It was New York Times reporter David Cay Johnston’s 2003 book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich And Cheat Everybody Else, that got Tax Fairness Oregon started. After reading a synopsis, we invited Johnston to speak in Portland. During his presentation we collected contact information for people who wanted to work on tax loophole and enforcement issues. That group became Tax Fairness Oregon. Johnston has spoken in Oregon nine times, most recently in April of 2008. He has met informally with state legislators and other leaders. He provided some of the stimulus, not only for our group, but also for new tax enforcement legislation to close Oregon tax loopholes.
At Tax Fairness Oregon, we “Read the Bills and Follow the Money,” working to promote a tax code and spending priorities that serve the common good.
Facing the projected huge budget deficit for the 2017-18 period, our approach during the 2017 legislative session had to be this:
- protect current education and social services,
- support reductions in spending and curtail tax giveaways,
- support a broader and more balanced revenue stream.
There was simply no money for new tax breaks and unfunded expenditures, even some we would otherwise have supported as serving the common good, such as encouraging low income parents to save for college, fully funding Outdoor School, and enhanced vocational training. Repeatedly, we used nearly the same “there’s no money.”
NO FREE MONEY
TFO proposed a bill designed to remove the existing financial incentive for companies – like Comcast – to appeal their large property tax bills. Six companies currently have $158 million in outstanding property taxes which they get to keep and use until their court cases are final. HB 2407, signed by Governor Kate Brown, requires up-front payment and puts the taxes into an escrow account while court cases proceed. Businesses will no longer get free use of the money for years.
INDUSTRIAL SITE READINESS
Another success: while we disagree with the premise of the Industrial Sites Readiness program which has taxpayers paying for the streets and sewers of new industrial business developments – we did successfully increase the integrity of the bill. The original version SB 333 removed all wage requirements for the jobs created at these sites.
We called foul on eliminating the wage requirements and got new ones added which require higher wages than the original requirement! The bill has been signed by the Governor.
SPECIAL SPENDING FOR WINE BUSINESS
Our work on SB 316, which would have given three million taxpayer dollars every two years to the flourishing wine industry for “research and promotion,” reduced it to a one-time gift of half a million. And reductions elsewhere in the budget effectively made this a one-time $250,000 allocation.
TAX HAVEN NO MORE
HB 2191 seeks to curb use of Oregon’s business registry program as a Tax Haven, a bill we wrote you about months ago, calling for Oregon’s end as a Cayman Island. Our business registry requirements are so low that hundreds of businesses were registering to one address. We don’t like that the provision to disclose the principal owners of a business was stripped from the bill. But this was a big step in the right direction.
THE RESEARCH AND DEVELOPMENT and THE FIRE INSURANCE TAX CREDITS DIED
Continuing the R&D tax break would have cost an estimated $15 million a year, and there is no evidence that it increases R&D work in the state. New companies can’t use it, since they generally aren’t profitable and therefore don’t pay taxes. Excellent testimony by John Calhoun helped kill this tax break along with the words of another businessman saying his business would do nothing different without it. TFO research by Rachel D’Sa on the Fire Insurance tax credit put that unnecessary tax break to rest saving an estimated $1.4 m a year.
THE NEW MARKET TAX CREDIT PROGRAM DID NOT RETURN
Though killed last session, the advocates who love this program because it lines their pockets while pretending to help the poor were challenged by TFO and Marcia Kelley of the Oregon Women’s Rights Coalition when they tried to re-start the NMTC program. Their “catch” this session was helping with low income housing. We argued – successfully — that there are far, far more efficient ways to do that.
LIMITING THE MORTGAGE INTEREST DEDUCTION TO LOWER AND MIDDLE INCOME HOMEOWNERS FAILED
We started the session with the hopes that mortgage interest deductions would be income-capped at the top, eliminated for second homes, and the money saved used to help first time homebuyers, those unable to stay in rentals, and the homeless. Despite a strong coalition and exceptional legislative effort, the idea disappeared in favor of the tenant protections bill, which also ended up failing. The realtors associations spent half a billion dollars working against the bill. But we’re not quitting – the coalition met this week to discuss plans to address the housing issue in future sessions.
