Our legislators sent wrap-ups touting their many successes among their various priorities. We considered 2021 a wasted opportunity to address gaping inequities in Oregon’s tax code. With the federal government shipping hundreds of billions in cash across the country, our State reps had no appetite to limit tax giveaways to the wealthy, especially because they knew the GOP minority could walk at any time (and they did, repeatedly). The intransigence of the minority and their allies in the business lobby was on display in the revenue committees, where the alleged representatives of corner stores mounted letter-writing campaigns on behalf of their true paymasters. On the other hand, we were able to defeat most bills that would have shoveled even more millions in state revenue to the richest Oregonians. Here are some highlights.
Pass-through Tax Regime – A PARTIAL WIN
Since 2013, most Oregon pass-through business owners (sole proprietors, partnerships, LLCs, S corporations) have paid tax rates about two percentage points lower than wage earners. These business owners pay taxes only at the individual, not corporate, level; their profits “pass through.” We presented an analysis LINK demonstrating that the 2% differential (which costs $100 million a year) was too little to change any business owner’s behavior, much less hire one additional employee, and urged repeal of the whole regime.
Senate Finance Committee Chair Ginny Burdick, who announced her plan to resign after the session, worked with Republican-turned-Independent Brian Boquist on a compromise that eliminated benefits for pass-throughs with income of more than $5 million but lowered rates for taxpayers below that threshold. (Many Democrats still buy the Reagan myth that lower taxes create jobs.) We supported passage of SB 139 (which saves about $30 million a year) as a step in the right direction. Once wealthy owners no longer benefit, the business lobby’s defense of it may diminish – because those groups don’t actually represent the small businesses they claim to represent. Boquist told his colleagues that any small business they might cite would benefit from the bill, yet most Republicans still voted against it in the wake of opposition from Oregon Business and Industry (OBI) and the National Federation of Independent Business (NFIB) . A similar dynamic characterized House passage.
SALT Deduction – A LOSS
After Congress limited the state and local tax deduction to $10,000 in 2018, states began trying work-arounds. The Trump administration’s Treasury Department gave the thumbs-up to a New Jersey law that created an alternate regime for pass-throughs, effectively allowing their owners (but no one else) to use an unlimited deduction of state taxes on their business income. When Chair Burdick brought a copycat provision to committee, we testified that it could be manipulated by sophisticated taxpayers in a way that would cost Oregon revenue. (The provision was designed to be revenue-neutral for the state while giving its beneficiaries federal deductions.) The Finance Committee revised the bill to close a loophole that had concerned us – leading a tax accountant for corporations to complain about the revision and demonstrating that we had succeeded in limiting the damage. We felt hamstrung in lobbying against the bill because it was packaged with the pass-through reform, so we did little more than testify against it. After the bill passed the Senate, we testified in the House that it was a textbook example of how the legislature uses tax law to enrich the already wealthy, although in this case we were giving them a federal tax break, not a state one. House Revenue Chair Nancy Nathanson, often an ally, championed the bill on the last day of the session, and only seven members (including Speaker Tina Kotek) voted against it.
PPP/CARES Act Benefits – A LOSS
In spring 2020, we alerted the legislature of a potential state revenue loss from the Covid-inspired federal CARES Act, which allowed certain taxpayers to carry back losses supposedly resulting from the COVID recession to offset tax liabilities from as long ago as 2013. Nathanson enlisted us in the effort to move a bill disconnecting Oregon from the federal provision as seven other states eventually did. By fall, both Speaker Kotek and Senate President Peter Courtney had endorsed the proposal, and Governor Brown put it in her budget in January. But the tax committees never passed a bill to disconnect from the federal CARES Act.
Separately, Congress, led by our own Senator Wyden, passed a provision in the December budget that similarly opened Oregon to hundreds of millions in potential revenue losses. The provision allowed businesses that received PPP loans that were later forgiven from repayment to exclude those amounts from income (forgiven loans generally are taxable income) – and to deduct expenses to which businesses applied the proceeds. We immediately alerted tax leaders of the revenue implications of this “double-dip” and that it benefitted primarily wealthy businesses untouched by the Covid downturn. It might be fine for the federal government to give away that tax revenue because it can print money; but for Oregon the provision represents a huge liability. We lobbied and testified on a bill to require taxpayers to include the forgiven loans as income for state purposes, but the tax committees did not move it.
Timber Taxes – A LOSS
The June 2020 investigative reporting on Big Timber’s success in avoiding taxes in Oregon inspired us to research and build a network on timber issues. Some dislike the fact that a major industry pays few taxes. Some are angered by industry disregard for watersheds and drinking water. Others are outraged that the tax-supported Oregon Forest Research Institute (OFRI) has become an organ for industry. OFRI claims that the state’s forest practices are great, although the federal government has withheld millions in funding because our laws don’t meet federal standards.
