Trade the Kicker for a Capital Gains Tax Reduction? No Thanks

The Skanner
May 2, 2011By Chuck Sheketoff

Compromise would be a burden for the middle class

Perhaps sensing that Oregonians are not in the mood to grant yet more tax breaks for the rich, some corporate lobbyists are offering a devil’s bargain. They would back reform of Oregon’s wrongheaded kicker law to create an improved rainy day fund only if they get a substantial tax break on their income from capital gains.

That would substitute one very bad spendthrift policy, the kicker, for another, a tax cut that would benefit the wealthy and speculators at the expense of the middle class.

The need for Oregon to save more money for economic downturns is beyond dispute. The corporate lobbyists well know that kicker spending has wreaked havoc on funding for education and other vital public structures during recessions.

In 2007, just as the Great Recession was about to make landfall, the state spent $1.1 billion on kicker checks that disproportionately flowed to the most well-off Oregonians. Had that money instead been saved in the Oregon Rainy Day Fund, our state could have weathered the Great Recession better and we’d now be in a better position to limit cuts to our schools, public safety and job training programs for poor families.

Unfortunately, rather than simply do what’s right — support ending the spendthrift kicker and save for the rainy days ahead — the corporate lobbyists are conditioning their support for good fiscal policy on the legislature giving the wealthy preferential tax treatment on their capital gains income. Some lawmakers, unfortunately, seem to have bought into the scheme.

When the economy does well, capital gains income is the best player on the income tax team. Its performance can be so unpredictably good that it can cause revenue to come in 2 percent or more above what state economists forecasted two years earlier. In other words, capital gains can cause the kicker to kick.

Thus, cutting the income tax on capital gains would spend money that could be saved for a rainy day on a tax cut for the rich. It would undermine the goal of kicker reform: helping Oregon build up its reserves during good economic times for use during lean times.

Just how skewed toward the rich would it be to give preferential treatment to income from capital gains, such as profits from the sale of stocks, bonds and other investments? In 2009, just 4,252 taxpayers, who each made more than half a million dollars that year, collected more than half of Oregonians’ total capital gains.

That group, only about one out of every 400 taxpayers, is already among those slated to get a tax cut next year. Much of the income subject to their scheduled tax cut will be income from capital gains. Yet some in the corporate lobby want more.

Giving preferential tax treatment to income from capital gains would only exacerbate the income gap that has grown between the very wealthy and everyone else. It would not boost Oregon’s economy or create jobs.

While a kick from the kicker is painful, the stomping that Oregon’s middle class and our meager rainy day fund would receive from giving favored tax status to income from capital gains is just as bad, if not worse. We need to protect the middle class, not grant special favors to rich speculators. That’s why Oregonians should tell legislators and the corporate lobbyists hawking the scheme, “No thanks.”

Chuck Sheketoff is executive director of the Oregon Center for Public Policy.

Fair Use Policy