions are made by the wisest among us, who are chosen to lead.

With a part-time, high-turnover legislature made up entirely of average citizens, it's hard to buy that argument. Moreover, with the current information technology boom, the overall trend may be that the general public is getting smarter, not dumber.

This time around, frustrated proponents of Measure 30 complain that the income tax surcharge was carefully crafted in a bi-partisan compromise only after weeks and weeks of haggling, and that the hard-earned deal should have been left alone by the voters. Putting aside the fact that 3 out of 5 voters disagreed with the package, I believe there's a flaw in that argument.

When the legislature meets, the members are not ignorant of the referendum process. To the contrary, the potential for a ballot measure to second-guess any legislation sits in the Capitol like a 6,000-pound gorilla. The Republican types who voted for the income tax boost did so knowing that it would be placed on the ballot, in late January, when it would almost certainly fail. So they voted yes and went home, and the end result has turned out to be a rejection of the tax increase, which is now allowing them to smirk. (And with Lars Larson carping at them for their yes votes on this, they'll be quick to point out that they didn't really think it would survive at the polls.)

If the likelihood of the ballot measure's defeat hadn't been in the air last summer, this particular tax increase deal probably would not have been struck, and in fact, there may not have been any deal at all.

I'm all for debating whether the initiative/referendum system needs reform. Although I suspect that the majority of Oregon voters like it in its current form, it's worth a debate. But until the process is changed, no legislation is final. And members of the House and Senate will no doubt continue to bear that in mind as they ponder how long to stay in Salem every session trying futilely to solve the impossible problem of the Two Oregons.

Hammered

Measure 30, the Oregon income tax surcharge, has gone down to defeat by a 3-to-2 margin. It lost big time even in Multnomah County, where the vote was 56% against and only 44% in favor.

It's ugly, but not at all unexpected. As I predicted quite a while back, the average voter in Multnomah County, who has been willing to vote for previous tax increases, has apparently had enough.

To all those who have been giving me grief about my no vote on this measure, let me add this comment: Just because Lars Larson says something, doesn't necessarily mean it's wrong.

"Life 101"

Cousin James over at Parkway Rest Stop sometimes notes that he's too wrapped up in "Life 101" to have time to say anything profound on his blog. I know the feeling this week, when my several hats are all on at once.

It's a big primary day, and Measure 30 day here in the Beaver State, and I've got about four other Portland-centric blog entries in me waiting to come out. But I've got a couple of hungry college funds to feed, and so it's going to be another day or two before I get down with the muse and lay it all out here.

Tonight, amidst a couple of other balls I have up in the air, I give the bar exam review lecture on taxation here in town. Four straight lecturing hours down at the always-funky Portland Conference Center (not to be confused with the Oregon Convention Center, which sits across the street like the Pacific Northwest's biggest white elephant). At least I get a turkey burger at the nearby Burgerville outlet out of the deal.

Math check

The Oregonian's editorial page today exhorts Multnomah County voters to vote for Measure 30, the state income tax surcharge. Perhaps the strongest argument that the editorial musters for a yes vote in these parts is its spin on the new county income tax: "County voters can't forget the original purpose of their local tax: to be a temporary lifeboat until state funding came through. The goal was never to secede financially from the rest of the state. The goal was to meet local needs until the state pulled itself together."

A few paragraphs later, however, The O makes this naked assertion: "With expected refunds if Measure 30 passes, about two-thirds of county taxpayers would pay lower taxes if the state plan passes."

I have to challenge that last statement. First of all, there's no guarantee whatsoever what (if anything) the county will refund if the state surcharge passes. But more importantly, even if the county pays refunds at the highest level estimated so far – by County Chair Linn – county residents as a group will pay more tax.

Linn says she'll refund "up to" 22 percent of the county tax; the tax is 1.25 percent of income. That amounts to a maximum refund of 0.275 percent of income. For most taxpayers, the proposed state surcharge is somewhere between 0.3 percent and 0.8 percent of income, depending on how high one's income is. Thus, it's a mathematical fact that the Measure 30 tax will cost Multnomah taxpayers as a group much more than they're going to get back, even if Linn's wildest dreams come true.

Assume that the total taxable income of all taxpayers in Multnomah County is $1 billion. I have no idea what it is – I'm just making that number up, but the actual amount doesn't matter for these purposes. Here's where the tax chips of Measure 30 would fall:

Total taxable income in county = $1,000,000,000
County tax at 1.25% = $12,500,000
Refund of 22% of county tax (maximum) if Measure 30 passes = $2,750,000

State income tax increase at 0.5% of income = $5,000,000

If The Oregonian is going to make a wild claim, such as that two thirds of county voters will save taxes under Measure 30, it ought to at least have the guts to back its assertions up with the numbers. Maybe I'm missing something, but I'd be shocked if the two thirds figure is anywhere near accurate.

UPDATE, 1/28, 7:53 p.m.: The same figure, which apparently comes from some Multnomah County official or another, is repeated in today's Willamette Week. Guess the local press is going to accept this rash prediction uncritically. Why not? It supports their editorial position.

It didn't even dawn on the county until recently that state and federal retirees won't be paying the county's new tax. There's a $1 million blunder. And The O and WW believe the bureaucrats when they say we'll actually pay less if we vote to pay more? That's Portland journalism for you.

Sorry, folks

We just voted on Measure 30.

We voted no.

Our property taxes have gone up by 8.89 percent in the past year.

We live in Multnomah County. Our state and local income taxes have already gone up by 13.89 percent during the same period.

If state and local governments can't make things work with that much new revenue from our household, then there really is something wrong with them. To give them more money is not the solution.

Measure 30

The ballots have arrived at our house for Measure 30, the Oregon statewide income tax increase, with a voting deadline of Feb. 3. This is the income tax surcharge that the Legislature put in place last summer, only to have it dragged before the voters by initiative petition.

Great timing. We're broke right now.

I sized this one up pretty well back in August, and not much has changed since then. The key voters are in Multnomah County, where a big win is necessary for the tax boost to pass. And the logic of your average Multnomah County voter right now is likely to be this:

O.k., I've already had my state and local income taxes increased from 9 percent of income to 10.25 percent of income because of the new county income tax. That's a whopping 13.89 percent increase for people in the 9 percent state bracket (1.25 is 13.89 percent of 9), and even higher for folks in lower state brackets. Isn't a 13.89 percent revenue increase enough to keep the schools open? Why would I vote for a state measure that bumps the increase up to 19.45 percent? I'm all for schools, but a 13.89 percent single-year increase is too much, much less 19.45 percent.

Since I first wrote that, the county has made a nonbinding commitment to reduce the county tax by "as much as" 22 percent if the state measure passes. But that's only if the county gets good collections from its new tax -- a prospect that's highly uinlikely, since there's no mandatory county tax withholding from wages, and many average workers won't be able or willing to pay it. Also, the forecast comes from County Commission Chair Diane Linn, who's become quite the master at retracting public statements. First she promised the new library director an astronomical salary, then had to take part of it back. Last week she announced that county workers would be paid for the snow days, only to reverse course a day later.

If Linn's most optimistic nonpromise comes true, the county would retroactively reduce the new county tax from 1.25 to 0.98 percent, and issue a refund. Meanwhile, the state income tax would increase by 0.50 percent of income, leaving Multnomah voters with an aggregate tax increase of 1.48 percent of income. So up here we're basically voting on a tax increase of 0.23 percent of our income -- another $115 if your income is $50,000 -- with all of the new money being sent outside the county.

I can't see it passing.

The other news is that the proponents of the measure tell us there will be no immediate special session of the Legislature if it fails. There will just be pre-ordained, painful budget cuts (except in Multnomah County). A special session on tax reform is still on the schedule for the summer, but that group's apparently going to be looking into the future, rather than trying to fix the present.

Mad Max

Holy moly. State Rep. Max Williams, R-Tigard, one of the up-and-coming members of the Oregon Legislature (and a former student of mine), is chucking his lawmaker gig and becoming the head of the Oregon Corrections Department.

Williams, who until now has been listed as "counsel" at the Miller Nash law firm in Portland, was expected to be one of the leaders of the big state Capitol tax debate in a special session in 2004. I guess that's out the window. Just the other day his op-ed piece on the need for civics education in Oregon schools ran in the electronic version of The Oregonian. That must have been the swan song for his days in the House.

In the Bogdanski Influence Index, in which 0 out of 18 indicates a high degree of sway over colleagues in the last legislative session, Williams scored a 2, meaning he was very much in the mainstream. I wonder who will take his seat.

Governor Ted seems to like to pick off some of the more influential members of the legislative branch -- including members of the oppositiion party -- and plop them down into bureaucratic state jobs. Why does that make me a little uneasy?

And Max, I know you've got mouths to feed at home, but is this really what you want to do?

Note from Greg

My buddy, State Rep. Greg Macpherson of Lake O., writes in his recent newsletter about the brewing tax revolt:

In the end the Legislature did what the people sent us to Salem to do. We made the tough decision ourselves instead of referring it out to the voters. I believe there is a proper role for the initiative, referendum, and recall. Some decisions should go to a vote of the people because they raise broad issues of long-term public policy.

