Ethanol ain't all it's cracked up to be!

By Bob Rees of Milwaukie, OR. Bob is the Executive Director of the Association of Northwest Steelheaders, 6th generation Oregonian, and a 26 year professional fishing guide.

Across the country, fishing may be seen as a relaxing hobby. But as we know it in Oregon and Clackamas County, it’s a way of life. The Northwest Steelheaders work to protect responsible and enjoyable sport angling with good access to healthy, abundant and sustainable fisheries in the Northwest’s healthy watersheds.

But Big Ethanol and their champions in the Corn Belt continue to come up with new ways to try and subsidize/mandate the use of corn based ethanol in our fuel that threaten fisheries and anglers. A new bill was recently introduced in front of Senator Merkley in the Senate Environment and Public Works Committee that would violate Clean Air Act rules to allow the sale of fuel with 15% ethanol (E15) year-round. Pushing more E15 fuel onto the market may be a favor to the ethanol lobby, but it will jeopardize our natural environment, the livelihoods of sport fishers and the safety of consumers throughout Oregon. Thankfully, this bill, S.517 did not advance, but we know Big Ethanol will be back and we should all be aware of what their attempts could mean for us all.

A tax credit for BS and six other Oregon tax policy changes you may have missed

Chuck Sheketoff

Tax policy took center stage in the 2017 legislative session. From a corporate tax reform proposal that fizzled, to a successful effort to protect health care coverage with health provider taxes, to a far-reaching transportation package mainly paid for by an increase in the gas tax. And that’s not all. While less notable, the legislature enacted further changes to our tax system.

Here are seven stories about Oregon tax policy you probably did not read about in the newspaper:

1. The Con-way corporate minimum tax loophole won’t be coming back from the dead

Not long ago, some profitable corporations were getting away with paying less than the corporate minimum tax, even zero in some cases. These corporations were exploiting a tax loophole created by an Oregon Supreme Court ruling in a lawsuit brought by Con-way, Inc., which held that the trucking giant could use a tax credit to eliminate its minimum tax liability. The 2015 legislature put a stop to this end run around the corporate minimum tax, but only temporarily. The legislature placed a six-year “sunset” — expiration date — on the closing of the loophole, meaning that the Con-way loophole would return from the dead in 2021. But in the just-concluded session, the legislature got rid of the sunset, meaning the Con-way tax loophole is closed for good.

2. Legislature improved how Oregon taxes corporations that sell services

While an effort to overhaul Oregon’s corporate income tax system failed, the legislature did tweak how the state taxes multi-state C-corporations that sell services. Previously, Oregon taxed C-corporations providing services based on where they had the largest share of production costs. Moving forward, Oregon will tax them based on how much they sell in Oregon. The need for this tax change was identified in a 2011 legislative study with input from the business community, which argued it would be more fair and make Oregon more competitive. In addition to improving our tax system, the change is slated to result in a small (about 2 percent, or $5 million) increase corporate tax revenues each year.

3. Putting expiration dates on tax subsidies proved to be a smart approach

This legislative session reminded us that placing sunsets on tax subsidies and loopholes is a smart, fiscally prudent mechanism (the Con-way loophole sunset discussed above was an odd egg; it was an expiration date on a fix to a loophole problem). Over the years, lawmakers have stuffed the Oregon tax code with all manner of subsidies and loopholes. Fortunately, the legislature has also placed sunsets on many of them (though not all). Of the 16 tax subsidies scheduled to sunset, the legislature let all but a handful expire, and pared back several of those which remained. By letting these tax subsidies expire, the legislature avoided over $30 million in costs that would have been paid for by cuts to essential services such as education and assistance for Oregon’s most vulnerable children in the upcoming budget period.

4. Many, not all, rich “rural” doctors no longer qualify for taxpayer subsidies

Every year, no matter how rich they are, doctors and other medical providers who work in “rural” areas — defined as at least 10 miles from a major population center — have been able to claim a tax credit potentially worth up to $5,000, effectively exempting from taxation their last $50,000 in income . The credit has proven itself ineffective. While an effort in 2013 to reform this subsidy for wealthy doctors failed, in the just-concluded session, the legislature put some limits in place. Medical providers making more than $300,000 a year will no longer qualify for the credit, unless they are general surgeons or provide obstetrical services. Also, those claiming the credit cannot do so for more than 10 tax years in their lifetime.

5. If you deal in tons of BS there is a tax credit for you

While the legislature let expire a tax credit for biomass, it preserved the portion of the credit for those who produce and collect “bovine manure” for use in biofuel. In other words, a tax credit for bullshit, at $3.50 per wet ton.

6. The legislature could have just named it the “Special Klamath County Tax Break”

The legislature created a new “Employee Training Tax Credit” for counties that meet a lengthy list of criteria. Some of the requirements are having a population between 60,000 and 80,000, having an armed forces base employing at least 750 people, and having “an agreement with an institute of higher education to coordinate efforts to promote enterprise throughout the county.” Only one county meets the criteria: Klamath.

7. The legislature proved it can’t go a session without creating a new tax subsidy for the well off, no matter how hard it is to balance the budget

By creating the bovine manure tax credit and the employee training tax credit, the legislature passed an opportunity to go through an odd-numbered year "long" session without creating a new tax break.

They can try again in two years, I suppose.

Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

By Chuck Sheketoff July 21, 2017

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Get on with it, Oregon Senate majority: end the “suits and scrubs” giveaway

Chuck Sheketoff

As the legislative session winds down, the Oregon Senate has an opportunity to correct a serious tax injustice from a few years back, while also helping preserve services that protect the most vulnerable Oregonians. With a simple majority vote, the Senate can and should cut the tax break for “suits and scrubs.”

