Information for Rural Citizens on Timber Tax Initiative
Goals: Revive the property tax on timber, address the Small Tract Forestland program and re-direct OFRI funding to achieve the following:
- Generate property tax funding for local jurisdictions, as well as
- Revenue to address and prevent harm to forested watersheds and fund needs for water infrastructure, and
- Revenue to address threats to communities in fire hazard zones.
Compared with our neighboring state of Washington:
- Oregon has 39% more forestland
- Cuts 46% more timber, and
- Yet Washington collects roughly 3 times more in taxes when trees are cut than Oregon.
- Washington’s timber taxes go 80% to counties and 20% to the General Fund
The tax we have, the Forest Products Harvest tax (since 1947), goes to forest industry interests:
The Oregon Forest Research Institute, The Department of Forestry, OSU Forest Research Lab & the College of Forestry and to a fire-fighting fund.
In addition, our neighboring states are far more protective of water and fish than Oregon for:
- stream buffers
- steep slopes
- fewer property tax breaks for timber equipment, roads, culverts and homesites.
As the OPB/Oregonian stories have reported, the public sector is getting cheated in Oregon. Counties reliant on forestland timber receipts are not collecting the taxes they deserve.
Citizen Initiative Proposal:
Severance Tax – Returns a severance tax to Oregon on the value of cut timber (not board feet) with a 6.5% rate. (Previous rates were 12.5% and 6.5% in Western Oregon and 5% for Eastern Oregon. Washington State tax rate is 5%.)
Tax applies to all timber cut in the state, including harvests from federal, state, local and all private forestland, except some tribal land. (Same as current Oregon Harvest Tax and Washington State severance tax).
- No exemptions for special assessments – conservation, wildlife or sustainable forest programs as the bill has a 50% reduced tax incentive for best practices.
- Removes 25,000 board feet exemption.
- Follows Washington State for most rules, forms and values. (This is efficient for timber producers and the Department of Revenue.)
- 60% — returned to Counties in proportion to timber harvest from each county, to be distributed as property taxes.
- 5% — to develop a program for evaluation and enforcement of best forest practices for protection of drinking water within specific Funding to DEQ to work on site with water districts, landowners, watershed councils, and the community to develop and implement a program based on best available science.
- 20% — Water infrastructure, treatment facilities, watershed improvements and land acquisition to protect water intakes and drinking water resources – managed by Business Oregon as a grants program.
- 15% — Community emergency preparedness in fire hazard zones to include home hardening, defensible space, and smoke adaptation. Provision of information, technical assistance, grants and financial assistance to low income residents – managed by Oregon Housing and Community Services.
50% reduction in tax as incentive for protection of rivers and streams from pollution and to ensure the safety of homes and communities by not logging on steep, unstable slopes, not using broadcast toxic chemicals, and having a growing cycle of more than 80 years. The reduction is subject to repayment if the land is sold for development within 3 years of harvest.
Small Tract Forestland – Retain the Small Tract Forestland (STF) program only for those owners currently enrolled in the program. When the property comes out of the program because of a transfer of ownership (to a buyer, trust, or family member) the owner who has benefitted from the STF program is responsible for paying the 10 years of outstanding property taxes upon transfer. (Note: the STF owner pays 20% of the property tax of a typical forestland owner and pays a special severance tax upon harvesting.)
Oregon Forest Resources Institute Redirection of Funds – One half each to:
- Support outdoor education for K-12 students, available to all schools in Oregon via the Department of Education’s Outdoor School Education Fund
- DEQ for establishing, enforcing and administering, jointly with ODF, the Oregon Forest Practices Act, the Federal Water Pollution Control Act, associated forest practice or water quality standards by rule or order and, for technical assistance even if it requires additional protections over the current OFPA.
Coast Range Radio: Timber Tax Fairness
Coast Range Radio interviews Catherine Thomasson and Jody Wiser about timber tax fairness for Oregon’s counties. Catherine has worked on climate change issues for the past 25 years and is a former Executive Director of Physicians for Social Responsibility. Jody is a Tax Policy expert with Tax Fairness Oregon. We discuss the hardships Oregon’s counties are facing with reduced timber tax revenues and the impacts to rural water providers. Learn how to become engaged in restoring economic vitality for Oregon’s rural communities.
Drinking water is one of our most precious natural resources. Millions of Oregonians drink water that originates in forests. Forests store water, slow its flow, and filter particles to produce clean drinking water.
- In Oregon, 75% of all drinking comes from surface water.
- 167 separate drinking water systems serve 52 coastal communities.