But voters who are asked to sign a petition should think carefully about whether this decision is well-suited to a special election. To make an informed decision, the voters must understand the impact of further budget cuts on the education, health, and safety of Oregonians. Will the voters have the time to study those impacts the way their legislators did?

Voters should also think about the harm done to Oregon’s economy by extending uncertainty over its budget. In the last few weeks we've received two pieces of bad economic news: Louisiana-Pacific’s decision to move its headquarters from Portland to Nashville; and a downgrade in the state’s credit rating. In both cases our budget turmoil was cited as a reason.

I don't sign petitions unless there's a darn good reason to do so. And there's none in this case. Taxes blow, but a replay of the budget fiasco that cost this poor fellow his life would be a lot worse.

The Screwing of the Working Stiff

Tax policy literature is not just for nerds. If you can bear to take a look at this article, you will see that federal income taxes have fallen to their lowest levels in many decades -- both as a percentage of the gross domestic product and as a percentage of all federal revenues. But federal payroll taxes are now at their highest in U.S. history when compared with total federal revenues.

It's all consistent with the Bush vision to turn the income tax into a wage tax. In this Republican moist dream, people who live off dividends, rents, and interest would contribute nothing to the federal Treasury -- government programs would all be paid for entirely by people who work for a living.

We've gone quite a ways in that direction already over the last three years.

All of you middle-class Bush backers out there: Look in the mirror. Can you say, "Sucker"?

Inspirational Story of the Day

A Socratic disciple sends us this one:

A little boy wanted $100 very badly. He prayed for weeks, but nothing happened. So, he decided to write a letter to God requesting $100. When the postal authorities received the letter to "God, USA", they decided to send it to the President. The President was so amused that he instructed his secretary to send the little boy a $5 bill. The President thought this would appear to be a lot of money to a little boy. The little boy was delighted with the $5 bill, and sat down to write a thank-you note to God. It read:

"Dear God, Thank you very much for sending the money. However, I noticed that for some reason you sent it through Washington, D.C., and those a**holes deducted $95 in taxes."

Weird Publication of the Month

As You-Know-Who puts it, I am not making this up.

Here's a must-read. The IRS has just released a nifty new book for manicurists, hairstylists, masseuses, and estheticians entitled Cosmetology: Learning the Art of Doing Business.

The apparent point of this odd little 44-page volume is to scare the bejeezus out of people engaged in those largely cash businesses, so that they'll at least take an educated stab at cutting square corners with the government on their taxes.

But some of it is as funny as a back wax. The section on whether someone is an employee or an independent contractor tries to explain to the folks hovering over the shampoo bowl something that a dozen CPAs and tax lawyers couldn't fully understand.

Go ahead on over and read this baby. May as well -- you paid for it.

Devil's in the mailbox

We got our property tax bill from our friends at the Multnomah County Assessor's Office the other day.

The assessed value of our home went up by 3 percent over the previous year, the maximum increase allowed by state law.

And so our property taxes went up by...

8.89 percent!

That's, what? Four times the rate of inflation? How does anybody afford to live here any more? Livability, my arse.

And then I look over there on the right side of the bill and check out the few hundred going to "urban renewal -- Portland."

Translation: To the guys who run the Pearl District.

To the OHSU tram.

To the trolley.

Percentage of the bill going to public education: 27.96 percent. That's not counting school district bonds, which eat up another 4.92 percent.

And yet we'll have to pay an income tax increase of 13.89 percent this year, too, or else the schools will have to close.

Imagine how homeowners on fixed incomes feel.

Imagine how unemployed homeowners feel.

Imagine how sick homeowners feel.

Hey, look, I'll pay, and I'll stop whining now. But when inane anti-tax ballot measures like 5 and 50 win by wide margins, don't run around slapping your forehead and moaning, "How?! How can this happen?!"

It's because our local government is wasting entirely too much money on rich people's toys, and it's p*ssing the rest of us off.

Many observers have rightly called PGE and Pacific Power dirty rotten scoundrels for playing the property tax card in the PUD election. But the utilities know where there's a huge store of justified outrage to tap into, and they're experts at harnessing all those negative ions.

Gee whiz, you don't say

Big headline in the paper today: Multnomah County's expert consultants are telling us that the county income tax won't bring in as much money as the county thought it would, because there's no mandatory wage withholding and a lot of people are going to cheat.

Just like I said here and here.

Where do I send my bill?

Capping a career

The IRS tends to take a bad rap. It's demonized for the actions of just a few of its more than 100,000 employees. The vast majority of the folks who work for "the Service," as they like to call it, are good people. Many of them are actually smart. And some of them are absolutely outstanding.

One of those in that last category has taken his well-deserved retirement beginning this week. His name is Bob Wenzel, and over 40 years, he worked his way up from lowly auditor, through the ranks, and all the way to acting commissioner. For a while he was the guy who ran the whole shop.

I had the pleasure of spending a day with Bob in the early '90s, when he was the director of the Ogden, Utah Internal Revenue Service Center, and I was a rookie on what was then called the Commissioner's Advisory Group. He gave me the tour of the sprawling Ogden operation, and I couldn't help but be impressed by his enthusiasm, dedication, managerial skills, and care. And those attributes were contagious.

There's a pretty good summary of Bob's career here. I'm sure he will be missed around 1111 Constitution Avenue (IRS headquarters). I wish him the best of luck in his retirement.

Letter from Diane

The mail brought a historic document the other day -- the first Multnomah County individual income tax form. It's noteworthy in a number of respects.

Confusing. For a large segment of the population, which doesn't follow taxes or the news very closely, this baby is going to cause lots of confusion. I'm glad I'm not the person answering the phone at the number listed on the form -- it's going to be a busy week.

Here's the skinny from my viewpoint:

When the voters passed the 1.25 percent county income tax earlier this year, neither they nor the county commissioners required employers to withhold the tax from workers' pay. Employers are allowed to do it voluntarily, but only if the employees ask and the employers want to. So far, I haven't heard of a single employer or employee who's doing it. And so the county's residents are all going to have to figure out how much tax they owe, and then send the county a check for that amount, sometime between now and next April 15. (We'll see how many comply! The feds and states learned a long time ago that you have to have mandatory withholding to make an income tax system work. Multnomah County obviously hasn't gotten that far yet.)

Anyhow, the form that the county just sent out is an "estimated tax" voucher that allows folks to pay the tax early, even though it isn't due until next April 15. Unless someone is planning to pay early, the form can go in the round file. The "real" tax form will be out later.

Why would you pay early? Sounds crazy, but for some folks it isn't. If you itemize your deductions for federal and state income tax purposes, you may want to pay the county tax before Dec. 31, 2003, so that you can deduct it on your state and federal income tax returns for 2003. If you wait until next spring to pay the county tax, you won't get to deduct it on your federal and state forms until you file your 2004 returns (in the spring of 2005). If you go that route, you lose the time value of the federal and state deductions for that whole year.

Of course, if you don't itemize your deductions on your federal and state tax returns, there's no real advantage to paying early, so you can and should round-file the county form that just came in the mail.

The main message that most people need to get is not the nuance of when to pay. More importantly, they need to figure out how much they're going to have to pay, and budget accordingly. Perhaps the Bush tax cut will give them a larger federal refund than they expected, but Multnomah County will be taking a good chunk of that. And unless you file early for the federal refund, it won't get here in time to help you pay the county.

Politically reckless. The format of the mailed document is also curious. Addressed to "resident," presumably at every residential address in the county, the form is set up as a lovely letter from Diane Linn, the county chair, with a bunch of Qs & As below her picture. Page 2 features the requisite pie chart of where the tax money is supposed to go, and the actual payment coupon itself is back on page 3.

Linn is playing politics to the hilt here. It's highly, highly unusual for politicians to put their photos on tax foms. Apparently she thinks that the tax is so popular among constituents that she ought to run her picture on the form package, as if to bask in its glow, or somehow indirectly take credit for it. She's apparently lost sight of the fact that, although the tax passed by a wide margin, many registered voters didn't participate in the election. Most of the nonvoters are going to be quite outraged when they realize that for the first time in their lives, they're supposed to write a check for income tax next April 15. And who is the politician they're going to associate with this hated levy? The lady whose picture is on the cover, of course. (Naturally, the folks who voted against the tax will also greet the form with a high degree of scorn.)

No doubt Linn has ambitions beyond county government. So did her predecessor, but they went nowhere. And Linn's facing a revolt by three of the other four county commissioners over the library director's salary. The rebels look as bad as Linn on that one, but her star is not rising over the issue. And now she seems to be saying, "Remember at election time, I'm the one who led the charge to raise your taxes."

Methinks the photo was a bad move.

Weaselly. I'm amused by the gentle, gradual airbrushing of the promise that was made to the taxpayers during the tax election last May, that if the state got its fiscal act together, the county tax would no longer be necessary. Here's this week's version:

The County has an obligation to fund schools, police and other services at the level voters expected when they supported the local ballot measure. As you know, the question of a statewide surcharge may be decided in a special election. If the state surcharge provides additional funds to Mulnomah County, we will reduce the local tax.

