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Legislative Report 6-05
April 1, 2005
The “80-20” Rule
Many years ago a graduate
student at the Harvard School of Business offered an interesting marketing
theory that has become known as the “80-20” rule. Simply put, the rule
states that 80% of a business’s revenue will come from just 20% of the
market. Interestingly, the 80-20 rule seems to apply to many other aspects
of our society in addition to marketing.
My experience, for example,
tells me that 80% of the work of almost any organization is usually done by
just 20% of the members. Think about your church, your club, or your
community service organization and see if you don’t agree.
The 80-20 rule also applies
to taxes: 80% or our tax liability is paid to the Federal government with
just 20% of our tax liability being paid to the State.
The last time the Oregon
Legislature engaged in a full review of the Oregon income tax code was
during the 1987 session – nearly twenty years ago. At that time it was
decided to tie the Oregon tax code to the Federal code, wherever prudent, to
simplify the filing process. Since then, however, the Federal tax code has
been amended significantly and the Oregon code has simply tagged along. For
the most part the Federal code has eliminated certain areas from tax and
reduced the tax rate for many others. Some would argue that a small
percentage of Americans, say 20% or so, have benefited from recent changes.
Of course, if Federal tax receipts are less than the Congress chooses to
spend, the result is deficit spending – something not permitted by the
Oregon Constitution.
I haven’t counted the
votes, but I would expect that a significant number of my colleagues would
agree with me that it is time for the Legislature to again undertake a full
review of Oregon’s tax code and perhaps even disconnect from the Federal tax
code in many areas. In fact, I wouldn’t be surprised if at least 80% of my
fellow legislators didn’t agree with me. The political reality,
unfortunately, is that any change to the tax code will result in some paying
less than they do now and some paying more. People who subscribe to the “No
New Taxes” logic will oppose any increase in anybody’s tax bill even if the
overall system is simpler and fairer for the vast majority.
Some have predicted that a
full review of the Oregon income tax code could benefit 80% of Oregon
taxpayers, while perhaps 20% would pay more. Politically, that application
of the 80-20 rule just isn’t going to fly.
As always, I look forward to your thoughts and comments.
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