- The vast majority of coastal drinking watersheds are privately owned and are harmed by some logging practices.
- Agriculture, commercial fishing and tourism rely on clean water and healthy watersheds.
Water Quantity (Perry, 2016 Ecohydrology)
- Large scale clearcuts and regrowth of plantations make low summer water flow even lower.
- Flows can still be reduced 40-50 years later.
- Roads cause the most problem with sediment in water, followed by landslides and clearcuts.
- Too much sediment keeps chlorine from working and creates carcinogenic chemicals.
- Small fishless streams make up the majority of stream miles, but no buffers are required in OR.
- Post-fire salvage logging can encompass more acres than allowed in non-burned areas. This causes more sediment in the water and increased risk of landslide.
- Chemicals that are harmful to human health are used against rodents, insects, fungus, and other plants in Douglas Fir tree plantations. They are then detected in drinking water.
Costs of Water Treatment
Clean, protected forest waters are vital to rural and urban communities
Rockaway Beach Watershed now requires pre-treatment of sediment-laden water at Jetty Creek intake and installation of wells for summertime flow. COST: Over $2 million.
Extensive logging above Salem’s reservoir occurred before the algal bloom shut down the water system. Fertilizer, silt and warmer water are the likely cause. Cost for additional treatment: $75 million.
Prospects for change
Logging laws: Oregon’s Forest Practices Act is weaker than our neighbors. Because of our lack of stream management for salmon (larger buffers to cool the water and reduce sediment), we lose out on significant federal grants, while the salmon fishing industry suffers. The 2020 bill to increase no-spray buffers and provide notice of spraying was not enough. Further changes are needed, such as increased forested buffers to protect drinking water, pets and livestock from pesticides.
Managing forests for sustainability and resilience to hotter weather and drought will also result in more fire-resistant forests unlike plantations that burn more intensely. (Preserve multiple tree species, healthy understory, selective logging with smaller canopy breaks)
Timber Tax Forum: November 11th
Upcoming Timber Tax Forum for the Portland area
We are concerned that timber counties have not been getting the revenue they deserve since Oregon stopped taxing timber. We don’t tax its value when it is growing nor when it is cut. Unlike our neighbors.
We’ve been talking with legislators and working with coastal communities concerned about what clear cuts and weak stream buffers are doing to their water supplies. We decided it was time to sponsor a series of forums around the state. We’ve held two Zoom forums on the coast; now it’s your turn in the Portland metro area.
Timber Tax Fairness for Counties, Water and Forests
Zoom event Wednesday, November 11th 6:00-7:30.
Click here to register
Timber Tax Fairness for Counties, Water and Forests
- Why are some rural counties struggling to afford essential services?
- Who owns large timberlands in our counties?
- What do the large timber owners contribute to county needs?
- What’s happening in our drinking watersheds?
- Jody Wiser, tax policy expert, Tax Fairness Oregon
- Richard Felley, retired water district manager, past director Tillamook Estuaries Partnership
- Catherine Thomasson, MD, retired director of Physicians for Social Responsibility
Recent articles by Tony Schick of OPB and Rob Davis of the Oregonian and ProPublica revealed the shocking reality that Oregon’s timber owners don’t pay their fair share of taxes. For decades these timber owners have worked to incrementally reduce their tax liability, and, as a result, rural communities have suffered. Here are the articles that explain how the timber industry managed to get its tax burden decreased by about $3 billion since 1991.
A group of coastal residents are now exploring ways to reinstate fair timber taxes to fill the hole left in Oregon’s rural county budgets created by the elimination of the tax that helped to pay for county services. Their legislative concept restoring fair timber taxes would help to fund K-12 education, water sources protection and forest fire protection.
State Legislative Counsel is drafting the legislation to reinstate timber taxes to 1996 levels and redirect that funding to local communities. It would also provide a tax reduction to those companies that switch to more environmentally-sound forestry practices (e.g. no pesticide use, longer crop rotations, increased water health, and mitigating climate change).
Dear Legislators: cut tax loopholes, not services
At its August special session, the legislature will address a drop in revenue due to the COVID recession.
The shortfall is about $1 billion. Leaders have proposed spending cuts and use of reserves. The forecast is for an even bigger deficit in the next biennium.
Unfortunately, they have proposed no increase in tax revenues as part of a balanced plan.
