TFO’s Steering Committee had a Zoom meeting recently with House Revenue Committee Chair, Nancy Nathanson. At the end of the meeting we asked what we could do that would help, and she said “put the points you’ve made during this call on paper and send them to me.”
Here’s what we sent:
April 9, 2020
Representative Nancy Nathanson
House Interim Committee on Revenue
900 Court St NE, H-279, Salem, OR 97301
Dear Chair Nathanson:
Thank you for taking time with Tax Fairness Oregon today to discuss the agenda of an anticipated special session. The chief points that concern us are summarized as follows:
Protect Oregon’s revenue base
The state will experience enormous social-service expenditure increases in this uncertain period. The last thing the Legislature should do is cut taxes on successful businesses. Tax cuts for businesses that have downsized, closed or lost money will have no effect; for others whose net income is rising because of market shifts created by COVID-19, tax cuts would represent a windfall.
Therefore, we should maintain the Commercial Activities Tax. If there is any delay or reduction, Legislators must tie it to a similar delay or reduction in the personal income tax rates also in the Student Success Act.
Carefully study the revenue impacts of any future conformity to the CARES Act.
Some of the “temporary” changes in the CARES Act provisions would negatively affect Oregon’s revenue.
Of particular concern are:
- Lifting the deduction limitations imposed by the TCJA on both net operating losses and interest. The congressional Joint Committee on Taxation pegged the cost of the retroactive (but temporary) Net Operating Loss and Loss-Limitation changes at $440 billion for 2020 and 2021. For example, currently real estate investors with yearly income over $250k/$500k can eliminate 80% of their taxes on other income with losses in real estate. That limit is lifted with the CARES Act. See this article for more understanding of the wide applications of these changes.
- The three expansions for charitable deductions: the $300 deduction made available for non-itemizers; the lifting of the 60% of AGI lid on charitable deductions for 2020; and the increased deduction limit for businesses from 10% to 25% of taxable income. While federal revenues are expected to be reduced by a more modest $1.5 billion over two years, these changes aren’t even supported by Forbes Magazine.
And of course, “temporary changes” tend to become permanent later.
Before connecting to these and other elements of the CARES Act and future COVID-19 related bills, Legislators need to know the beneficiaries and anticipated cost.
Review raising revenue
Income-tax cuts pursuant to the Student Success Act
If the Legislature were looking for a revenue boost to fund increased expenditures, the 0.25% point reductions in the 5, 7, and 9% income tax rates would be an excellent place to start. Oregonians may not have noticed the reductions, which give $624 to couples nearing $250,000 of taxable income, and nothing to the bottom 25% of Oregonians who don’t need to file or who file but have other tax credits which use up their tax liability. The revenue estimate from the 2019 session put the provision’s cost at 25% of the CAT revenue. This change would prove positive in the long term as well as the short term.
Evaluate temporary measures
If the need for additional revenue becomes apparent, and only short-term changes are acceptable to legislators, they can look at surcharges on corporate and personal income taxes or temporary rate changes as voters approved in Measures 66 and 67 during the last recession.
Pass revenue bills with bipartisan support
The Legislature was unable to pass routine conformance measures SB 1528 and SB 1531 or the changes in HB 4009 and SB 1529 in the foreshortened 2020 session. Further, the tide was changing on HB 4010. The agenda of a special session should include all of these.
Thank you for your consideration.
Tax Fairness Oregon