By all accounts, the 2019 Oregon legislative session was historic. Even before the second walkout by Senate Republicans ground deliberations to a halt, the legislature had already enacted the largest investment in education in memory and tenant protections legislation. The last two days of the session that followed the end of the walkout produced a flurry of significant legislation: paid family leave, a legislative referral to authorize campaign contribution limits, a legislative referral of an increase in Oregon’s tobacco tax, and much more.
Some legislation, however, did not make it through the finish line. Most notably, of course, was the cap-and-invest policy designed to address climate change — the legislative proposal that instigated the second Senate walkout. But other legislation also died along the way.
Here we highlight six missed opportunities in the area of tax policy.
A common sense reform of Oregon’s biggest housing subsidy for the rich will have to wait
Despite the ongoing statewide housing crisis, Oregon lawmakers failed to act on a bill that would have invested significant funds in affordable housing — without spending any additional money. House Bill 3349 would have enacted a common sense reform of Oregon’s biggest housing subsidy, the mortgage interest deduction. The bill would have left the deduction untouched for 95 percent of taxpayers, phasing it out only for the richest 5 percent. In doing so, it would have shifted $160 million in housing subsidies for Oregon’s richest households to investments in affordable homeownership and homeless services with an emphasis on families with children.
Through their inaction, lawmakers have chosen to continue a costly, inequitable, and ineffective housing subsidy.
A tax credit for low-income workers will continue to exclude some of the lowest-earning workers
While it’s good that the legislature renewed and modestly increased the Oregon Earned Income Tax Credit (EITC), lawmakers missed an opportunity to make this tax credit more equitable. The EITC recognizes that many jobs don’t pay enough to support a family, leaving working families struggling to cover the basics. With the EITC scheduled to expire, lawmakers renewed and bumped up the amount of the credit. They failed, however, to make the credit available to workers who file their tax returns with an Individual Tax Identification Number (ITIN). The rules also continue to deny the benefits of the tax credit to some 70,000 Oregon children who are U.S. citizens.
The door remains open for corporations to shift profits abroad
Oregon lawmakers did nothing this session to clamp down on offshore corporate tax avoidance. Multinational corporations routinely shift profits earned in the U.S to other jurisdictions, as a way to avoid taxes. By one estimate, this practice costs Oregon nearly $400 million each budget period in lost revenue — funds that could address the pressing needs of Oregonians. By enacting a policy called complete reporting, the legislature could have made it more difficult for multinational corporations to benefit from the offshoring of profits, resulting in hundreds of millions of dollars to invest in the needs of Oregonians. Unfortunately, lawmakers failed to enact complete reporting.
Oregon’s tax system still favors the boss over the workers
The legislature continued its unfair treatment of working Oregonians by leaving in place a special tax break for certain business owners — business owners who are also, by-and-large, very rich.
Senate Bill 211 would have pared back Oregon’s tax break for pass-through business profits. This policy gives some owners of pass-through businesses a lower tax rate on their profits than they would otherwise pay. About 70 percent of the tax benefits go to business owners making more than half-a-million dollars a year. This tax break can result in business owners paying a lower tax rate than their employees. Regrettably, the legislature failed to repeal or reform this inequitable tax break.
Oregon remains stuck with the ill-advised Opportunity Zones tax breaks
The 2017 Trump tax plan created massive tax breaks for rich investors that goes by the misleading name “Opportunity Zones.” Opportunity Zones are actually a package of three different tax breaks for capital gains income for those who invest in specially designated areas. Apart from being a big tax break for the rich, Opportunity Zones will subsidize investments that would have happened anyway, while increasing the risk of displacement of residents of the communities designated as Opportunity Zones.
Because Oregon follows the federal definition of taxable income, our state automatically replicates the Opportunity Zones tax break — unless the legislature affirmatively rejects the federal change. Unfortunately, the 2019 legislature failed to say “no” to this ill-advised tax break for rich investors.
The kicker will once again whack Oregon’s budget
Oregon’s oddball kicker law is on its way to kicking, this time by a record setting $1.4 billion. The richest 1 percent of Oregonians will enjoy a windfall of about $14,000 on average, while the poorest 20 percent of Oregonians will, on average, get a measly $26.
The kicker is triggered when revenue comes in 2 percent above what state economists projected two years earlier. It is, in other words, a tax cut based on a forecasting error. Instead of saving unanticipated revenue collected during the good economic times in order to ride out the inevitable bad times, the kicker squanders the revenue on a tax cut that mainly benefits the well-off.
How foolish is this policy? Consider that the kicker has kicked in each of the past four recessions, exacerbating the pain of economic contractions. Although the legislature has the power to suspend the kicker, the legislature once again left this reckless policy in place.
Though the time to suspend the kicker has passed, lawmakers can use the 2020 legislative session to send to the voters a reform of the kicker so that in the future it serves the interests of all Oregonians.
You can count on us to encourage lawmakers to prioritize low-income working families over the rich and powerful by enacting the six policies listed above in the next legislative session.