The CARES Act, enacted in March, included a half-dozen provisions that harm Oregon’s general fund. The first four, listed in the Legislative Revenue Office report, reduce Oregon’s 2020 revenue by $250 million – almost all of it benefiting the already wealthy. Legislators need to act now, before 2020 taxes are filed, to disconnect from these provisions. The legislature is traditionally reluctant to change tax law retroactively, so this is work for 2020.
According to the congressional Joint Committee on Taxation, 88% of the tax break losing the greatest revenue ($89 million) will go to taxpayers with incomes greater than $500,000, and 95% to those with at least $200,000. To put this in perspective, in 2018 the top 1% of income earners in Oregon reported at least $369,000 and averaged nearly $1 million. Median family income was $53,000; for Black Oregon families it was $32,000.
The benefits of these four measures will overwhelmingly go to the very wealthy, and they are overwhelmingly white. They will be paid for by cuts to services for those with low incomes and people of color.
So why should the legislature cut checks to the wealthiest and reduce funds for the aging and people with disabilities and for mental health services? This is an immoral choice.
The wealthiest in Oregon will still get the much larger federal benefits, and they pay much lower federal taxes thanks to the 2017 cuts. They get most of the Oregon kicker and benefit from lower state pass-through rates and a host of other corporate and high-income tax loopholes.
Contact your legislator and tell them to disconnect from these federal tax provisions.
This is an extraordinary story about the manipulation of the legislature to give timber owners a free ride in Oregon . . . from taxes and from regulations. The biggest tax break, the elimination of the Oregon severance tax on private timber holdings, happened in the 1990’s, when few currently in the legislature were serving. And most of those currently interviewed can’t even remember this giveaway that has caused timber towns and counties to lose billions of tax dollars over the years!
This ProPublica headline says it all:
Big Money Bought Oregon’s Forests Small Timber Communities Are Paying the Price
To make matters worse, corporate publicists have diverted the blame for this impoverishment, blaming environmental protection rules regarding the spotted owl, salmon, and other endangered species. And this cover up has in turn helped deepen the so-called rural-urban divide, when in fact all Oregonians have a stake in protecting our environment and ending this corporate tax giveaway.
Now it’s time to get our legislators to act.
This Oregon timber taxes story is BIG. And of course, it’s tied to political donations. “Oregon lawmakers take more money from the industry than in any other place in America.” As of Monday, no legislators had reached out to the reporters, a team from OPB, the Oregonian and ProPublica.
“Polluted by Money”, last year’s equally deep and detailed investigative reporting series got legislative action for campaign finance reform since that Rob Davis series. The most important of which was a legislative referral to the November 2020 ballot for a constitutional amendment that – if we pass it – will make explicit in the constitution the long debated question of whether the state constitution allows rules regulating money in politics. See here for a summary of what campaign finance reform passed in the 2019 session.
Get outraged, and send your legislators a message asking them to address the longstanding timber tax issue. It tells how big money bought up private forestland in Western Oregon and how those investment companies benefited from long-forgotten tax breaks that ultimately cost these rural communities billions.
If you prefer listening to reading, Think Out Loud did a 20 minute segment Monday with two of the reporters.
Will there be legislative action?
Maybe… if you help push.
When we were listed as the only Oregon organization calling on Congress to end the Millionaires Giveaway in the CARES Act, we decided to work on this issue. We are acting ourselves, asking you to act and urging our colleagues in other Oregon organizations to let our congressional delegation know: “We want to end the giveaways,” and we are watching them.
Yesterday, we saw the first step in a potential win for tax fairness when repeal of the ‘Millionaires Giveaway’ was included in the House Democrats latest coronavirus package, the HEROES Act. It’s an 1800-page bill. But there is an 80 page summary of the proposed legislation, and on page 18 of the summary, the giveaway provisions of the CARES Act are reversed! Friday the House will vote. Unfortunately, it will then go to Mitch McConnell’s Senate.
HEROES Act Would Close $135 Billion Loophole for the Rich Opened by CARES Act
As Americans for Tax Fairness (the lead organization of the reform effort at the national level) wrote:
Proving the power of an outrage-fueled reform effort, a $135 billion tax handout to the rich slipped into the coronavirus relief law enacted in March is slated for repeal in the latest pandemic measure unveiled yesterday by House Speaker Nancy Pelosi. The HEROES Act would claw back the “Millionaires Giveaway” offered by the earlier CARES Act, ending a massive bonanza for the nation’s wealthiest noncorporate business owners created at the expense of millions of Americans suffering from COVID-19 and its resulting recession.