In 2013, the legislature approved a tax code change that reduced the tax rate some business owners pay on profits passed through to their personal income tax. Back then, the Oregon Center for Public Policy warned this tax giveaway would disproportionately benefit wealthy business owners, not the archetypical small business owner.

Our prediction came to pass. Analysis by the Oregon Legislative Revenue Office shows over two-thirds of the tax cut went to taxpayers who earned more than half-a-million dollars in 2015.

Senator Mark Hass — who voted for it back in 2013 but has, commendably, come around to recognizing its flaws — has aptly dubbed it the “suits and scrubs” tax break. It’s the doctors, accountants, and lawyers, not the coffee shop owner or the barber down the street, who are reaping the benefits of the tax cut. Think of it this way: as a result of the suits and scrubs tax break, a well-heeled lawyer pays a lower tax rate than his paralegal.

While the better approach would be — as Governor Kate Brown proposed in her budget plan — to scrap the tax break all together and save $282 million in the upcoming budget period, the House Revenue Committee chose instead to scale it back. As amended, House Bill 2060 would limit the tax break to seven economic sectors and businesses with 10 or more employees. The bill would exclude accountants, lawyers, and doctors. It saves almost $200 million in the upcoming budget period. Those funds would fill in some of the remaining budget gap and thus avoid deeper cuts to essential services.

Now Oregonians await action in the Oregon Senate, where HB 2060 appears stalled.

If leaders of the Oregon Senate are concerned whether a simple majority suffices to enact this bill, they can put aside those concerns. An Oregon Supreme Court case in 2015 set the stage for a simple majority of the legislature to pare back the suits and scrubs giveaway. Recently, when House Speaker Tina Kotek asked the legislature’s lawyers whether HB 2060 is a bill for raising revenue requiring a supermajority, Legislative Counsel unequivocally said “no.” If that’s not enough to alleviate their concerns, they should amend the bill to provide a short timeframe for filing a lawsuit challenging the lack of a supermajority and to provide for expedited review by the Oregon Supreme Court if such a suit is filed.

In short, there is no procedural hurdle preventing a majority of the Oregon Senate from ending this tax giveaway.

For the many Oregonians who hoped to see our state finally make a serious investment in our schools and essential services, this legislative session is coming to a bitter end. Instead of seeing a game-changing revenue package, Oregonians are left with insufficient revenue, an inadequately funded education system, and painful cuts to essential services for the most vulnerable in society.

While scaling back the suits and scrubs tax giveaway won’t deliver game-changing revenue, it would, in small but important ways, mitigate the pain many Oregonians who rely on essential services will feel. It doesn’t require a supermajority, as a tax reform package would have.

The Senate majority needs to get on with it and cut the suits and scrubs giveaway and enact HB 2060.

Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

By Chuck Sheketoff June 29, 2017

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Reason to hope for a commercial activities tax (CAT) accompanied by a CAT Fairness Credit

Chuck Sheketoff

It’s never too late to hope that lawmakers do the right thing. Here at the Oregon Center for Public Policy, we hope lawmakers enact a commercial activities tax that raises game-changing revenue, so Oregon can finally upgrade our schools and essential services. If they take that bold move, the Center hopes they will include an aptly named “CAT Fairness Credit.”

The tax reform plan the Joint Committee on Tax Reform has been discussing has contained several elements: a commercial activities tax (CAT), a credit against the CAT for businesses that pass profits (and losses) through to their owners’ personal income tax forms, and repeal of the corporate income tax (CIT). Hoping to make the plan more attractive to voters, the reform plan includes a new personal income tax bracket and the lowering of some of the rates in other brackets, and an increase in the Oregon Earned Income Tax Credit (EITC). We’ll call this combination of features the “proposed CAT plan.”

Unfortunately, the proposed CAT plan disproportionately benefits higher income households. Taxes go up as a share of income for all income groups except the top 1 percent, who see their taxes decline. They go up most for those in the bottom fifth of the income scale — seven times as much as for those in the top fifth. The top fifth in general, and the top 1 percent in particular, do so well because the repeal of the corporate income tax disproportionately benefits the wealthy. The change in personal income tax rates, while well intentioned, actually gives more benefits to wealthy households than to those at the very bottom of the income ladder.

While the change to the EITC is also well intentioned, this increase wouldn’t help non-working adults such as the disabled and elderly, or working childless adults. Nor is it sufficient for low-income working families to be held fully harmless from the CAT.

The good news is that the CAT plan doesn’t have to be so regressive. The plan could raise just as much revenue while protecting low-income taxpayers if the plan included a CAT Fairness Credit instead of the changes to the personal income tax structure and the expanded EITC.

By Chuck Sheketoff June 21, 2017

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The average Oregonian might rightly ask, “The CAT? Why all the fuss?”

Chuck Sheketoff

Twenty-five cents for every $100 in sales.

That is how much a company in the construction industry with $100 million in Oregon sales would pay under the commercial activities tax (CAT) being discussed in the legislature. Those 25 cents would be paid by the company, reducing the profit passed along to the owners and taxed on their personal income taxes.

Compare that to what that company’s employees are paying. The average individual taxpayer in Oregon pays 24 times that amount — $6 on every $100 of income — in personal income taxes.

Or take the case of an auto dealer with $35 million in retail sales a year. That dealership would pay 24 cents on every $100 in sales, compared to the $6 that the employees pay.

Or consider a retail business with $1 million in sales per year — a sales goal many small business owners on Main Street would love to hit. That business would pay two cents in taxes on every $100 in sales. The average Oregon taxpayer pays 300 times that — $6 — in personal income taxes on every $100 in income.

The average Oregonian might rightly ask, “The CAT? Why all the fuss?”

Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

By Chuck Sheketoff June 20, 2017

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