Fans of the classic kids’ television show Schoolhouse Rock will remember How a Bill Becomes Law, the animated music video explaining the legislative process. A similar, more detailed explanation of how a bill becomes a law in Oregon comes to us courtesy of state officials. Similar to the Schoolhouse Rock anthem, this one-pager starts with an idea from a concerned citizen to a bill that lands on the Governor’s desk.
But when it comes to understanding how the tax subsidy that goes under the misleading name “Opportunity Zones” became Oregon law, take that one-pager and rip it up. Burn it. Bury it. Because it has no bearing on how this tax giveaway to wealthy investors became Oregon law.
“Opportunity Zones” are a set of tax breaks for capital gains income, the income from profitable investments in real estate, stocks, and businesses. To benefit, investors shift previously earned capital gains into “Opportunity Funds” that then invest that money within lower-income areas designated as “Opportunity Zones.”
To understand the story of “Opportunity Zones,” it’s essential to recognize that capital gains income by-and-large accrues to the rich. In 2018, only about 9 percent of all taxpayers nationally reported long-term capital gains income, and more than two-thirds of all of that income went to the richest 1 percent of taxpayers. But that’s not all. The ultra-rich — the richest one out of every 1,000 taxpayers — took over half of all capital gains income that year. The fact that “Opportunity Zones” are a big tax cut for wealthy investors is only one of many serious flaws in this tax scheme.
“Opportunity Zones” is the brainchild of one such ultra-rich person, Facebook billionaire Sean Parker. “When you are a founder of Facebook, and you own a lot of stock,” Parker said, “you spend a lot of time thinking about capital gains.” With the backing of other billionaires, Parker began lobbying Congress on “Opportunity Zones” several years ago. Eventually, this tax break became part of the massive 2017 Trump tax law.
In the idealized version of how a bill becomes a law, lawmakers hold hearings and discuss the merits of a bill — but not in the case of the biggest overhaul of the federal tax code in three decades. The 400-plus page Trump tax bill sailed through Congress in a matter of a few weeks, never pausing for a single committee hearing. In the mad dash to the finish line, the Senate passed a bill with handwritten changes on the page margins. Not long after, President Trump signed the bill into law.
That’s how “Opportunity Zones” became federal tax law, but how did it become Oregon tax law? It became Oregon law without any bill introduced in Salem, without any hearings or input from Oregonians. It became law automatically.
Oregon automatically connects to the federal definition of “taxable income.” So if Congress creates a new tax break that changes taxable income, Oregon gets stuck replicating that tax break. It then requires the Oregon legislature to pass a new bill to disconnect from — to reject — the change to the tax code.
And this is how a Facebook billionaire’s idea for how to avoid taxes on capital gains income became Oregon law. This is how, without any legislative deliberations, a tax subsidy for wealthy investors became part of Oregon’s tax code.
Right now, the Oregon legislature has an opportunity to right this wrong. House Bill 4010 would disconnect from “Opportunity Zones” and require state analysts to study whether any portion of this misbegotten tax subsidy should be salvaged.
Join us in calling on Oregon lawmakers to support HB 4010.