Nearly 225 organizations have denounced the tax break in a letter to Congress. Oregon’s place in the list grew from just Tax Fairness Oregon to include League of Women Voters of Oregon, Northwest Progressive Institute, One Small Thing PDX—Indivisible, Oregon Alliance for Retired Americans, Oregon Center for Public Policy, Oregon Women’s Rights Coalition, and Our Children Oregon. The list of national organizations of course includes groups like the Main Street Alliance, SEIU, National Education Association, Patriotic Millionaires, AFL-CIO and many others.
“This is a great victory for tax fairness,” said Frank Clemente, executive director of Americans for Tax Fairness. “We thank Speaker Pelosi and our allies in Congress for heeding the call of hundreds of organizations and thousands of online activists who demanded that this tax break be stricken from legislation that was designed to help struggling families, communities and health care workers—not line the pockets of wealthy business owners. We urge the measure’s speedy House passage and will wait to see whether Senate Majority Leader McConnell and Senator Grassley, the authors of this odious provision, will stand with working families instead of fat-cat campaign donors by supporting its repeal.”
And we thank those of you who picked up your phone, your pen, or clicked away on your computer to send messages to your Congressional representatives. Blumenauer and DeFazio were already co-sponsors of the House Bill. Since we all started pushing, Senator Merkley signed on as a co-sponsor of the Senate bill. Senator Wyden assures us he agrees the provisions should be accepted. And, Congressman Bonamici is reviewing the legislation!
As the top Democrat on the tax-writing Finance Committee, Senator Wyden will likely be part of the “insiders” group that negotiates on compromise legislation when the HEROES Act reaches the Senate. Let’s keep up the pressure on Wyden. It is ridiculous for the pandemic to be used as an excuse for enriching real estate moguls and private equity investors. The Senate MUST agree to eliminate the provisions the House has called out for elimination.
Go here for the full press release by Americans for Tax Fairness.
End the #MillionairesGiveaway in the CARES Act
Contact Oregon’s Congressional Delegation
Demand ending the tax breaks for millionaires in the CARES Act to pay for what’s needed: rental assistance, foreclosure prevention, homeless services, true small business support, extended unemployment, etc…
House and Senate leaders are currently debating the scope of the next coronavirus package. The next few weeks will be critical for advocates as we work together to ensure it’s done right.
Please contact your Congressional representative and Oregon’s senators. Tell them you support taking back the tax breaks in the CARES Act using H.R.6579 which will amend the Internal Revenue Code to again limit the carryback of net operating losses and to restore and make permanent the limitation on excess business losses. This legislation and a companion bill in the Senate is sponsored by Rep. Doggett and Sen. Whitehouse, with 51 co-sponsors.
Congress should use the $135 billion this bill will save for people who are actually hurting. If your representatives haven’t signed on, urge them to do so; if they have, let’s thank them. Scroll to bottom for contact info.
What to ask for?
President Trump’s $2 trillion CARES Act gave big tax cuts to corporations and wealthy individuals at the expense of the people who really need the money. The CARES Act included $135 billion in tax breaks over 10 years, with most of it occurring in the next two years. People making $1 million or more will get 82% of the tax breaks. There are only 43,000 taxpayers with that kind of income.Their tax cuts will average $1.6 million each! In Oregon, likely only 400 taxpayers will get these tax breaks. By comparison, everyone else is getting a one-time rebate check of $1,200 per adult and $500 per child. This is unconscionable.
Sen. Sheldon Whitehouse (D-RI) and Rep. Lloyd Doggett (D-TX) have introduced bicameral legislation to take back these tax breaks.
According to the Sen. Whitehouse, the bill would “repeal a massive tax giveaway for a small group of wealthy taxpayers…included in the coronavirus relief bill. The legislation would do away with provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that the nonpartisan Joint Committee on Taxation (JCT, Title II.C.4) estimates will reduce government revenue by $135 billion (revised estimate 4.27.20) over ten years, and that would overwhelmingly benefit wealthy taxpayers like hedge fund managers and real estate speculators.”
Our Senate and House members need to hear that we want them to repeal the tax breaks in the next CARES bill. For a full understanding of how this tax break was applied and action to take, click here: https://americansfortaxfairness.org/covid/
In Whitehouse’s assessment: “Tax giveaways for a wealthy few shouldn’t have come near a coronavirus relief bill. Relief legislation ought to address the needs of small businesses and workers, not fleece taxpayers to benefit real estate moguls and hedge fund billionaires. By repealing these special interest giveaways, we can free up billions of dollars for federal assistance our communities and economy so desperately need”.