Note the word "reduce" in that last sentence. Any allusion to repealing or eliminating the county tax is now out of the picture. As already concluded in this blog a few weeks ago, the county tax is here to stay, at least until its "temporary" term expires.

Optimistic. The pie chart is based on projected revenues of $128 million, with $7 million budgeted for collection actions and audits. I think both of these numbers may be optimistic. People who can't afford to write the check next April (or refuse to do so) simply aren't going to file. Plus, how many people are suddenly going to start using relatives' mailing addresses in Beaverton and Oregon City to defraud the county? I'll bet quite a few. And the bruising statewide income tax referendum scheduled for late January certainly isn't going to help taxpayer morale any.

There will be ways to catch up with the cheats, but they're going to cost more than $7 million, and the process of hounding them isn't going to yield much.

This is going to be interesting, albeit potentially very sad, to watch.

Lightweights

Well, they've got the big beams of light shooting up into the night sky over the Oregon Convention Center again this year. The huge spotlights are meant to symbolize the twin towers of the World Trade Center, and memorialize those lost on 9/11/01. The display will stay up again for another two months this year, just as it did last year.

But what's the point?

Although I mean the organizers of this memorial no disrespect, the two columns of light streaming into the night sky no longer evoke in me any connection with the events of that fateful day. Instead, they remind me of how our city government spent upwards of $100 million to double the size of the Convention Center, which to this day remains as empty as it ever was, if not more so.

To me the twin beams represent our own celestial figures, Mayor Katz and Commissioner Sten. I envision them as the Castor and Pollux of Bad Local Government, beaming all those precious tax dollars into empty, black nothingness.

Correction

A couple of weeks ago I bemoaned the fact that tax policy in the Bush administration is in the hands of extremist groups.

Today I received a friendly note from an old friend who reminded me that actually, Bush tax policy is his job.

He's Greg Jenner, assistant deputy secretary of the Treasury for tax policy. Greg's a Portland boy -- summa cum laude graduate of Portland State -- and he and I labored together for a few years in the tax library of a large Portland law firm two decades ago. Then he ran off to the power world in D.C. while I ran off to academe.

Greg's bounced around a few times since then, holding important posts at lobbying firms and accounting firms, but now he's got a major, major gig as the No. 2 person in the Bush administration for tax policy.

I think that policy is simply horrible, of course, but I wish my friend Greg the best on a personal level.

And an even better, new job 16 months from now.

Finance charges apply

As we read about the men and women of our armed forces and the sacrifices that they and their families are making in the war effort, we cluck our tongues, sigh, and say, "Oh, well. That's what you sign up for when you join the military." Then we go on with our lives.

Except.

The whole war is being run on borrowed money. And our politicians in Washington have decided that this is a good time to cut taxes, everyone's taxes, but especially rich people's taxes. Way less money coming in, way more going out.

So there's a credit card bill coming, America, and it's going to be a vicious one. Who's going to pay for all this? Our kids. Will the boomers get their Social security checks? Maybe.

And what if we need to fight another war, and another? How will we pay for those?

You can't be a nasty, kick-ass-and-take-names, bellicose nation, fighting wars of vengeance in distant lands, and be a low-tax, small-government nation at the same time.

I remember when the old rock group Steppenwolf -- the guys who gave us "Born to Be Wild" and "Magic Carpet Ride" -- grew up a little and wrote a political number called "Monster." It's gotten lost over the years, but alas, I think it may be time to dust it off:

America, where are you now?
Don't you care about your sons and daughters?
Don't you know we need you now?

Democrat tax cut (self-service)

There's been a running dialogue in one of the tax nerd publications I read every week about Bill and Hillary Clinton's legal defense funds. These are funds, to which all sorts of people have contributed millions of dollars, that have paid the Clintons' legal bills over Whitewater, Headgate, and those other scandals.

The junior senator from New York and her saxophone-blowin' Bubba apparently have never reported any of the money paid to the funds as income on their income tax returns.

Should they have?

The consensus among the several tax professionals who have written on the subject is that, yes, indeed, payments to or by the funds are income to the Clintons, and should have been reported. When someone else pays your bills for you, that's income to you, unless it's an excluded payment such as a gift. These payments weren't gifts, because the "contributors" either received or were expecting to receive a return benefit from the Clintons (or a benefit from the Clintons' being able to emerge unscathed from their many legal problems).

So these millions should have been reported as income. To my knowledge not a single tax expert has written a word in defense of the Clintons' omission of this income from their tax returns.

Can the Clintons deduct the fees paid to their lawyers? No, at least a large part of them are not deductible, because the legal proceedings had their origins in a personal matter. That activity under the Oval Office desk did not arise out of Bill's trade or business; it was a personal frolic. Even if attorney's fees are paid in connection with his employment, which seems like a stretch but is arguably possible in this case, an employee's business expenses aren't fully deductible. Just ask anyone who pays for their own uniform or work boots.

Is the IRS ever going to enforce the tax laws against the Clintons on this? Doubtful in the extreme.

Isn't that special?

Come election time

I hope the moderate voters in this country fully understand that White House domestic policy (particularly with regard to taxation) has been placed entirely in the hands of scary groups like this one.

A "to do" list for government

Oregon State Rep. Max Williams, R-Tigard, has been pushing hard for a wide-ranging discussion of the fundamentals of the state's tax system. Williams is a former student of mine, for whom I have great respect, even though his politics and mine are incompatible on many issues. (And even though in the suits he looks a little like Rush Limbaugh.)

Williams, slightly to the left of Limbaugh, right.

I'm all for a free and open discussion of the kind Williams is advocating, and I look forward to 2004, when in one special session or another the Legislature is scheduled to have the dialogue that he wants. Williams is pushing for a retail sales tax, which Oregon has never had and which I oppose. But so long as everybody gets their say and then a fair vote is taken, I have no problem with that.

The problem I do have is that all the tax reform talk is going nowhere with the public unless there's also a frank discussion of spending priorities. One of the big reasons voters hate taxes is that they're constantly seeing the government spending their money on frills and frivolities, while letting basic needs go unattended.

There's an old spoof magazine cover that showed a cute dog with a pistol pointed at its head. "If you don't buy this magazine, we'll shoot this dog!" screamed the headline. Which wasn't funny, but it made a point that's apposite here. Whenever government wants to raise taxes, it threatens to (and often does) shut down crucial social services. In Oregon, the population is told "Vote for new taxes, or else the public schools will become the laughingstock of the nation." "Vote for new taxes or we'll close the libraries and open the jails." "Vote for new taxes or we'll unplug sick people's life support."

Not "Vote for new taxes or w'll have to leave the Convention Center as is." Not "Vote for new taxes or we'll have to do without a streetcar to the Pearl District." Not "Vote for new taxes or we'll have to get rid of the OLCC." Not "Vote for new taxes or we'll have to cut the Economic Development Department budget to only $100 million a year."

What's really needed most is a detailed discussion at all levels of government about spending priorities. There needs to be a fairly agreed-upon list of everything government spends money on, with the most important items at the top and the least important at the bottom. The public needs to show the politicians where everything goes on the list. And then when times get tough financially, government has to cut from the bottom of the list. Did you hear that, politicians? Not from the top or from the middle, but from the bottom.

What I'm proposing is sort of like what the state did with the Oregon Health Plan, back before it was bankrupt. A special commission was called upon to draw up a priority list of which items were important enough and effective enough for universal health coverage, and which items provided so little benefit that they weren't worth it. The dialogue was painful, and it took the commission a few tries to get a decent list that people didn't laugh or get angry at. But eventually the list gained acceptance, and it worked.

That's what all of government needs now. The public needs its chance to say where the money will be spent. Then and only then will they vote to pay more or different types of taxes.

The procedures and methodology for such a project could be either simple or sophisticated. But implementation of the concept is long overdue.

Max, good luck with the dialogue, but think bigger.

Train wreck a-comin'

Mark your calendars, Oregonians. There's going to be one heck of a train wreck here this winter, and it's all about your state income tax (and for folks in Portland and the rest of Multnomah County, your new county income tax as well).

As you've probably heard, the Legislature passed a "temporary" state income tax increase and went home. The governor signed it right away, and so now we're told that the top rate on Oregon income will climb above 9 percent for the first time in years. Since the Oregon income tax brackets are as thin as the skin on a tax collector's teeth, just about anyone with a job here pays state income tax at an overall rate pretty close to 9 percent. (We don't have a sales tax, but we're quite serious about taxing income.)

How big is the increase that was just signed? Well, it depends on one's income, but it's probably an additional 0.4 to 0.6 percent for most folks. By my reckoning (and my students can tell you, I'm not great at off-the-cuff math), for some well-off people the bump may get them up to 9.81 percent. But on average, let's call it an increase from 9 percent to 9.5 percent. All the percentages can get confusing, but that's about a 5.56 percent increase in your Oregon tax (0.5 being 5.56 percent of 9 -- I think).