To build on the momentum, TFO sponsored eight Zoom workshops, specific to areas across the state. We talked with county commissioners and legislators to shape a bill. We testified at several hearings and lobbied bill sponsors – all to little avail. No new timber tax, and a bill to reform OFRI died in the Senate. Instead, the legislature shifted funding timber-related expenditures (firefighting, the Department of Forestry and OSU research) from a harvest tax to the General Fund. Some legislators – and Governor Brown – insist a bill will be back in 2022.
Mortgage Interest Deduction – ANOTHER LOSS
For years Rep. Alissa Keny-Guyer pushed the legislature to deny the Mortgage Interest Deduction (MID) to high-income homeowners for second homes and use the saved revenue for housing. Owners of second homes enjoy the MID while workers in vacation areas can’t afford rent. Keny-Guyer retired last year, and her successor, Rep. Khanh Pham, took up the cause. House Revenue held a hearing that drew a coalition of tax reform, housing and local-government witnesses, all testifying to Oregon’s housing shortage and the gross inequity of giving a tax break for debt on second homes. (Two of our steering members live in Bend and Florence, where many of their neighbors’ homes stand vacant much of the year.) This is a multi-year effort, and we are working with our allies to push it to the top of the agenda.
Taxation of Federal Stimulus Checks – A WIN
We felt lonely – and proud – to be the only witness testifying against a bill that would have exempted the Covid checks many households received from Oregon income tax. It sounds unfair: The government is giving us this money because of an economic crisis. We shouldn’t be taxed on it! But that argument is counter to equitable principles: add up your income and pay the appropriate marginal rate on that amount. Millions of upper-middle-class people unaffected by the Covid recession got checks. The government taxes unemployment payments, but proponents argued they shouldn’t be taxed on payments for doing nothing? Besides, the Department of Revenue said it would be impractical to provide refunds of tax due (it could provide credits on taxpayers’ 2022 liabilities). The bill died.
Landlord Tax Credit – A WIN
Senator Betsy Johnson, co-chair of the powerful Ways and Means Committee, drew wide support for a bill that would create a tax credit for landlords who couldn’t collect rent from Covid-affected tenants. Rare is the senator who wants to cross a colleague whose committee controls most spending. We testified twice, pointing out that the legislature created a payment program in December for those same landlords. Johnson argued that the program provided only partial reimbursement for lost rent; we pointed out that asking a second state agency to administer another new program was inefficient and that the tax credit, payable over five years, wouldn’t make landlords whole either. The bill passed out of the Housing Committee and quietly died in Finance. We gave it a lovely memorial service.
Tax Credits – LOSSES
Much of our energy was devoted to advocating the natural death of slews of tax credits, pet provisions that legislators think will advance some favored economic activity. We think they are mostly tax giveaways that have no effect on behavior. There’s a tax credit for Hollywood film production, popular in many states. Oregon allows taxpayers to redirect their payments to favored charities, a shift that allows individuals to determine how the state spends revenue. A few of these expenditures died for lack of interest, but the trend is in the wrong direction, partly because the revenue committees like to spend money as much as legislators on other committees.
Attacks on the Commercial Activities Tax – MIXED SUCCESS
The CAT was intended to fund K-12. Only two years old, it is subject to repeated, far-ranging efforts to exempt this or that activity or industry. We helped fight off these exemptions, although one we supported also died which exempted pharmaceuticals because of the way prescription drugs are priced by their many intermediaries. We agreed that independent pharmacies in rural areas may be threatened by the CAT because of their narrow margins.
Beer and Wine – A LOSS
There was no progress on Oregon’s tiny beer and wine taxes, among the lowest in the country. It’s easier to kill bills than pass them. But more money for alcoholic treatment was made available, an important improvement as Oregon has way fewer treatment options than most states. With our beer tax at one cent a bottle, any meaningful increase will be characterized as exorbitant.
Our Critical Role
Some of our issues draw wide attention, but often we are the sole witnesses providing public testimony on the other side of a bill. In a recent exchange, the head of the nonpartisan technical tax staff wrote to us about our testimony on the SALT deduction bill. “I don’t know that it’s obvious from outside the building, but public feedback on proposed policies is extremely helpful. I always encourage as much public testimony as possible. Thanks for contributing.”
Thank you, Readers.
We have begun preparing for the 2022 session, and we’ll share our plans as they develop. In the meantime we invite you to join us in the work, or send us your ideas by email or phone.
You can reach us by calling Jody at (503) 810-6654, or emailing TaxFairnessOregon@gmail.com.