THE TAX BREAK FOR BUSINESS OWNERS LIVES ON
Even HB 2060, a bill to end the crazy-making tax break left over from the failed 2013 “Grand Bargain” that gives “pass through” business owners a lower tax rate than the rest of us, failed. The last “dead” version of HB 2060 would have sent an extra $196 million to the General Fund, enough for two weeks of school.
THE GIGABIT TAX BREAK ALSO REMAINS ON THE BOOKS
HB 2770, the Gigabit Tax Break control bill, would have eliminated a tax break originally designed for extra-fast broadband services. These services are part of a mature business market and something that competitive services will need to provide regardless of tax incentives. TFO feels that Oregon should not try to interfere in basic market drivers. Unfortunately, this bill failed to leave committee in the waning days. It would have saved $30-$40 million.
THE CORPORATE TAX INCREASE BILL – aka “THE CAT,” FAILED
Of course, the biggest disappointment was failure of corporate tax reform. The CAT (Corporate Activities Tax) was the idea with the strongest chance of winning, but the votes weren’t there. TFO supports the basic concept of a broad source of revenue that will restore the taxes-paid balance between individuals and corporations in Oregon. This bill was complex and much of the negotiation was done behind closed doors, thus limiting TFO’s ability to directly comment.
We suggested back up plans in case the CAT’s gross receipts tax failed. Either changing the structure of the Corporate Minimum Tax or increasing business property taxes, could have brought significant revenue, but these measures were also lost in the unsuccessful CAT-fight to create a new revenue stream.
SEISMIC UPGRADES TO PRIVATELY OWNED BUILDINGS WILL BE AT PUBLIC COST
School kids and fire departments will lose funding so private property owners can get property tax breaks for making seismic upgrades to their buildings because the legislature passed SB 311. Of course, maintaining your properties is a normal responsibility for owners of commercial properties, but not if you can convince the legislature, Governor and local city leaders that the costs should be recovered through property tax exemptions.
THREE REVENUE INCREASES!
Last week the Governor signed SB 936, which increases property taxes for any big businesses (think data centers and wind farms) that get the preexisting property tax advantages of the Rural Strategic Investment Program (SIP). This is one of only three bills that passed this session that actually increase tax revenue.
The other revenue measures that passed are the Transportation Package and the Hospital and Insurers Providers Tax. The latter succeeded because hospitals realize that increases in funding for health care will both reduce the use of emergency services which are far more costly than preventative, non-emergency care, and bring in more Federal dollars, which is particularly needed in rural areas. This may be challenged by some members of the minority Party in a special election in January 2018.
UNFORTUNATELY and FORTUNATELY – SUNSETS AND OTHER FINAL ISSUES
The tax credits sunset/review process was established by the 2009 legislature. Most existing credits have a six-year sunset. Roughly one-third of the credits are reviewed during each long session. The process culminates in an omnibus tax credit extension/modifications bill (HB 2066) coming from the Joint Tax Credit Committee in the final hours of the session. The bill included nine different tax credit issues.
- Several tax credits will not continue, since they weren’t mentioned in the bill—including the fire insurance and research and development tax credits mentioned above.
- Extends the affordable housing lenders credit and increases the cap,
- Extends and modifies well the rural health provider credit WITH significant restrictions that limit its duration and focuses on lower revenue medical providers,
- Extends the fish screening and reservation enterprise zone credits and
- Modifies and caps the manure digester credit.
- Makes permanent the stipulation that no tax credits can be used to offset Oregon’s Corporate Minimum tax.
UNFORTUNATELY, several Not-So-Good changes were also made:
- Changes were made that reduce the pay requirements for five different business tax credits, at most of our 5-year and 15-year enterprise zones. While there is a nod to our recommendations – pay can’t be less than the county average pay when Oregon hands out tax breaks – the compensation requirement dropped from 150% to 130% – this is an issue we will continue to work on.
- Early in the session, someone masterminded getting the sunset for the film industry’s labor rebate program extended six years, and its value to the industry increased by $5 million a year – all without being part of the tax credit review process! HB 2244 absolutely should have been part of the full review process.