But wait, don't pay yet. The opponents of the tax, including some frustrated legislators, will within the next few days begin collecting the 50,400 signatures they need to put a repeal of the tax boost before the voters. They'll have no trouble collecting the signatures, even if they don't forge them, so there's going to be a special election on this tax increase.

The date that's been set for the statewide election? I hear it's February 3.

February 3! So Oregonians will once again be voting on a state income tax increase at the worst possible time of year for most families -- just as the financial hangover from the holidays really hits home. I don't know about you, but the net worth of this household is always at a year-long low around January 29-31, and those credit card bills are positively screaming. And that's just when the voters will be blackening the circles and sending in their ballots. (Out-of-state readers, take note that all voting in Oregon, even by dead people, is done by mail.)

Although I applaud the Legislature for doing the right thing, it's probably an illusion. The repeal is likely to pass, and if it does, the public schools, the courts, and other government bodies around the state are going to be in the exact same bad, bad, bad spot next spring as they were this past spring.

Maybe worse.

I'm not a very good political prognosticator, but on this one, I'm pretty sure I'm calling it correctly. This is especially true because the voting in Multnomah County is likely to be far less in favor of the tax than it was last year, when Multnomah voters said yes twice to higher tax levies. The dynamic is going to be different in January '04.

How's that? Well, in reaction to last year's wreck, Multnomah County voters passed a 1.25 percent county income tax of their own. The county commissioners promised voters that they would "consider repealing" that tax in whole or in part if the state increased financing for schools and social services. But unless and until the state tax surcharge survives the repeal vote, that county income tax is going to stay in place. Which means it will still be very much on the books when the statewide vote goes down.

Indeed, keep in mind that there are many people who prefer to pay state and local taxes by December 31 for various reasons, and others who like to file their tax returns in January. And so by the time the special election rolls around, many Multnomah voters will have already paid their 1.25 percent to the county.

And when they sit down at the kitchen table to vote, their math will go something like this: O.k., I've already had my state and local income taxes increased from 9 percent to 10.25 percent because of the county tax. That's a whopping 13.89 percent increase for people in the 9 percent state bracket (1.25 is 13.89 percent of 9), and even higher for folks in lower state brackets. Isn't a 13.89 percent tax increase enough to keep the schools open? Why would I vote for a state tax that bumps the increase up to 19.45 percent? I'm all for schools, but a 13.89 percent single-year increase is too much, much less 19.45 percent.

The county may make noises that it's going to reduce the county tax somewhat if the state tax survives. Apparently the county has already given Governor Ted some such reassurance in the last day or two. But let's face it, folks, a 0.5 percent surcharge is never going to replace what the county will make with a 1.25 percent county tax, and so most of the Multnomah County tax is probably here to stay, at least for a few years. And the voters in this county are going to hear all about that from the nattering nabobs of tax negativism.

Without a big victory margin in Multnomah County, the state income tax surcharge has no prayer whatsoever. And I doubt it's there. On the contrary, Multnomah County voters such as myself would rather pay taxes to the county than to the state, and there's a fair amount of bad feelings between the Portland area and the rest of Oregon right now anyway. So I don't see a major win for the tax surcharge up here.

Before they left Salem, the legislators scheduled a special session on tax reform next June. But methinks they'll be back before that, when Governor Ted calls them back for an emergency special session, probably by Valentine's Day.

Multnomah County schools may still be o.k. at that point, but other schools and government agencies around the state had better be ready for big trouble.

Back to life, back to reality

It's been fun running a baseball mini-blogathon here, and now there are a number of other bloggable topics backed up for my attention. (Hey, Bill Safire, I said bloggable.) But it's the first day of a new school year (this is the earliest date we ever start), and so alas, I'll be busy with other things for a while. Like this:

Moving the Expos

All the politics of trying to get a major league baseball team in Portland has obscured the question of the feasibility of moving the only team that's available right now -- the Montreal Expos -- out here. From a baseball point of view (as opposed to a business point of view), can it be done?

One difficulty is that the Expos play in the Eastern Division of the National League. That means they play East Coast teams much more than West Coast teams. If the Expos came to Portland but stayed in the Eastern Division, the East Coast teams would be saddled with too much travel to get out here to play them.

So the Expos would have to move to a different division, which poses some interesting questions. Here are the National League division alignments at present:

East: Atlanta, Philadelphia, Florida, Montreal, New York

Central: Houston, St. Louis, Chicago, Pittsburgh, Cincinnati, Milwaukee

West: San Francisco, Arizona, Los Angeles, Colorado, San Diego

If Montreal went to the West, the East would need a new team, to make 5. My thought would be to take Milwaukee out of the Central and move it to the East, leaving the Central also with 5. The Milwaukee team is doing very poorly, on the field and at the box office, and it hasn't been in the National League all that long. So moving it to a different division shouldn't be too traumatic.

Another idea would be to move the Expos to the American League, which would cause much more of a commotion. But Portland in the American League West would be exciting. Here's the current alignment there:

East: New York, Boston, Toronto, Baltimore, Tampa Bay

Central: Chicago, Kansas City, Minnesota, Cleveland, Detroit

West: Seattle, Oakland, Anaheim, Texas

I'd like the National League option much better myself. Those who need to see the Yankees in person every year can continue to take the train up to Seattle. Besides, if Montreal jumped to the American League, they'd still have to move Milwaukee or somebody to the National League East.

Dang, this is fun.

On the less glamorous, financing, front, it was great to see Randy Leonard up on the blog comments last night in support of baseball. With him and Vera in tow, only one more city council member needs to say, "play ball." The city should chip in for the stadium construction with some ticket taxes, parking taxes and other assorted taxes that it can impose on those attending the games. I'm not sure the hotel/motel tax is going to be available. Heaven knows it's already been promised for lots of other things.

At our house, we're budgeting for season tickets.

Under the Big Top

Ladies and gentlemen! Boys and girls! We're proud to welcome each and every one of you to the quaint, the colorful, the fantasmagorically grimy little circus known as Oregon Politics! You think you've seen it all down in California? Nonsense! Today we have all three rings in full operation to thrill and delight children of all ages! We guarantee you will not believe your eyes and ears!

In the far ring, we have POTUS! Imperial Wizard of the Electoral College! It's George W. Bush, visiting us here in "Little Beirut" to talk about his, um, accomplishments, and to pick up some campaign dough (the latter being his only undisputed accomplishment). Just the kind of thing that happens in North Portland all the time. Then he's off to central Oregon to brag about cutting down some of the trees that the environmentalists hold the most dear. Most of the smoke you'll see and smell, circus-goers, will be coming from the forest fires over there, but there'll also be a good deal coming from the Commander-in-Chief himself. Under this man's leadership, the entire free world is operating in extreme danger, without a net! Wave those circus lights at him!... Huh? Oh. For reasons of homeland security, don't wave the circus lights. But ladies and gentlemen, what do you say? It's a banner day for pepper spray!

Next! In the near ring, we have the Masters! Of! Fiscal! Disasters! The Oregon Legislature! Wait 'til you see how many gaily clad Republicans can climb out of that tiny anti-tax agenda! Yesterday, the State Senate passed an income tax surcharge, whereupon several legislators, including the Speaker of the House, immediately vowed to invalidate it by circulating public petitions to bring a referral ballot measure to the voters. That's being a good sport!

You'll see these zany lawmakers disappear, but then, lo and behold, they'll be back again come November or January. And why's that, you say? I direct your attention to that gentleman in the black cape, over on the edge of the ring. Yes, it's Bill Sizemore, peddler of lame ballot initiatives, who says he'll tell anyone who asks how to overturn the new tax! What's his secret, ladies and gentlemen? No one knows for sure, but last I heard, it was fraud and racketeering! He'll show you how to do it, but are you brave enough to try?

And who, ladles and jellyspoons, who is that grinning man flip-flopping all over the ring? It's the governor, Ted the Chameleon! Watch him as he changes from "I won't raise taxes until we've proven we can live within our means," right over to "If you don't like it, we'll have to close the schools" -- all in a split second, right before your eyes! How does he do it? And wait! Joining them all in the ring now are the Multnomah County Commissioners, who swore they'd "consider" repealing their new county income tax if the state increased its support for schools and social services! Will they defy political death and keep the local tax in place? You'll gasp in astonishment, folks, as they find new ways to spend your money! Ways you never dreamed of when you voted for the tax!

And last but not least! In the center ring! The State Senate decides whether the "Really Big Show" -- Major League Baseball -- will come to the Beaver State! The crucial vote could come today, it could come tomorrow, but for sure it's the bases loaded, two outs in the bottom of the ninth, and here comes the 3-2 pitch! The governor wants it! The mayor of Portland wants it! The real estate developers who run Portland want it! The Little Leaguers want it! The Pony Leaguers want it! (The current minor league team, the Portland Beavers, don't know if they want it or not, but don't heckle them about it or they'll come up there and kick your a*s.) So is Sammy Sosa going to be eating at La Sirenita next spring, or not? Watch as the Cranky Old Coot from Ashland and his Crew of Smalltown Naysayers try to team up with the Big City Earnests to stop it!

