Toward Prosperity for All Oregonians: Disconnect from Wasteful Federal Tax Breaks

Toward Prosperity for All Oregonians: Disconnect from Wasteful Federal Tax Breaks

Whenever Congress creates new tax breaks for the rich and corporations, Oregon often copies the same wasteful subsidies. This is because Oregon automatically connects to federal tax law definitions. The only way to stop these new tax breaks is for the Oregon legislature to vote to reject them — to “disconnect” from them. Disconnection doesn’t eliminate the federal tax breaks; it just stops Oregon from doubling down on them.

Toward Prosperity for All Oregonians: Disconnect from Wasteful Federal Tax Breaks

Whenever Congress creates new tax breaks for the rich and corporations, Oregon often copies the same wasteful subsidies. This is because Oregon automatically connects to federal tax law definitions. The only way to stop these new tax breaks is for the Oregon legislature to vote to reject them — to “disconnect” from them. Disconnection doesn’t eliminate the federal tax breaks; it just stops Oregon from doubling down on them.

This fact sheet is part of OCPP’s 2021 legislative agenda, Toward Prosperity for All Oregonians.

These federal tax breaks often benefit the rich and corporations far more than the Oregonians struggling to get by, and they pull hundreds of millions of dollars out of the state budget. These resources could make Oregon stronger by supporting child care providers, helping people pay back rent accrued during the pandemic, and increasing access to health care.

In 2021, the Oregon legislature can free up resources to invest in the needs of Oregonians by disconnecting from the following wasteful federal tax breaks:

Disconnect from the Millionaires Giveaway and other CARES Act breaks

The reform: In March 2020, Congress passed a coronavirus relief package known as the CARES Act that included three different tax breaks for business owners.

  • One tax break repeals the limit on how much pass-through businesses (businesses not subject to the corporate income tax) can offset business “losses” against non-business income, such as salary or investment income. Such losses can be the result of clever accounting maneuvers.
  • Businesses are now able to use losses incurred in 2018 and 2019 to retroactively shrink their tax bills as far back as 2013 – an indication that this provision has little to do with shoring up businesses struggling right now under the coronavirus crisis.
  • The final provision gives businesses greater flexibility to deduct interest owed on their loans, but only businesses with more than $25 million in receipts will benefit.

 

Who pays: All of these provisions likely help the richest Oregon business owners more so than Main Street businesses. Looking just at the business loss limit disconnection, it benefits about two and a half to three thousand taxpayers, three-quarters of whom make more than $1 million per year. These millionaires will collect nine out of every 10 dollars of the tax break.

Revenue impact: $84 million in the 2019-21 biennium, $33 million in 2021-23 biennium.

Disconnect from “Opportunity Zones” tax breaks

The reform: As part of 2017’s federal tax reform, Congress included a set of three capital gains tax breaks for investment in so-called “Opportunity Funds” that had to put those resources into “Opportunity Zones.” The law does not require that any of the investments produce tangible benefits to the community. Oregon should disconnect from this flawed policy and require additional transparency around where the investments are going and who benefits.

Who pays: These breaks only benefit people or businesses with capital gains to reinvest. Capital gains income is extremely concentrated in the hands of the richest Oregonians. In 2018, nearly 60 percent of all capital gains income went to the richest 1 percent of Oregonians.

Revenue impact: $32 million in the 2019-21 biennium, $23 million in 2021-23 biennium.

Disconnect from real estate investor tax break

The reform: Using what are called “1031 like-kind” exchanges, property owners and investors can sell one property, such as an apartment complex, and then purchase another “like-kind” property such as a set of rental homes. If done through a like-kind exchange, the owners do not pay any tax on the profits they made on the apartment complex until some future date that may never come.

Who pays: Disconnecting would increase the taxes paid by real estate investors and speculators who exchange properties using like-kind exchanges.

Revenue impact: $109 million in the 2019-21 biennium, $104 million in 2021-23 biennium.


Contact for more information or to get involved:
Daniel Hauser
Phone: 503-970-4614
Email: dhauser@ocpp.org

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OCPP

Written by staff at the Oregon Center for Public Policy.

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