Also unfortunately, Legislators were convinced that public funds should be used to help farmers continue farming and pay for succession planning when passing on their estates. We objected to HB 3249 on the basis of fairness since other business sectors do not get this “perk.”
Transparency saw only so-so improvements in the 2017 session. The bill asking Business Oregon to report on how it will do a better job of evaluating and providing transparency about its supports for business got watered down as did a bill looking at the 500 exemptions from public disclosure in Oregon’s laws. But at least something passed, so there’s work to be done going forward on three transparency bills: HB 3377, HB 2101 and HB 2191.
2012 Legislative Session
Tax Fairness Oregon’s focus during the February five-week session was defensive: fighting tax breaks for the wealthy and improving or else killing bills that were excessive. We succeeded in killing three bills, vastly improved another and saved the state from giving away more than $10 million.
ConnectOregon, a grant program for non-highway transportation projects already had $40 million in the budget. The legislature was set to add another $10 million whenWillamette Week slammed Connect Oregon for the millions that had been given to Union Pacific. Partnering with Representative Jefferson Smith we successfully lobbied, testified, and got TFO members to lend their voices. The $10 million was left available for more critical state services.
Because its effects might have become far reaching, we stopped a bill designed to give special property tax consideration to nine homeowners.
Rep. Alissa Keny-Guyer quickly withdrew another bill after a discussion about how its good intentions would cost money, make our tax code more complex, but be unlikely to have any effect on desirable behavior. A bill to create new lottery games with proceeds dedicated to a special program didn’t move forward after Tax Fairness Oregon’s testimony.
But it wasn’t all success. Despite our testimony, lawmakers added more and larger enterprise zones, hoping, as they always do, that tax breaks will create businesses. And we didn’t stop a bill that provides a second way to reimburse the few ranchers who have livestock killed by wolves.
One day we took humor to the Capitol. When the House Revenue Committee held a hearing on a short-term capital gains tax cut, two of us dressed up as the 1% the bill would serve. Our antics disturbed some committee members, but merited a picture in the Oregonian. Our tongue-in-cheek testimony was partnered with excellent, substantive testimony by others, including John Calhoun of the Equity Alliance of Oregon.
March through December of 2012 was devoted primarily to two issues: retaining the Oregon estate tax and studying ConnectOregon
Measure 84 was Kevin Mannix’s effort to eliminate Oregon’s estate tax. TFO joined with Defend Oregon and others to defeat Measure 84 and retain Oregon’s estate tax. We contributed research, understanding of the huge benefits already awarded farm and forest families in Oregon’s estate tax law, and a PowerPoint, and talking points. We debatedKevin Mannix on six occasions, and spoke to groups in several communities. We started a separate PAC, Vote NO on 84. At the PAC we created a banner big enough to use on street corners and in rallies, distributed bumper stickers, prepared three Oregon Voters Pamphlet statements, two of them sponsored by wealthy Oregonians and by lawyers and CPA’s urging No votes on 84. The Measure 84 fight dominated the TFO website, Action Emails and Facebook postings leading up to the November election. After the second debate, Mannix no longer even mentioned his research that claimed ending the estate tax will create jobs. He knew we’d slam it for its lack of academic rigor. Measure 84 was defeated with 54% of the vote.
TFO has been investigating ConnectOregon—the state multi-modal non-highway transportation project that supports freight, ports, airports and businesses by providing grants to public entities and private businesses. Though designed as a loan or grant program, so far, except for one loan, $340 million has been given away. The share going to private businesses has increased from 29% to 45% of total funds. TFO volunteers read grant applications, attended meetings where allocation decisions were made, and talked with both applicants and decision makers. We found a layered but shallow process funding some projects of little public worth. For example $600,000 went to a small, privately-owned but publically available airport in Sisters serving three planes a day, M-F and a dozen more on weekends, with two other airports available within 22 miles. The Governor’s budget for 2013-15 commits $95.3 million to pay off principal and interest on the $340 in bond funds committed to ConnectOregon over the last four biennia and seeks $60 million to fund new projects in the 2013-15 biennium. We came to believe that significant changes should be made to ConnectOregon and have begun meeting with key legislators.
