An Analysis of SB 535’s Proposed Corporate and Personal Income Tax Capital Gains Tax Cut

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An Analysis of SB 535’s Proposed Corporate and Personal Income Tax Capital Gains Tax Cut

InsideCapitolDome

An Analysis of SB 535’s Proposed Corporate and Personal Income Tax Capital Gains Tax Cut

Executive Summary

The OCPP asked the Washington, D.C.-based Institute on Taxation and Economic Policy (ITEP) to analyze the impact of SB 535-A on households in Oregon using ITEP’s nationally recognized microsimulation tax model.

Currently, Oregon’s personal income tax subjects capital gains to the same graduated structure as all other sources of income. SB 535 would create a separate, lower rate of 4 percent for income from capital gains, while taxing wages, self-employment income, and other income at the current higher rates. SB 535 would also reduce the corporate income tax rate by over one-third, from 6.6 percent to 4 percent. ITEP, the state Legislative Assembly’s Legislative Revenue Office, and the bill’s proponent, Associated Oregon Industries, have yet to calculate the impact of the novel corporate capital gains tax cut.

An analysis of the personal income tax reduction in SB 535-A Engrossed finds that:

  • Fifty-three percent of the total amount of tax reduction would go to the one percent of Oregonians with income over $271,000 and an average income of $720,000 a year. The average tax cut for this group would be $7,770.
  • The poorest 20 percent of Oregonians would be effectively excluded from this tax cut, with an average reduction in taxes of just 4 cents.
  • The 80 percent of Oregonians earning less than $63,000 annually would receive only 10 percent of the tax cut, an average amount of $16.
  • Capital gains represent less than five percent of income for all but the wealthiest five percent of Oregon residents. Over 50 percent of all taxable capital gains are realized by the wealthiest one percent of Oregonians.
  • Reducing the tax on capital gains would significantly reduce the share of taxes paid by the wealthiest Oregonians while increasing the share of taxes paid by the rest of Oregon’s taxpayers.
  • Over one-quarter – 28 percent – of the tax cut would be paid to the federal government in increased federal income taxes as a result of interaction with the federal tax code. Oregon taxpayers would pay about $220 million less in state taxes but would send an additional $62 million to the federal government, effectively making the tax cut equal only $158 million in the first year of implementation, next biennium.

The OCPP is distributing this analysis to the public, the press, and legislators to help develop an informed opinion on this issue. Please do not hesitate to contact the OCPP if you have any questions or need additional information.

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Written by staff at the Oregon Center for Public Policy.

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