The World Turns Upside Down for the Tax Credits Committee
May 2013
The Statesman Journal published a nice re-cap of a public hearing in Hearing Room A of the State Capitol on the Oregon Earned Income Tax Credit (EITC), which gives a small but important income boost to poor, working families.
The Joint Committee on Tax Credits heard from families, small business people and advocates on the effectiveness of the Oregon Earned Income Tax Credit.
The committee even heard from one of its own, Rep. Jason Conger (R-Bend), about how the EITC helped him earlier in his life.
The Statesman Journal’s initial online story, amusingly, displayed a photo of Hearing Room A upside down.
Had the paper waited until next week’s hearing on a different tax credit, an upside down image would have been entirely appropriate.
That's because next week in Hearing Room A the committee will hear a bill (PDF) to renew a $5,000 tax credit for some individuals earning as much as $249,999 and couples earning as much as $499,999.
What is this $5,000 tax subsidy that can go to the very well-off? It’s the Rural Medical Practice tax credit. In effect, this tax credit makes the first $60,622 of taxable income tax free for a married medical professional (physicians, physician assistants, nurse practitioners, certified registered nurse anesthetists, podiatrists, dentists and optometrists) with household income of up to $499,999. If both spouses are medical professionals working in "rural" areas, the first $116,178 of income is tax free.
Not only are the bill's definitions of rural and what it means to be working in rural areas suspect, there’s no data showing that this tax credit actually provides an incentive to medical professionals to work in rural areas. That should matter, because the committee considers a "but for" test when evaluating the effectiveness of tax incentives and deciding whether to renew them (i.e., the behavior would not happen but for the tax incentive).
While medical professionals will undoubtedly claim the credit is an incentive, anecdotes don't make data. And, despite what some doctors may tell the committee, it’s just not credible that a couple earning as much as $499,999 would not be doing the work they are doing if the $5,000 tax credit never existed. The credit is a "thank you" gift, not an incentive.
Consider how this tax subsidy for medical professionals differs from the Oregon Earned Income Tax Credit, which will expire at the end of this year without legislative action.
Take the case of a poor working family of two — a parent earning just $15,130 a year and supporting a child. As the Oregon EITC is presently structured, such a family receives a $190 state tax credit, leaving them with a $141 income tax bill after the credit.
Governor Kitzhaber rightly has asked lawmakers to continue the credit and to strengthen it. Under his proposal, the same two-person working family would get a $254 tax credit, leaving them a $78 tax bill after the credit.
The bottom line: if you are at the poverty level in Oregon — you earn $15,130 for a two-person family — you pay income taxes, even after getting the Earned Income Tax Credit. But if you’re a rural medical professional — even a very well off one at that — your first $60,000 (almost double if both spouses qualify) is exempt from taxation.
That's the world turned upside down that the committee will be entering next week.
If reason prevails in Hearing Room A, the Joint Committee on Tax Credits will let the tax subsidy for medical professionals expire, or at least seriously rein it in beyond what's proposed.
But regardless, let’s hope the committee remembers that poor working families with children pay taxes on their poverty-level wages and votes to renew and strengthen the Oregon EITC.
If they don't, the Statesman Journal may run the same photo, but this time it won't be at all amusing.
This post was originally published on www.blueoregon.com on May 24, 2013. The original post can be found at http://www.blueoregon.com/2013/05/world-turns-upside-down-tax-credits-committee/.
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Posted in State tax, Tax credits, deductions, exemptions.
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