What a week! What a state! What fun! And so without further adieu, circus fans, it's on with the show!

Surprise, surprise

... to me, at least. The Legislature just passed the income tax increase, and they're grabbing their hats and heading for the door.

It's fine with me -- I'm good for another few hundred bucks a year, I guess -- but there'll be howling in the hinterlands of the state tonight.

It also makes you wonder why we even went through the charade of Ballot Measure 28 back in January. The initiative process is sacrosanct in Oregon, but only when the politicans agree with the outcome.

Wonder what's going to happen with the baseball bill. I heard a rumor that it was part of a package along with the tax increase. That sounded a little spurious, but stranger things have happened.

Like this tax increase.

UPDATE, 10:50 pm: Well, the baseball bill was re-passed by the House, and so now it's on to the Senate. There's a 24-hour waiting period, so the vote could come tomorrow late, or more likely Friday. It will be very, very close and very, very interesting.

Unfair and unfairer

For a while now, I've been griping about how inequitable the Bush administration's tax policies are. If it were up to them (and nowadays it largely is), the only federal tax would be a wage tax. Dividends and capital gains would be completely exempt.

What an awful system. Working people would pay 30 or 40 percent of what they make (counting their involuntary "contribution" to Social Security), and fat cat investors living off investments would pay nothing. But the White House looks the public straight in the eye and says, "That's right."

The federal estate and gift taxes are a great equalizer. They tax accumulated wealth as it passes from generation to generation. Of course, the Bushies plan to eliminate those taxes entirely, as well as turning the income tax into a wage tax.

Even without the Bush "improvements," the federal income tax had been getting less and less progressive. (By "progressive," I mean based on one's ability to pay.) An article that appeared yesterday in a journal called Tax Notes shows a disturbing trend between 1995 and 2000: The "Fortunate 400," that is, the 400 taxpayers in the country with the most income, doubled their percentage of the nation's income, but their rate of tax fell substantially, over that period.

In 1995 their share of total AGI [adjusted gross income] was 0.49 percent, so between 1995 and 2000 it more than doubled, to 1.09 percent in 2000.... Beginning in 1995, there was also a notable decline in the average tax rate faced by the top 400. This rate fell from 29.93 percent in 1995 to 22.29 percent in 2000.

The author, Professor Joel Slemrod of the University of Michigan, concludes that this was because more and more of the rich folks' income was coming in the form of capital gains, taxed at lower rates.

Imagine what will happen now that the capital gain rates are even lower, and dividends are also taxed at those low, low rates.

Then ask yourself, do we need all the additional tax giveaways that the Republicans in Washington are planning?

Cha-ching!

The Oregon Legislature's current session is one sick puppy. The State Senate just vomited out a state income tax increase, which seems doomed to failure in the House. This looks to be about the same size as Measure 28, which you may recall failed miserably at the polls on a statewide basis just seven months ago.

Some estimates of what the new bill can be expected to cost individual taxpayers and married couples can be found here.

Members of the Oregon House now get to decide whether to raise taxes and go home, or to say no and stick around Salem, where it's starting to smell a little stale.

I predict they'll say no and stay. Unfortunately, this one won't be over until the governor shuts down the state government for a few days. Which is starting to sound like a good idea to me, actually.

A voice I trust

My friend and former partner Greg Macpherson, who embodies the rare "Cincinnatus spirit" in the Oregon Legislature, provides this fair and balanced update on the goings-on in the State Capitol:

One week ago, the current legislative session won the distinction of becoming the longest in Oregon’s history. As a freshman member of the House, representing Lake Oswego and part of Southwest Portland, that was a not a record I wanted us to set.

The session goes on and on because the legislature has a constitutional duty to adopt a balanced state budget for the two years that started July 1, 2003. Despite passing that starting date six weeks ago, the legislature has yet to agree on a budget.

The impasse results from simple math. The state’s projected revenues fall far short of paying for basic services like schools, public safety and human services.

Virtually all legislators agree that the state must find new revenue to balance the budget. But they do not agree on how much new revenue to raise and where it will come from.

Last week the House Republicans and Democrats each selected four of their members to form a new negotiating group to seek a compromise. As one of the four Democrats selected to negotiate the budget, I have spent long hours discussing essential service levels and how to pay for them.

The greatest area of disagreement is over how much state support to provide for K-12 schools. Democrats seek enough funding to assure a full school year, manageable class sizes, and restoration of some programs cut in recent years. House Republicans say Oregon cannot afford that funding level.

The sides also disagree about how to generate new revenue. House Republicans propose that much of the needed revenue be taken from reserve funds and by selling bonds. Reserve funds have been set aside for dedicated purposes, such as fighting forest fires and assisting injured workers. Bonds are just another form of borrowing that must be repaid.

I regard such methods as fiscally irresponsible. Those who want to use them are like a family faced with a budget squeeze that cashes in their retirement plan and runs up the balance on their credit cards. Instead, a family member should find an extra part-time job to pay for essential needs that current income cannot cover.

Our disagreements result from a basic difference in philosophy. My Republican colleagues sincerely believe that public services, such as school funding, should be cut at a time when Oregon’s economy is suffering. Some of them say the public sector should feel the same pain as the private sector.

I believe our economy cannot recover unless we maintain good public services -- especially a high quality school system. If business owners and managers decide Oregon provides a second-rate education, they will locate elsewhere.

That philosophical debate is playing out at both ends of the Capitol. Our negotiations in the House have a parallel group of Republicans and Democrats in the Senate also negotiating over the budget.

Late last week, the Senate negotiators achieved a break-through agreement over a spending level and the revenue needed to pay for it. But before it can be adopted, that agreement must be approved by both the House and the Senate. Finding a consensus is complicated by the fact that the Oregon constitution was amended a few years ago to require approval by 60 percent of the Senators and Representatives for measures that raise revenue, rather than by the normal majority.

August is proving to be a long, hot month in Salem. While many Oregonians enjoy a summer vacation, their legislature struggles on.

The new Evil Empire

There was a brief but absorbing dialogue today on a tax law professor bulletin board to which I subscribe. The good part started when one of my fellow tax profs spoke out against the anti-tax movement, but his thoughts were of broader import. He mused:

There are polls conducted over long periods of time in which people are asked (1) Is the government on your side? (2) Is it captured by special interests? (3) Is it doing a good job?

In 1962, the answers to all three (both posed negatively and positively) were 80% in favor of the government. Only outliers, the silly 20%, were anti-government.

If you ask the same set of questions now, 80% answer the questions against the government and only 20%, old-fashioned folks, are pro-government.

Our social fabric is falling apart, and an ornery stick-in-your-face attitude rules the land. There are countries where the government will do nothing except for a bribe, which tortures its citizens and suppresses its gross national product, that get higher ratings than the US government does. We have replaced our assumption that the extended republic will best protect the rights and interests of the people (Madison) with the assumption that all politicians are corrupt and evil. We have transferred our anger at the evil empire from the USSR to the US. We will cut off its allowance, starve its employees, and strangle it at the root. If you want to know why you get better service from McDonald's than the IRS, it may be because the McDonald's people are getting paid more, both in psychic reward and money. We have seen the enemy and he is US.

(You can see I come from another planet, namely 1962. Those were the golden years.)

The responses were just as interesting, including this one:

None of this is a surprise. My American Civilization professor predicted it back in 1971 (perhaps not as gilded an age but it shone nonetheless). He was the renowned Dr. Anthony N.B. Garvin, and his premise was simply that the nation's culture was becoming overwhelmed by a self-focused absorption.

He died before he had a chance to comment on the materialistic 80s, the opportunistic 90s, and the whatever-we'll-call-it 00s. What little sense of "good for civilization and society" that remains just doesn't have the strength to shift the culture. It will take something far more of a culture shock than what's been transpiring during the past few years. Yes, there are kind, caring, law-abiding, generous people, but most are, as [X] explains, turned off by government that is under the control of a few wealthy and powerful cliques, of all political stripes, and that has lost sight of the Cincinnatus philosophy of the founders. Positions in government, especially the elected ones (and predominantly in the federal and state legislatures), are viewed less and less as opportunity to do civic duty and instead as power objects in and of themselves.

So the tax system is falling apart. It needs to be changed. But protest in the form of rebellion (passive or active) isn't helpful when the protesters offer no alternatives. In my "dialogues" with them I ask them to explain how government and society would work if there were no taxes, or no income tax, and there is no response. None. So I don't view the movement as a reform movement, in or out of the system, but as the "withdrawal from responsibility" that found its modern cultural origins in the protective isolationism of the 50s. So in my "dialogues" I invite protesters to withdraw to some island, create a government, and to invite me to visit when it's up and running smoothly. No response, of course.

Nothing that I see in the Congress, in politics, in the media, in popular culture, in the attitudes of my students, and in the mentalities I saw on my 9000+ mile cross-country driving adventure this summer gives me reason or hope to think anything will change for the better in the near future. I fear that in 2030, if we live that long, we may end up calling the 00s the golden years (and 1962 and 1971 as platinum).