2011 Legislative Session
Tax Credit Review. In the 2011 legislative session, Tax Fairness Oregon was primarily focused on reviewing business and special interest tax credits that were up for renewal this year. In evaluating tax credits, we use criteria recommended by the 2011 Joint Committee on Tax Credits:
- What is the public policy purpose of the tax credit?
- Who benefits?
- Is using a tax credit the most effective and efficient way to achieve this goal?
- What is the expected timeline for achieving this goal?
- How could the credit be modified to be more effective and efficient?
- What is expected to happen should the credit expire?
- Could adequate results be achieved with a scaled down version of the credit?
We worked in concert with Defend Oregon to retain the tax increases adopted by the legislature, in the face of the campaign by Oregonians Against Job-Killing Taxes.
The Governor vetoed the Business Energy Tax Credits (BETC) bill. We supported a legislative override. Efforts included press contacts, op-eds, letters to the editor, appointments with legislators and collaboration with environmental groups.
We evaluated a number of legislative concepts on the horizon and explored how to fight the bad ones. Other committees polished good ideas to be pushed forward in 2010. We built stronger relationships with allied organizations and legislators. We also added to our roster of wonderful volunteers who are available and ready to lobby and testify in Salem, and sought experts with experience in business, taxation, and economic policy.
The Federal estate tax was a high priority at the time and was finally reinstated–albeit more weakly than we would have liked–with the passage of a tax cut package at the end of 2010.
The 2009 Legislative Session
Again we were in the capital daily. We evaluated specific legislation and lobbied to put our viewpoint forward on numerous bill. We initiated legislation on the Oregon estate tax which did not move. We worked hard to ensure corrections to Oregon’s Business Energy Tax Credits, where we had legislative success. With others, we advocated and won an increase in corporate taxation and a new tax bracket for Oregon’s richest to help both in the current recession and in the future.
We were also able to stop the expansion of the wasteful New Market Tax Credit. The New Market Tax Credit would have brought subsidy of some buildings up to 78% of the cost of the building that would then be owned by private parties. In 2009, we were successful in stopping this legislation from being passed.
The federal Economic Stimulus Act of 2008 also contained a provision giving a tax break to (predominantly large) businesses buying new equipment. The enacted method of “bonus depreciation” allows business owners to claim a tax deduction of 50% of the cost of any equipment purchased. In 2009, after lobbying hard for nearly two years, we convinced the Oregon legislature not to go along with bonus depreciation–saving the state an estimated $90 million.
2008 Legislative Session
In the February 2008 session we had daily presence in the capitol. We worked to strengthen the Business Energy Tax Credit bill, to stop efforts to weaken the non-resident withholding and estate tax bills passed in the 2007 legislature, and to disconnect Oregon from the Bush bonus depreciation portions of the economic stimulus package. Largely because of our effort, the Senate Revenue Committee successfully sponsored a bill directing the Department of Revenue to study the Oregon Tax Gap and propose efforts to close it significantly.
Along the way we’ve spoken up on issues of the Oregon Lottery dealers commissions, tax reform, the corporate minimum tax, the beer tax, the budget, new authority for the Department of Revenue, the estate tax, pollution control tax credits, and energy tax credits. Not all our work has been at the state level. We’ve met with congresspersons and their staffs as well, discussing the tax gap and ideas for shrinking it at the federal level, and we’ve worked to retain the federal estate tax.
In the summer of 2007 we contributed to the regulation-writing process for the new non-resident real estate sales law.
2007 Legislative Session
The 2007 legislative session was more fruitful than our first foray into legislative action. Two bills we vigorously supported passed: one dealing with abusive tax shelters, the other a successful move to bring non-resident sellers of real estate into tax compliance. However, those bills were weakened by lobbyists for poor tax policy. U.S. Bank and Con-way Trucking lobbied successfully to strip parts of the abusive tax shelter bill and title companies fought against non-resident withholding. 2007 was also the first year we testified that the Business Energy Tax Credit was too generous. The legislature was not looking at the overlap between the BETC, Federal subsidies and depreciation; we brought their attention to it.