We agree with co-sponsor Rep. Doggett who said that the CARES Act tax break means that “While American families anxiously await modest relief checks, the richest slice of the 1% have already been cared for…in the CARES Act—at about $1.6 million each. The ultrarich can claim paper losses during boom times before the pandemic even began. This provision isn’t about coronavirus, working families or small businesses struggling to stay afloat. It is just more insider politics to get millions to those who have millions, especially real estate investors and hedge fund managers. Repealing this giveaway will free resources needed to help those truly in need.”
Please write to your members of Congress asking them to repeal the outrageous business tax giveaways in the CARES Act which only aggravate the already appalling inequality this country faces today. Rather than creating more tax loopholes for multi-million dollar businesses and the wealthy, we should be reducing income inequality.
We think there’s a credible chance of getting this tax break repealed or at least pared back. The House legislation (co-sponsored by Blumenauer and DeFazio) that proposes to repeal this tax loophole is in Ways and Means. We just learned that today, the Senate repeal bill is being introduced with at least 21 cosponsors! Sen. Merkley is one of them! Please keep up the pressure. Thank some and push the others today.
Contact your Members of Congress
Step One – Find your Representative
Find out who represents you in Congress! Every Oregonian is represented by Senator Ron Wyden and Senator Jeff Merkley. Find who represents you in the US House of Representatives by looking up your address here: https://www.govtrack.us/
Step Two—What to say? Sample script
Please ensure the next Congressional relief package ends the #MillionairesGiveaway in the CARES Act. Address the urgent needs of people in economic distress, not the wallets of the wealthy who clearly don’t face dire straits. H.R. 6579 and its companion in the Senate are needed in and of themselves; they should never have been enacted. The $135 billion which will be freed up with passage can pay for help where it is actually needed.
Thank Oregon Reps co-sponsoring the #MillionairesGiveaway
If you live in Congressman Earl Blumenauer’s district (OR-3), Congressman Peter DeFazio’s district (OR-4) write or call them and Senator Merkley and say: something like:
THANK YOU for being a co-sponsor of H.R. 6579, and the Senate bill to end the egregious #MillionairesGiveaway. The beneficiaries of the tax breaks in the CARES Act are not those we should be helping with tax breaks, now or ever.
Ask other Oregon members of Congress to sign on
Ask Senator Wyden and Representatives Bonamici, Schrader and Walden to support the legislation sponsored by Senator Whitehouse and Congressman Doggett and request that their names be added to the co-sponsors’ list here.
Personalize your story
If your unemployment took too long to arrive, or you would benefit from the tax breaks but you know you don’t need them, please say a few sentences about that.
It’s so important that our lawmakers know what’s happening in our communities.
Step three – How to contact Oregon’s Congressional delegation
Call or email your Congressional Representatives at:
Congresswoman Bonamici (OR-1)
Congressman Walden (OR-2)
Congressman Blumenauer. (OR-3)
Congressman DeFazio (OR-4)
Congressman Schrader (OR-5)
Call or email our Senators at:
TFO message to Rep. Nathanson
TFO’s Steering Committee had a Zoom meeting recently with House Revenue Committee Chair, Nancy Nathanson. At the end of the meeting we asked what we could do that would help, and she said “put the points you’ve made during this call on paper and send them to me.”
Here’s what we sent:
April 9, 2020
Representative Nancy Nathanson
House Interim Committee on Revenue
900 Court St NE, H-279, Salem, OR 97301
Dear Chair Nathanson:
Thank you for taking time with Tax Fairness Oregon today to discuss the agenda of an anticipated special session. The chief points that concern us are summarized as follows:
Protect Oregon’s revenue base
The state will experience enormous social-service expenditure increases in this uncertain period. The last thing the Legislature should do is cut taxes on successful businesses. Tax cuts for businesses that have downsized, closed or lost money will have no effect; for others whose net income is rising because of market shifts created by COVID-19, tax cuts would represent a windfall.
Therefore, we should maintain the Commercial Activities Tax. If there is any delay or reduction, Legislators must tie it to a similar delay or reduction in the personal income tax rates also in the Student Success Act.
Carefully study the revenue impacts of any future conformity to the CARES Act.
Some of the “temporary” changes in the CARES Act provisions would negatively affect Oregon’s revenue.
Of particular concern are:
- Lifting the deduction limitations imposed by the TCJA on both net operating losses and interest. The congressional Joint Committee on Taxation pegged the cost of the retroactive (but temporary) Net Operating Loss and Loss-Limitation changes at $440 billion for 2020 and 2021. For example, currently real estate investors with yearly income over $250k/$500k can eliminate 80% of their taxes on other income with losses in real estate. That limit is lifted with the CARES Act. See this article for more understanding of the wide applications of these changes.