To which another replied:

The relentless anti-tax rhetoric that the public has been subjected to since the infamous Roth hearings and the presidential election that followed greatly exacerbates the problem, as do economic policies that see tax cuts as the solution to every problem. In an environment that vilifies taxation, becoming a tax protester (or purchasing a tax shelter) is simply a do-it-yourself way of achieving the end which the even the president says is good: pay less taxes.

The anti-tax spirit is alive and well at the highest policy levels. For a frightening look at how policy is made and where it is going, I commend to you the interview with Grover Norquist which is featured in the Summer issue of the Tax Section NewsQuarterly, currently in the mail.... Norquist is the president of Americans for Tax Reform, and is thought by many to be one of the most influential men in Washington.

Which brought on:

One funny thing about many people in the anti-tax crowd was brought out in the article in last Sunday's NY Times Magazine about Stephen Moore (who tut-tuts about new spending, but rather indulgently). They appear not to understand basic long-term budget constraints, under which a dollar of added government outlays today, if it doesn't reduce expected future outlays (which more likely it would increase), implies added taxes with a present value of a dollar.

Someone then made a crack about Arnold and Warren Buffett, but it turns out that Buffett himself spoke out eloquently against the dividend tax cut.

Some smart people in this post, folks. It's amazing that I get paid to read what they say.

If they don't win it's a shame

The proponents of building a major league baseball stadium in Portland (which I support) have been doing some maneuvering down in Salem. The old financing bill, HB 3606, has apparently been abandoned, and the new bill is Senate Bill 5.

I think they used the old "gut and stuff" procedure in the House -- odd, but neither sinister nor unusual. They take a bill that's already been passed by the other house, delete its entire contents, insert new contents, and vote on it. If the new version passes the second chamber (here, the House), it then goes back to the original chamber (here, the Senate). At least, I think that's how it goes.

Anyway, the amended Senate Bill 5 has apparently been approved by a committee in the House. Now it has to be passed by both the full House and Senate. The House approved the old baseball bill, and is likely to approve the new. In the Senate? Well, as best I can tell it's war.

The Senate President just labeled that fine legislative body a "disgrace." The governor is threatening to shut down the state unless the legislators grow up. The baseball backers are just hoping that the senators will stop poking each other in the eyes and knocking each others' heads together long enough to say yes to their financing plan.

You can read all about it (and send an e-mail to your state senator!) over at the Oregon Stadium Campaign website.

Egads

It's almost that time of year again.

Already.

Earl for Mayor, not

One reason why I hope my congressman, Earl Blumenauer, doesn't run for mayor is that he's doing a darn fine job in Congress. I kid you not -- he's as good back there as they come.

Just take his view on repeal of the federal estate tax, which is lusted after by the White House and all its neocon buddies. The Republicans have the public hoodwinked into thinking that the "death tax," as they put it, breaks up family farms and businesses. There's not a shred of evidence that it does that.

But what most people really don't get is that this tax affects only the super-rich. As Blumenauer amply demonstrated in a truth-telling floor speech earlier this summer:

I invited a number of tax professionals in my community, CPAs, tax attorneys, financial planners, to come down and talk to me about how the effect of this proposal actually works. It was fascinating, giving these people a grant of immunity, and I urge any of my colleagues to do the same with tax professionals in their community.

They said, number one, under existing law anybody who could not shield at least $5 million of an estate was really guilty of malpractice.

Number two, they said it was not the estate tax that broke up small business. It was idiot sons, and they said in their experience when they watch great inherited wealth after three generations, it looks like it becomes a genetic defect. It was fascinating what they told me, people who in the main were Republicans who work in this every day.

Anybody who's worth $5 million and has been paying income tax of only 15 percent on the living they make off dividends should have their kids chip in some more when they die. And the rest of us, who see 40 percent or more of our hard-earned wages go up in smoke every month, shouldn't.

And that's just how the estate tax works.

Earl gets it, and he knows how to call it. Too bad he's going to chuck the House and re-enter municipal politics.

Breaking news from the IRS

After years of painstaking study, the Internal Revenue Service has just made the stunning announcement that on your birthday, your age increases. Not only that, your birthday is the anniversary of the date on which you were born.

As Dave Barry would say, I am not making this up. Here is the full text of Revenue Ruling 2003-72, which was released earlier this month:

This revenue ruling applies a uniform method of determining when a child attains a specific age for purposes of the following sections of the Internal Revenue Code: 21 (dependent care credit), 23 (adoption credit), 24 (child tax credit), 32 (earned income credit), 129 (dependent care assistance programs), 131 (foster care payments), 137 (adoption assistance programs), and 151 (dependency exemptions).

Each of these provisions allows a credit, exclusion, or deduction to the taxpayer, provided, among other requirements, a child has not attained a specific age. For example, under section 24(c), one of the requirements for a qualifying child for the child tax credit is that the child "has not attained the age of 17 as of the close of the calendar year in which the taxable year of the taxpayer begins."

HOLDING

For purposes of each of the provisions identified in this revenue ruling, a child attains a given age on the anniversary of the date that the child was born. For example, a child born on January 1, 1987, attains the age of 17 on January 1, 2004.

DRAFTING INFORMATION

The principal author of this revenue ruling is Karin Loverud of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this revenue ruling, contact Ms. Loverud on (202) 622-6080 (not a toll-free call).

Thank you, Ms. Loverud, for clearing that up. I will be using your "uniform method" of determining children's ages from here on out.

The IRS's next project will be a five-year study to come up with a method of determining when the calendar year begins.

Warning, technical tax talk

While I've got my nose to the tax grindstone, I note that the Seventh Circuit has affirmed a Tax Court ruling that gifts of interests in a family limited liability company (LLC) did not qualify for the gift tax annual exclusion. Estate planners will doubtlessly spin the decision, Hackl v. Commissioner, as being limited to its extreme facts -- these commentators always have a ready reason why adverse court decisions don't apply to their clients. But I'm not so sure Hackl will be so limited.

One of the arguments the taxpayers made was that the Tax Court's decision threatens to disallow the gift tax exclusion (the ability to make gifts of $11,000 per donee per year without gift tax consequences) for virtually any gift of a small interest in a family entity, such as a corporation, partnership, or LLC. The unanimous Seventh Circuit panel did not seem to have a problem with that prospect. It declared:

The Hackls protest that Treeco is set up like any other limited liability corporation and that its restrictions on the alienability of its shares are common in closely held companies. While that may be true, the fact that other companies operate this way does not mean that shares in such companies should automatically be considered present interests for purposes of the gift tax exclusion. As we have previously said, Internal Revenue Code provisions dealing with exclusions are matters of legislative grace that must be narrowly construed. See Stinson Estate, 214 F.3d at 848. The onus is on the taxpayers to show that their transfers qualify for the gift tax exclusion, a burden the Hackls have not met.

Surely the IRS isn't going to ignore the court's suggestion. You can bet they'll be challenging lots and lots of annual exclusions as a result of the Seventh Circuit's ruling. A nice little loophole for the wealthy may just have gotten smaller.

I can handle rejection

The Trib reports today (with a screaming banner headline) that the City of Portland's bid to buy Portland General Electric has been rejected by Enron's creditors, because the price it was offering was too low. But the city isn't giving up on this pipedream. Oh no, $850,000 isn't enough to throw at this idea. Let's go for another million!

Geez, now even City Commissioner Randy Leonard is growling that the city may have to condemn PGE.

Regular readers of the blog know what I'm going to say. All together now: It's a bad idea! Let it go!

Get out your no. 2 pencil

The special election mail-in ballot that's sitting on most Portland-area residents' kitchen counters is due May 20. At our house, we've already scoped out the candidates and issues, and here's where we're coming out:

Measure 26-48: Yes. Whatever you may think about the waste in government, starving it for funds isn't going to make it any more efficient or rational. If you're unhappy, vote yes for the Multnomah County income tax, and then in upcoming elections vote out all the rascals who are currently frittering away our tax dollars. People really are starving and dying out there.

Multnomah County Education Service District: Janice Gratton. One of her opponents, Ron McCarty, has name recognition, but he's also a bit of a hack.

Portland School Board (all run at large but must live in different districts):

Zone 1: Douglas Morgan. Wisest candidate of the bunch.

Zone 2: David Wynde. Best of the lot.

Zone 3: John Ball. Bobbie Regan would be the second choice, but the activist mom set already has a voice on the board, and it hasn't done us much good so far. Ball has all kinds of government experience, and I mean that in a good way.

Zone 7: Dilafruz Williams. All the smart observers agree.

Or better yet, don't take my word for it. Do a little research and decide for yourself.

Still empty, only bigger

They held a celebration over the weekend to mark the opening of the expanded Oregon Convention Center here in Portland. Beer garden, bands, activities for the kids.

Whoopdee doo.

Today we get to sober up and see that this $116 million project took a largely disappointing facility, doubled its size, and doubled its potential for failure.

We have built it, but the big conventions still will not come. And there's no sign that they are coming any time soon.

