Empty Promises and False Hopes: The Reality of Capital Gains Tax Cuts in Oregon

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Empty Promises and False Hopes: The Reality of Capital Gains Tax Cuts in Oregon

InsideCapitolDome

Empty Promises and False Hopes: The Reality of Capital Gains Tax Cuts in Oregon

Executive Summary

The Oregon Legislative Assembly is currently considering several proposals to cut the tax on capital gains. Two introduced at the request of the state’s large business lobby, Associated Oregon Industries (AOI), Senate Bill 67 and House Bill 2486 (“the AOI bills”) would cut Oregon’s capital gains tax rate by more than half. The AOI bills carry a considerable price tag, costing the state more than $400 million per biennium. Since capital gains income is heavily concentrated at the top of the income distribution, capital gains tax cuts would primarily benefit the most economically comfortable families.

Data reviewed for this study show:

  • The highest-income one-percent of Oregonians would reap 55 percent of the gains from the tax cut, while the bottom 95 percent get just 25 percent.
  • The average tax cut for the bottom 80 percent would be just $26, while the average tax cut for the top one-percent would be nearly $13,400.
  • The average tax cut for the top one-percent is 50 percent higher than the average annual income of the bottom 20 percent.
  • The biennial revenue loss of $440 million is equivalent to the Governor’s proposed general fund budget for the State Police and the Department of Environmental Quality combined.

The revenue lost from the capital gains tax cuts in SB 67 and HB 2486 will further constrain Oregon’s ability to address public needs. The gains to recipients of the tax cut, however, are far less than the total amount of the tax cut. Approximately $60 million of the capital gains tax cut, more than one-quarter of the total cut, will go to the federal government in the form of higher federal income taxes each year.

Advocates for the tax cuts, particularly Associated Oregon Industries, claim that a capital gains tax cut will produce considerable economic growth and could possibly generate enough additional tax revenue to pay for itself. A review of the research on capital gains taxes suggests otherwise. Cutting the state capital gains tax cannot be expected to generate significant economic growth, and will most certainly not generate enough revenue to pay for itself.

OCPP

OCPP

Written by staff at the Oregon Center for Public Policy.

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