- The three expansions for charitable deductions: the $300 deduction made available for non-itemizers; the lifting of the 60% of AGI lid on charitable deductions for 2020; and the increased deduction limit for businesses from 10% to 25% of taxable income. While federal revenues are expected to be reduced by a more modest $1.5 billion over two years, these changes aren’t even supported by Forbes Magazine.
And of course, “temporary changes” tend to become permanent later.
Before connecting to these and other elements of the CARES Act and future COVID-19 related bills, Legislators need to know the beneficiaries and anticipated cost.
Review raising revenue
Income-tax cuts pursuant to the Student Success Act
If the Legislature were looking for a revenue boost to fund increased expenditures, the 0.25% point reductions in the 5, 7, and 9% income tax rates would be an excellent place to start. Oregonians may not have noticed the reductions, which give $624 to couples nearing $250,000 of taxable income, and nothing to the bottom 25% of Oregonians who don’t need to file or who file but have other tax credits which use up their tax liability. The revenue estimate from the 2019 session put the provision’s cost at 25% of the CAT revenue. This change would prove positive in the long term as well as the short term.
Evaluate temporary measures
If the need for additional revenue becomes apparent, and only short-term changes are acceptable to legislators, they can look at surcharges on corporate and personal income taxes or temporary rate changes as voters approved in Measures 66 and 67 during the last recession.
Pass revenue bills with bipartisan support
The Legislature was unable to pass routine conformance measures SB 1528 and SB 1531 or the changes in HB 4009 and SB 1529 in the foreshortened 2020 session. Further, the tide was changing on HB 4010. The agenda of a special session should include all of these.
Thank you for your consideration.
Tax Fairness Oregon
Oregon’s response to the pandemic
TFO’s steering committee has been following the legislature’s consideration of the COVID-19 pandemic.
The Joint Special Committee On Coronavirus Response is examining options, some of which will be funded by Congress. Committee members are discussing how they can help those whose jobs have disappeared and whose businesses have shuttered. On Friday the committee reviewed everything from housing and utility supports to unemployment insurance, paid sick leave policies and the health care system needs. Monday at 9:00 am they’ll begin consideration of short-term employer supports. You can watch along with us here. Committee action may come at the end of the month, after which the legislature may be called into session.
Following the business lobby’s request that the government delay the Commercial Activities Tax and enact tax credits and other revenue cuts, we wrote the committee. We agree that Oregonians will need help, but draining the funding for that help is foolhardy.
Working in coalition with other organizations, we’ve signed on to a letter that will be sent to the committee Monday.
Opportunity Zone bill moves forward
House Committee Approves ‘Compromise’ Opportunity Zones Bill
The House Revenue Committee has approved a bill that would reduce by half the capital gains tax benefit for Opportunity Zone investments available for profits on sales of assets after ten years.
Committee Chair Nancy Nathanson, a strong supporter of disconnecting the State from federal tax benefits, found a compromise that Democratic leaders hope will win a floor vote and pass the Senate. The amended HB 4010 passed out of the House Revenue Committee on party lines: 4-3. Committee Democrats David Hernandez and Alissa Keny-Guyer said they preferred the original bill which would have denied Oregonians the capital gains tax breaks created by the 2017 federal tax law.
“There are many of us who want to just disconnect,” said Hernandez, a Tax Fairness Oregon ally on the bill. “It’s already disgusting how much wealth inequality there is in this country and this state.”
Pam Marsh supported the compromise which will require the state to collect information on investments, allowing it to study “what we are getting or paying for,” she said. And the reduced state tax benefit says to investors, “We also want you to give back a little bit to local communities . . . when you do make money.”
The bill now moves to the House floor for a vote. Please urge your legislators to vote for it!
On February 20th, the Oregonian reported on the bill as the committee was preparing to pass it.
The original bill would have denied state tax breaks that are effectively connected to the federal provision. In TFO’s conversations with legislators, it appeared that Beaverton city officials had convinced enough Democrats that the tax breaks for investors were a critical tool for development in their Opportunity Zones where a number of hotels, a class A office building and a performing arts center (with $1.5 million of state funding) are under construction. While Beaverton was the leader, cities and economic development officers from around the state pushed hard against the original bill.
House Republicans helped organize opposition to TFO’s advocacy according to testimony submitted to the committee by an Oregon law firm, Dunn Carney.
