It's only fair

One of the small but significant steps Congress has taken this year to help Americans weather the recession is to exempt the first $2,400 in unemployment benefits from the unemployed worker's federal income taxes for the 2009 tax year. Oregon lawmakers should do the same for the state income tax.

At the beginning of the 2009 session, the Oregon Legislature passed a bill that requires legislative action before changes in federal taxable income rules are effective in Oregon. That means that for 2009, the first $2,400 of unemployment benefits are not subject to federal income tax but will be taxed by Oregon.

State Sen. Jason Atkinson, R-Central Point, has introduced a bill to apply the federal exemption to Oregon income taxes. Senate Bill 975 makes sense for several reasons, and it should be enacted.

Unemployment benefits are an important safety net for workers who lose their jobs, especially when the economy is in a downturn and jobs are difficult to find. Those benefits are less than workers were earning while employed, but a great deal better than nothing. For the state to treat those benefits as taxable income leaves workers with even less to live on.

Because an unemployment check is smaller than a paycheck, it is virtually certain that every dollar of it will be spent, and spent quickly, on necessities such as food, clothing and shelter. That puts the money directly into the economy, which is especially beneficial during a slowdown.

Atkinson's bill does carry a price tag. The Legislative Revenue Office estimates it will cost the state $29 million in lost revenue.

But the measure is temporary — it applies only to the 2009 tax year. And the cost could be reduced by applying the exemption only to low- and middle-income taxpayers.

The Institute on Taxation and Economic Policy, a nonpartisan, nonprofit research organization, estimates Oregon could reduce the cost of Atkinson's bill 13 percent by limiting the exemption to the bottom 80 percent of household incomes — those below $82,100.

In an ideal world, unemployment benefits would never be taxed. In the world as it is, they are, and any loss of revenue from one source must be made up from another revenue source or by reduced spending.

But even the full $29 million is less than one-quarter of 1 percent of the state general fund budget. It's a small but significant gesture to the thousands of Oregonians who are unemployed.

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