A report released today by the Oregon Center for Public Policy (OCPP) finds that most Oregonians would see little or no benefit from a capital gains tax cut being considered by the Senate Revenue Committee. The report also debunks arguments by the bill’s supporters that it will help the economy.
The report includes a distributional analysis of Senate Bill 67 by the Washington, D.C-based Institute on Taxation and Economic Policy (ITEP). The analysis finds:
- The top one-percent of Oregonians, with average incomes of $923,000, would receive 55 percent of the total amount of the tax reduction, while the bottom 80 percent, with incomes less than $68,900, would get just 8 percent of the cut.
- The average tax cut for the bottom 80 percent would be just $26, while the top one-percent would average $13,400, more than the total average annual income of the lowest-income 20 percent of Oregonians.
- The poorest 20 percent effectively would be excluded from this tax cut, with an average tax reduction of just 6 cents.
Oregon currently taxes capital gains, such as profits from the sale of stocks, bonds, and investment real estate, at the same rate it taxes all other individual or corporate income. Senate Bill 67, introduced at the request of the state’s large business lobby Associated Oregon Industries, reduces the capital gains tax rate to four percent for both individuals and corporations beginning in 2002. A hearing and possible worksession on SB 67 is scheduled for Tuesday morning in the Senate Revenue Committee.
“Reducing the tax on capital gains would increase the share of taxes paid by most Oregonians while significantly reducing the share of taxes paid by Oregon’s wealthiest one percent,” noted Jeff Thompson, the report’s author and an economist with the OCPP. Thompson noted that “we’d be giving the wealthiest one percent a tax cut that exceeds the annual income of the poorest 20 percent of Oregon households.”
The AOI commissioned a report to support their tax cut proposal. It claims that a capital gains tax cut will spur economic growth and could generate enough new tax revenue to pay for itself. “The AOI claims are unsupported by the research cited in their report. In at least one case, AOI misrepresents a study that actually concludes that capital gains tax cuts will have no impact on venture capital invested on the state level,” said the OCPP economist.
“A capital gains tax cut is limited in its ability to influence new investment and growth in the state,” said Thompson. “Oregonians can invest their money in other countries and 49 other states. Windfalls from cutting Oregon’s capital gains taxes that are invested in Texas, Arkansas, China, or Japan do nothing to create jobs in Oregon.”
“AOI’s study tries to cloak its tax cut in the politically appealing rhetoric that it will help seniors,” said Thompson. “Our analysis shows that 85 percent of the tax cut for seniors goes to only the wealthiest nine percent. Ninety-one percent of seniors will average just $75 in reduced taxes, while those few seniors with an average income of $263,000 will average over $4,300 in reduced taxes, ” he added.
“Few seniors will receive a large tax cut, while thousands of others who rely on programs such as Oregon Project Independence face significant budget cuts,” said Thompson.
The AOI bill will cost more than $400 million per biennium, roughly equal to twice the proposed general fund budgets of the State Police and the Department of Environmental Quality combined, or 85 percent of the general fund budget for the Senior and Disabled Services Division in the Department of Human Services. The OCPP study notes that over one-quarter of the total tax cut will be paid to the federal government in increased federal taxes from Oregonians.
“The revenue lost from the capital gains tax cut in SB 67 will further constrain Oregon’s ability to address public needs,” noted Thompson. “In our current tight fiscal environment, such tax cuts would make it nearly impossible to pursue other state priorities such as funding the Oregon Children’s Plan and developing a world-class engineering school in Oregon.”
The study, Empty Promises and False Hopes: The Reality of Capital Gains Tax Cuts in Oregon, is available on the OCPP web site, www.www.ocpp.org. The Oregon Center for Public Policy is a non-profit research organization that analyzes budget, tax, and program issues important to low- and moderate-income Oregonians, the majority of Oregonians.