TFO shared with legislators evidence that several high-profile projects in Portland—including the Ritz-Carlton and Eleven West—were planned before the 2017 provision was enacted, and that their owners folded them into new entities to exploit the tax savings. Those points—among others to which our coalition of 18 labor, civic and policy organizations lobbied and testified—were not enough to sustain support for the original bill.
The amended bill would require the State Department of Consumer and Business Affairs to collect information on projects drawing Opportunity Funds, the federally sanctioned vehicle through which the tax benefits are available to investors. That would allow the Legislative Revenue Office to weigh alleged benefits and the cost to the General Fund.
Help us get the amended HB 4010 across the finish line.
O Zone tax benefits include deferred capital gains tax on proceeds from assets sold and then invested in Opportunity Funds. Under federal law, the tax owed is reduced by up to 15% when paid no later than 2026, and the capital gain on the sale of invested O Funds is tax-free after 10 years. Under the amended bill, the State tax on O Fund gains would be half the regular rate—4.95% rather than 9.9%, the top income tax rate. The reduced rate would apply to Oregonians’ capital gains in O Zones throughout the country.
The Oregon Center for Public Policy produced a four-minute video on Opportunity Zones.
LRO estimated the cost in this biennium would be about $16 million. The congressional estimate upon which that number was based has since doubled. No economist has guessed the cost of the tax exclusion for investments held 10 years.
Some legislators contend that Oregon should study the effects of O Zones before disconnecting. But the benefits and ostensible purpose of the zones have been in various federal incentives since the 1990s such as giving investors tax breaks for investment in geographic areas meeting poverty criteria. Economists on the left and right have long criticized the provisions as ineffective: They don’t alleviate poverty or create employment, but they do increase housing costs.
Analyzing O Zones, the libertarian Cato Institute concluded: “They actively divide the nation between winner and loser communities. They replace equal justice under law with differential treatment based on political pull. The main winners likely are landowners within the zones, not poor households.”
Opportunity Zones were the brainchild of Sean Parker, the first president of Facebook. Parker funded a think tank in Washington to shop the idea on Capitol Hill and spent $2.88 million on lobbyists over three years finding a home for the provision in the Trump tax bill. The New York Times reported in August that Parker had told an investor conference, “When you are a founder of Facebook, and you own a lot of stock, you spend a lot of time thinking about capital gains.”
The House will vote on the bill within days. An email to your legislators asking them to support HB4010 will help it get across the finish line. With studies supported by data, we can come back for full disconnection in 2021.
Tasting rooms don’t deserve public subsidy
Besides the Opportunity Zone bill, there is another tax issue that needs your immediate attention.
Legislators, many of them Democrats, believe the state needs to subsidize distillers by giving them virtually all the liquor tax collected on their products.
Currently when a distiller sells bottles of their own Oregon-made whiskey, bourbon or other distilled liquor in their tasting room they get the same pay as an OLCC liquor store owner. The amount is based on the price of the bottle and is about 17%. Distillers want to raise it to 45%, essentially obliterating what the state and local governments get to treat alcoholism, deal with deadly accidents, and care for family members hurt by the consequences of alcohol.
The increase is ONLY on the first quarter of a million of sales, but it means we’re ultimately paying that distillery $112,500 a year to sell their own product. The lobbyist for the industry said at the hearing for SB 1565 that the change in law is “to make tasting rooms economically viable.” (Listen here).
In a sample letter to their members, they call this “being able to add a full-time staff person and increase the compensation of the staff we have now.”
When did it become the state’s job to make any commercial business economically viable or to pay for their employees? We certainly don’t do it for bookstores or marijuana stores. Just as too many marijuana retailers emerged and many failed, the same is true for distillers, there are too many. There are 11 in the Distillery District of inner SE Portland alone. They have a very strange “one product” business model. Very few businesses survive with only one kind of product. Coach bags, marijuana stores, OLCC stores, jewelry and shoe stores – that’s about it. All but high-end stores, like Coach, sell not just their own but many other businesses’ products. When suggested that they be allowed to sell their own liquor at higher prices than the liquor stores if they need to make more money, they reject that immediately.
Despite our testimony and that of the recover community, the bill passed out of its first committee and is now in Ways and Means. Please email these five “deciders” of the legislature and remind them of why we collect liquor taxes. Ask them to reject SB 1565.
The timing of this is critical. We need these to be in email boxes this week.