Take a look at the list of upcoming events. Are there any on there that could not have been accommodated by the original-sized Convention Center? I don't see any.

So why did we spend nine figures on this project?

The story goes back to November 1998, when voters in Portland soundly rejected a proposal to increase property taxes to pay for this expansion. Immediately the mayor and her spin doctors went to work. In their hearts, they said, the voters want the expansion, but they just don't want to pay for it.

Familiar "reasoning," but obvious nonsense. Many, if not most, of the no votes were not at all convinced that this project was a sound investment of public money. They were saying no expansion, period. And their misgivings were well founded.

The scheme that the mayor and her minions eventually concocted to finance this -- and it also financed another major fiasco, the renovation of Civic Stadium -- was an increase in the Multnomah County hotel-motel room occupancy tax and car rental tax. The tourists and conventioneers would pay for the expansion out of this tax, which increased from 9.0 to 11.5 percent. The "lodging industry" lobbyists signed off, with dollar signs in their eyes. Their out-of-town guests would pay, and the expected tidal wave of convention business would line the hotel operators' pockets.

I get a kick out of Oregon government's cozy relationship with the "lodging industry." Any time the hotel-motel room tax is up for an increase, the patsy politicians sit down with the hotel execs to make sure their feathers won't be ruffled. The state legislature is doing the same thing now over a proposed statewide room tax increase to pay for tourism promotion. Gotta make sure the "lodging industry" is o.k. with it.

The politicians are forgetting that this is Oregon, and things are different here. We have no sales tax. When visitors come here, the hotel-motel tax is the only serious Oregon tax they pay (except maybe for gas for the rental car). If the tourist market will bear a few points on the room tax, then of course that tax should be increased. But there's no reason that the revenue needs to be plowed back into the tourism industry! When I visit New Jersey, New York, Washington, Chicago, I pay beaucoup retail sales tax, and it ain't going to any convention center expansion. It's going to pay for schools, police protection, and basic social services.

The kind we used to have around here.

Rather than sitting down for a seance with the hotel types and promising to spend the guests' tax money on the industry, the state and county ought to just increase the taxes to whatever the market will bear, and use the money for things that really count, and which we so desperately need these days.

And the market will bear a lot. When was the last time you checked the local occupancy tax rates before you booked a hotel room? Exactly, never.

But I digress. To get back to the point, here we are with what was previously a half-empty facility, now a three-quarters empty facility. And a lucrative revenue base has been exhausted to pay off the bonds that financed the expansion. It's a big mistake, and the voters tried to tell the mayor so.

What will it take to save the Oregon Convention Center from financial disaster? This year's spin doctors are blaming the red ink on the lack of a flagship hotel near the site. It would have to be a mega-hotel, maybe 600 or 800 rooms, to draw in the big shows. And, golly, nobody wants to build it.

Shouldn't we have thought of that four years and $116 million ago?

And will anybody ever want to build such a hotel here? I doubt it. I think the hospitality crew is smart enough to see that Portland just isn't going to be a good convention town any time soon.

Why would you bring a convention all the way to Portland, Oregon? Sure, there's spectacular outdoors just an hour away by car, but that's no draw for a convention. Most of those folks aren't willing to drive 15 minutes. Seasoned convention-goers know that you spend two thirds of your time at these things indoors, in meetings, and when you get some free time, it's likely to be for just a few hours. There need to be some dynamite attractions within taxi distance.

What's Portland going to offer in that department? The Pittock Mansion? The Chinese Gardens? The Portland Art Museum? The Public Library? The zoo? Minor league baseball?

It just doesn't add up. They ain't coming all the way from Poughkeepsie to shop at a Nike Town.

Maybe a downtown casino would do the trick. But is Old Dowager Portlandia ready for that one?

Well, at least we kept the architects and construction folks busy for a couple of years. But now the white elephant is all grown up and open for business, and the construction jobs are gone. So is a fair amount of taxing capacity.

Better schedule some more beer gardens.

Good old boys

It's tax time again across this great land of ours, and if you need a break from wrestling with your own taxes, take a look at George W. Bush's 2002 federal income tax return over here (pdf file) and Dick Cheney's over here. They're quite an eye-opener.

The Bushes reported income of around $856,000. They showed wages of nearly $400,000, and a whopping $436,000 in interest income. About $425,000 of interest came from W.'s blind trust, called "the Lone Star Trust." The return doesn't say exactly what that trust has invested in, but I recall reading somewhere that there were quite a few Treasury bonds in there. The end result was a federal tax bill of roughly $269,000 for the year, around 31% of the Bushes' adjusted gross income.

Overall, the Bushes' return isn't very revealing. A personal tidbit: the first couple still claims its twin 21-year-old daughters, Barbara and Jenna, as dependents. That's to be expected with them in college.

The Cheneys' return is more interesting. I remember, when Dick became V.P., how everyone said he was taking such a substantial pay cut by going back to work for the government. That is undoubtedly true, but from the looks of his tax return, old Dick is managing to eke out a living. He and his wife made more than $1.1 million in income last year, plus more than $559,000 of tax-exempt bond interest, and they rolled over nearly $1.6 million in pension distributions, presumably into one big-ass IRA.

Wonder why the Bush administration is so hot to eliminate the income tax on dividends? Check out the $491,000 in dividends on the Cheneys' return. At a top federal tax rate of 38.6%, that cost them nearly $190,000. If the full Bush tax cut goes through, that's another $190,000 a year the Cheneys won't have to pay to Uncle Sam, on top of the federal taxes they already save by investing in tax-sheltered bonds. (In contrast, the Bushes had dividends of only around $24,000. They are apparently way more into taxable bonds than into stocks, tax-exempts or mutual funds these days.)

In the end, the Cheneys wound up paying around $341,000 in federal tax. That's about 29% of their adjusted gross income, not including the tax-exempt bond interest. With the tax-exempt interest counted in, their tax rate was about 20%.

Charitable contributions are another interesting aspect of the returns. The Cheneys gave $122,000 to charity on an income well over $1.6 million; the Bushes, about $70,000 on income of more than $850,000.

Neither couple was subject to the alternative minimum tax (AMT).

The bottom line on the Bushes' form is telling -- they didn't sign their own tax return. It looks like they had some guy from Northern Trust Co. sign for them as their attorney.

It must be nice.

Welcome to our nightmare

The dismantling of government services in Oregon has become so stunning and horrifying that it deserves a weblog all to itself.

I can't bear to do it, and so I'm going to limit my posts on this subject to one a week.

Here is this week's.

Today we read in The Oregonian that the highly effective street detox program known to many as the "CHIERS van" will be lopping eight hours a day off its schedule. From now on, if there's a drunk or junkie strung out on the sidewalk in downtown Portland between the hours of 9 a.m. and 5 p.m., he or she will lie there until the Portland Police Bureau gets around to scooping the poor soul up and taking him or her to jail or to a hospital. The Central City Concern folks, who run the Hooper Detox Center, have had to cut back their humanitarian, and livability-saving, efforts, because their government funding sources are drying up.

You folks out in the suburbs who oppose tax increases, remember that as your kids are stepping over these people on your way to the Rose Festival.

But even worse than that tale are the stories of the people who are dying because of the harsh budget cuts enacted at the state and local levels.

Actually. Literally. Dying. As in, today.

Friday's Oregonian carried a story about a 37-year-old patient at the Salem Hospital Psychiatric Medicine Center who smuggled in a handgun and killed himself, apparently distraught because he was losing his "meds," which had previously been supplied by the state. The dead man, Michael Shay, had his prescription drug benefits eliminated at the end of February. He killed himself March 5.

Then yesterday we read the heart-rending story of a 36-year-old seizure sufferer who lost his state-supplied anti-seizure medicine at the end of January. Eight days after his supply ran out, he suffered a massive seizure and was hospitalized. As of the weekend, Douglas Schmidt was unconscious and in critical condition at Legacy Good Samaritan Hospital in Portland. A television story I saw last night said that his kidneys were failing, and that his family was preparing to end life support.

There's plenty of blame to go around for this. Right-wing members of the legislature who are determined to stick it to Portland -- they refuse to fund public services if it means a few hundred bucks a year from their backwoods constituents, who have lazily neglected to retool their own local economies. Their sage wisdom in this time of life-and-death crisis: "They stole our timber money." Also at fault are the cul-de-sac suburbanites from the outskirts of Portland who quietly support the same backward policies. And the governors, both new and old, who, when it has come to proposing a workable solution to these funding problems, have had nothing to offer.

To a large extent, all of us Oregonians are to blame. All of us. As Richard Harris of the Hooper Detox Center described it in today's paper, we have landed on Planet Stupid.

It's worse than that, Richard. We are living in shame.

What can be done? Let's leave that one for another day. For now, let me just say, Plenty. But it takes guts, which neither the politicians nor the voters of Portland and Oregon are showing any of.

Eve of destruction

The Beaver State is in trouble, and I mean real trouble.

Its court system is falling apart.

Remember what was said in your eighth grade civics course: Without three independent branches of government, the American Way won't last. "Checks and balances" are essential to the functioning of a democratic republic -- sound familiar?