2005-2006 Interim (between sessions)
Between sessions we interviewed candidates for open legislative positions. Having formed a Political Action Committee, we donated to candidates we endorsed. In addition we met with current legislators and the governor’s office while maintaining contact with the Department of Revenue. We sent a member to national conferences of the Federation of Tax Administrators, gathering successful tax enforcement ideas from other states.
2005 Legislative Session
In the 2005 legislative session we began talking about the Oregon Tax Gap. The Tax Gap refers to what taxes are legally due, but not paid. Our first estimate of Oregon’s Tax Gap used IRS statistics and applied them to Oregon tax revenue. We reported that 20% of taxes owed, or $1 billion, go uncollected each year because tax law is not voluntarily followed by all and not enforced for all. A more recent analysis in 2006 places the tax gap at $1.5 billion a year, $44 million of that in unpaid capital gains taxes.
Representatives Greg Macpherson and Mark Hass each sponsored a tax enforcement bill. The two bills were combined into SB480 and sailed through the Senate Revenue Committee, passing easily on the floor. But when it got to the House Revenue Committee, suddenly lobbyists appeared. Bankers and truckers fought the provisions to close down abusive tax shelters while title companies fought the collection of estimated payments from out-of-state sellers of Oregon real estate. The Department of Revenue worried about a possible legal backlash to listing on the Department of Revenue’s website folks who are delinquent in their taxes, despite the fact that numerous other states successfully do this. Others sabotaged the bill with concerns that something was wrong with asking that individuals who have Oregon professional or occupational licenses issued by the state be cross-checked against tax filers to make sure they were voluntarily paying taxes.
The bill was damaged significantly with amendments in the House, and died in the reconciliation committee in the closing days of the session. While it died then, piecemeal tax compliance provisions have passed in every session since–most of which were in the 2005 bill. In a recent report to the revenue committees, the Oregon Department of Revenue demonstrated great success with a pilot program enacted by one of these provisions in 2009 which required tax compliance for several types of licenses. The program showed a 24 to 1 return on investment–meaning that for every dollar spent, twenty-four dollars in tax returns were received.
Despite the defeat in 2005, there were lessons learned and Tax Fairness Oregon established itself in that session as a credible organization, with accurate, well-researched and principle-driven legislative concepts.
Tax Credit Evaluations and Testimony
Below you will find our recent research, evaluations and testimony on tax credit legislation:
- General recommendations.
- Tax Expenditure Reform
- HJR 18, HJR 19, HB 3008, HB 3009 — Addressing tax expenditure sunsets, voting requirements, caps and reductions.
- Business Energy Tax Credits (BETC)
- BETC Recommendations — Our proposals for improving the BETC program.
- BETC Database — Detailed BETC spending information from January 2000 through January 2011, organized by project type and business name. A summary of overall spending during the time period is also included.
- State Energy Loan Program (SELP) Database — Another energy incentive program that provides low-interest loans to businesses for energy related projects. Includes loans closed between 2001 and 2010.
- Residential Energy Tax Credits (RETC)
- Research and Development Tax Credits (R&D)
- HB 3174 — Extending tax credits for research and development activities.
- Economic Development Programs
- SB 817 — New program to encourage job creation providing tax credits for investments (loans or equity investments) in low income districts
- Environmental Incentive Programs
- SB 319/HB 3170 — Extending tax credits for purchase of new diesel engines and repowering and retrofitting of old diesel engines.
Testimony on Other Issues
Other issues we have been addressing in the 2011 legislative session include tax enforcement, transparency, the capital gains tax and new incentive programs. Below you will find our testimony on legislation related to these issues:
- Capital Gains Tax
- SB 8, 336, 625, 714, 715, 824 & 883 — Providing reductions in capital gains tax.
- Odd Bedfellows – Kicker Reform and Capital Gains Reductions – SB 883 and SB 625, capital gains cuts contingent upon kicker reform.
- Capital Gains and the Kicker, Biennia Data and Analysis
- Letter to Rep. Vicki Berger — Volunteer Del Diebig wrote this insightful letter on capital gains to Rep. Berger.
- HB 2825 — Requiring information on tax expenditures to be posted on the Oregon transparency website.