Senator Betsy Johnson Sen.BetsyJohnson@oregonlegislature.gov
Senator Elizabeth Steiner Hayward Sen.ElizabethSteinerHayward@oregonlegislature.gov
House Speaker Tina Kotek Rep.TinaKotek@oregonlegislature.gov
Representative Barbara Smith Warner Rep.BarbaraSmithWarner@oregonlegislature.gov
Representative Dan Rayfield Rep.DanRayfield@oregonlegislature.gov
Rep. Smith Warner,
The state’s job is to hire teachers and foster care workers, DEQ, Department of Revenue and BOLI employees, forest firefighters and state troopers. Why would any legislator think we should also be paying to hire tasting room employees for distilleries? This is outrageous.
Oregon’s liquor taxes help pay for the very services liquor abusers require: treatment, policing and health care. That’s why we have those taxes.
If distillers are struggling to make a profit, they need higher prices or a more complicated business such as brew pubs have. Or maybe there are just too many of them.
Their business model is NOT a state problem. When they went into the business, they knew they would need to pay OLCC taxes just as they knew they would need to buy equipment and pay rent. When bookstores’ business model didn’t work, you didn’t leap in to help them. Newspapers are certainly struggling, should we hand them $112,500 on their first $250,000 of sales too?
Why are you considering SB 1565? The alcohol business should be treated like others. They owe certain taxes; they should pay them.
Please let SB 1565 die in Ways and Means.
If you are curious, here’s what distillers are being asked to do.
SB 1565 has a surprising list of supporters: Sponsored by Senators BEYER, MANNING JR, Representatives NOSSE, GOMBERG; Senators BURDICK, DEMBROW, FINDLEY, FREDERICK, GELSER, GIROD, GOLDEN, HANSELL, HEARD, JOHNSON, KNOPP, LINTHICUM, MONNES ANDERSON, PROZANSKI, ROBLAN, STEINER HAYWARD, TAYLOR, WAGNER, Representatives BOSHART DAVIS, BREESE-IVERSON, EVANS, FAHEY, HELT, LEIF, LIVELY, MOORE-GREEN, NATHANSON, WALLAN, WILDE, WILSON
The message is simple: stop giving money to rich people
On February 6th, the House Revenue Committee held a hearing on HB4010, our bill that would disconnect Oregon from federal Opportunity Zone tax provisions. The hearing flushed out the opposition unseen till now: investors and their proxies – economic development folks, real estate developers, lawyers and accountants. City economic development staff, as always, contended that without the ability to give away taxpayer money, they can’t attract development. Legislators are telling us that trickle-down advocates are calling and visiting them to lobby against the bill.
It’s time to show Senate and House members that you support HB4010 and do not want to continue to encourage more wealth disparity by allowing more tax schemes. As one legislator said: “It’s really simple: stop giving money to rich people.”
Call/email your legislators today
Legislators tell us they ignore cut-and-paste jobs, so we recommend any of these points in your own words:
- The tax benefits go to the rich (7 percent of taxpayers have reportable capital gains).
- Most investments will go to metro Portland or out of state, not Oregon’s towns.
- Oregon’s investors can get tax reductions from the state even though they invest elsewhere.
- Congressional estimates of the federal revenue loss have more than doubled since Opportunity Zones (O Zones) were enacted two years ago—and the latest estimate was released before Treasury issued its final “Come on in!” regulations in December. (Two years ago the Legislative Revenue Office estimated a loss to Oregon of $15.8 million in this biennium.)
- Our research found that the big-ticket investments to date in Portland were underway before O Zones were designated meaning O Zones have not advanced any investments, dubious or otherwise.
- O Zone investments are tax breaks on top of profits, because capital gains tax breaks have no value if an investor has no capital gains. On the flip side, the tax benefit cannot make a marginally profitable investment a good one, because investors will seek a sure bonanza elsewhere.
- Thirteen states provide no state income-tax benefit for O Zones, either because they don’t conform to federal tax law (California, Mississippi, Massachusetts, North Carolina) or have no state income tax (among them Washington, Nevada, Texas and Florida).
- HB4010 doesn’t affect the much larger federal tax benefit and therefore has a marginal effect on investment decisions—but has a large effect on Oregon’s treasury.
Emails matter. Chair Nathanson has not scheduled HB4010 for committee action; the floor would follow, quickly. Then it is over to the Senate, where we’ll have our hands full. Request a work session on HB4010.
A number of coalition members testified, balancing opposition from the investors’ advocates. A link to witness testimony, starting with our 14-minute presentation on behalf of the coalition, is here: House Committee On Revenue 2020-02-06 5:30 PM – Feb 6th, 2020