In Oregon, the phrase may soon become a historical footnote. Consider the three different sets of threats to Oregon's judicial branch, all now rearing their ugly heads at the same time:

1. Starvation for funds. The Oregon courts are broke. They've laid off several dozen workers in the last year, and attrition accounts for dozens of additional lost positions. The county courthouses throughout the state are now closed every Friday for lack of funds. Courts are refusing to hear cases against those charged with property misdemeanors, because they don't have the resources to process the cases. That's probably o.k., because most county prosecutors don't have staff to handle the cases, either. And funds to pay lawyers to represent the poor in criminal cases was cut off, and then reinstated at a puny level.

I kid you not: If you're busted for burglary, shoplifting, car prowling, or prostitution in Oregon today, you will be arrested and released. Your first court date will be July 1 (when the next budget year begins), or later. That's four months from now. It sounds like science fiction, but it's the unfortunate reality.

The funding picture may change come the new state fiscal year that starts on July 1, but don't count on it. The outlook for the two-year budget cycle that begins on that date is not good. Four-day-a-week trial courts and amnesty for thieves and prostitutes may become permanent fixtures in Oregon.

2. Issue-oriented, political campaigns for judgeships. Oregon is one of 39 or so states in which judges have to run for re-election. Their terms are for only six years, not for life as they are in the federal courts. Current Oregon rules forbid judicial candidates from running for office based on promises of how they will rule on particular issues. The idea is that judges should be elected on the basis of their character, intellect, and integrity, and not financed and promoted by special interests looking for favors from the bench.

All that is about to change. The U.S. Supreme Court just last June struck down Minnesota's rule that limits what judicial candidates may say during their election campaigns. By a vote of 5-4, the High Court said the state's rule impermissibly restricted the candidates' rights to free speech. That rule banned judicial candidates from announcing their views on political and legal issues likely to come before their courts.

The Supreme Court ruling may sound good at first, but it isn't. The idea of having three branches of government is to have them balance each other off. If judges can run on issues, they will become nothing more than another legislature, jumping at every gyration in the opinion polls. Electing judges at all is a risky business. The Founding Fathers knew this, which is why federal judges -- including the U.S. Supreme Court justices -- are never subjected to a popular election, the way they are in most states. Allowing candidates for the bench to make promises to voters about how they will rule will be fatal to the whole checks-and-balances system.

The Supreme Court's dimwittedness on this issue is nothing new. Its controversial 1976 decision that campaign contributions are "speech" protected by the First Amendment has led to the intractable campaign finance mess that we face as a nation today. And under the Supreme Court's jurisprudence, there is no way out. Money talks in America, and its right to do so is guaranteed by the Court's reading of the U.S. Constitution.

Now the special interests also have been given a constitutional right to run candidates for judgeships who will publicly bow to the campaign donors' wishes. How unwise. If you thought previous Oregon judicial elections have produced some bad results, wait until you see what happens under the new Supreme Court decision. Imagine a State Supreme Court with seven Ed Fadeleys on it. It will be here within a decade or two.

3. The constant drone of anti-judiciary ballot measures. Last fall voters statewide rejected two ballot measures that would have hurt the state's judicial system pretty badly. One would have required that all candidates in judicial elections run against "none of the above," and if "none" won, the judicial position would remain vacant unless and until someone eventually beat "none" at the polls. The other measure, less pernicious but still highly disruptive, would have required the appeals court judges in Oregon to be elected by district. For the first time, every region of the state would be legally guaranteed to get a State Supreme Court justice, even in eras in which the most qualified candidates for the job might hail from elsewhere. "None of the above" was defeated pretty handily, but the districting almost passed (and probably would have if its companion measure had not dragged it down).

The campaigns for these ballot propositions were particularly nasty. Proponents of the measures, which were largely bankrolled by one rich, angry right-winger, pulled no punches in attacking the state's judges. They blamed them for all kinds of societal ills, including decisions made by federal judges regarding the Pledge of Allegiance and Klamath Basin water rights. The Oregon jurists, of course, were not organized, wealthy or brazen enough to buy ad time in their own defense. And although the state's lawyer organizations opposed the ballot measures, they didn't make much of a splash. Many attorneys are afraid to speak out in ways that might alienate their clients.

Unfortunately, the bad ballot measures will be back. For example, Sen. Ted Ferrioli, R-John Day and already nominated by me for Nitwit of the Year honors, will apparently push another districting measure onto the ballot, and who knows? Perhaps this time it will pass. And we probably haven't heard the last of "none of the above," either, not to mention other ill-advised ballot measures to which voters are likely to be subjected regarding the state's justice system.

The clear thrust of these measures has been to destabilize the courts and politicize judicial elections, and combined with the U.S. Supreme Court decision, they are as dangerous as dynamite.

In sum, it doesn't look good for the judicial branch in our fine state unless the average person gets moved off his or her couch, and soon. If we want democracy here, we need to (a) push for better funding for the courts; (b) reward judicial candidates who take the high road in campaigns, and punish those who run on particular issues; and (c) fight the ballot measures that will continue to threaten the vitality of the judicial system.

The courts of Oregon have been functioning just fine until now, and they certainly don't need these horrible changes. Quite the contrary.

Can I get a witness?

Only the little people

Last month I used this space to take a look at President Bush's proposal to stop imposing the federal income tax on dividends that Americans receive from corporations. I noted then that this change could be the beginning of a gradual shift away from an income tax and toward a wage tax. My comments included this:

The President says dividend income shouldn't be taxed. Maybe if he gets re-elected, next term he'll say interest shouldn't be taxed, either -- bonds should be treated the same as stock. Sounds plausible. Then the real estate lobby jumps up, and the next thing you know, rents aren't taxable income, either. The oil and mining folks grease a few campaign palms, and before long royalties are exempt, too. Somewhere in the shuffle, the tax on capital gains, already very low, and the tax on other income from property sales can be dispatched as well.

At that point, the only kind of income that will be left to tax is income from labor. Now that's a hot dream for the GOP.

Well, I was wrong about our fearless leader. He does not in fact plan to switch over to a wage tax eventually.

He plans to switch over right away.

Last week, just before we all had our attention spans confiscated by the Columbia disaster, the White House released a tax proposal that was labeled an expansion and simplification of the IRA rules. The proposed tax law changes would do those things, all right, but they would do much more. They would create new types of savings account called "lifetime savings accounts," or LSAs, and "retirement savings accounts," or RSAs. The new LSAs wouldn't have to be used for retirement; they could be used for any purpose, and their tax-free nature would still prevail. With RSAs, the money can be spent freely as soon as the taxpayer reaches the ripe old age of 58.

In effect, these changes would forgive the income tax on many different kinds of income from property. As one analysis explained it:

The new program would allow individuals to sock away up to $15,000 of their after-tax income each year into two separate accounts, with no taxes on any earnings from their savings. Each year, the maximum contribution would rise with inflation. All of the money in the new Lifetime Savings Account could be taken out at any time tax free, while the money set aside in the expanded Retirement Savings Accounts would remain saved until age 58, except in cases of death or disability.

"That's going to take care of almost everybody's saving," said Gary V. Engelhardt, an associate professor of economics at Syracuse University. Except for the wealthiest families, the $30,000 that a married couple could put aside every year would be more than enough to cover what they can afford to save. "Effectively all your saving is going to be sheltered," Engelhardt said.

If Congress were to pass the Bush plan, here would be the new scorecard: Dividends wouldn't be taxed at all any more. And neither would rent, interest, capital gains, or royalties, so long as the real estate, bonds, CDs, bank balances, or other income-producing assets are held in the new accounts. Taxpayers would be permitted to add $15,000 a year of new assets to their LSAs and RSAs, so that after 20 years of lifetime saving, the balance would be $300,000, plus the earnings on that balance as it grew over the 20 years. At 5% return, a 20-year investment plan like this would result in a tax-free account of about $496,000. At that point, the account would generate nearly $25,000 a year of tax-free income if earning 5%. That may not be enough to live off, but combined with unlimited tax-free dividends on stocks, of course it would be. (Note that the contribution limits would be increased each year for inflation; the numbers here are in constant 2003 dollars.)

For a married couple, the numbers would doubtlessly double. So after 20 years the balance would be around $1 million, and the tax-free interest, rents, capital gains, and royalties would run nearly $50,000 annually. Plus all the tax-free dividends you can eat.

Leona Helmsley once went to jail for her belief that only the little people pay taxes. Under the Bush plan, her distorted view would become the law of the land. Those who can afford to sit back and live off their investments -- corporate stocks, and other assets in the LSAs and RSAs -- would pay no federal tax whatsoever. Meanwhile, people who have to work for a living will continue to be taxed twice -- first under the income tax, and second under the Social Security tax.

"Saddam is the devil!" Bush tells us. "I weep for the brave astronauts!"

Hey, I've got one hand over my heart saying the Pledge of Allegiance, "under God" part and all. But with these guys running things, unfortunately you have to keep your other hand on your wallet. They are bold thieves, indeed.

What to do

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