PUBLIC HEARING ON HB 3050, HB 2505,

HB 3183, HB 2506, HB 2950  

 

TAPE 97, 98 A-B

 

HOUSE REVENUE COMMITTEE

MARCH 26, 2003   8:30 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams                                               

 

Members Excused:                      Representative Phil Barnhart

 

Witness Present:                        Linda Burglehaus, Oregon Municipal Finance Officers Association

                                                            Tax Supervising & Conservation Commission

                                                Tom Gallagher, Oregon Newspaper Publishers

                                                Curt Copenhagen, Longview Fiber Company

                                                Joe Schweinhart, Associated Oregon Industries (AOI)

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Mazen Malik, Legislative Revenue Office

                                                Lizbeth Martin-Mahar, Legislative Revenue Office

                                                Kathy Tooley, Committee Assistant

 

TAPE 97, SIDE A

004

Chair Shetterly

Calls meeting to order at 8:35 a.m.

 

PUBLIC HEARING ON HB 3050

 

010

Mazen Malik

Presented background and described HB 3050, no revenue impact, no fiscal impact as yet (Exhibit 1).

 

040

 

094

 

115

 

135

 

145

 

159

 

180

Linda Burglehaus

 

Burglehaus

 

Burglehaus

 

Burglehaus

 

Burglehaus

 

Burglehaus

 

Burglehaus

Spoke in favor of HB 3050, (Exhibit 2).  Discussed scope of the bill.

 

Discussed audit violation problem.

 

Discussed capital expenditures.

 

Discussed 5 year loan and setting of rate of interest.

 

Discussed clarifying jurisdiction language; change filing date to July 15.

 

Discussed Multnomah County tax supervising issue.

 

Discussed error in law regarding ending fund balance that was just noticed.

 

Questions and discussion regarding organization structure.

 

205

Chair Shetterly

Are you aware of any possible fiscal impact?

 

207

Burglehaus

Don’t believe so, may relieve some of the burden on the districts.

 

210

Tom Gallagher

Would like to look at in more depth, feels he may not oppose, but would like to review.   Concerned regarding elimination of salary listing.  May come in with a bill next session requesting that information in a simpler format.

252

Chair Shetterly

For the record, received written testimony from League of Oregon cities, (Exhibit 3).

 

267

Chair Shetterly

Closed public hearing on 3050

 

 

OPENED PUBLIC HEARING ON HB 2505, HB 3183, HB 2506 AND HB 2950

 

294

 

308

 

 

 

 

390

 

402

Lizbeth Martin-Mahar

 

Martin-Mahar

 

 

 

 

Martin-Mahar

 

Martin-Mahar

Provided background and described Oregon Tax Incident Model, (Exhibit 4)

 

OTIM addresses two policy objectives:  Provides lawmakers on overall distribution of Oregon tax burden by household, incorporating all of Oregon’s taxes; develops a capacity to identify and quantify behavior responses to significant tax changes.

 

Discussed feedback affects, assume 5 year period of time for adjustments.

 

Discussed “Basic Circular Flow Diagram”, (Page 2, Exhibit 4).  OTIM tries to capture feedback affects with factors of production adjusting for different shocks imposed on system.

 

460

Rep. Verger

Is it calculated 5 years into the future or back?

 

470

Martin-Mahar

Described calculations based on 1997 dollars.  Described methodology involved with “shocking the system”.

 

483

Paul Warner

5 years is an assumption about how long it takes the system to adjust back to a new equilibrium.  Look at current system, make big policy change, then adjustments, assume 5 year period.  It is a supply driven model, responds to labor and capital. When in a recession, business is not going to invest regardless of cost of capital. 5 years is an average dependent on external circumstances.

 

 

TAPE 98, SIDE A

 

043

Warner

OTIM is not a business cycle model; it is a long term equilibrium model.  This is about changing our competitive position and the speed of adjustment is influenced by external factors like the business cycle.

 

054

Chair Shetterly

For the record, why 1997?

 

055

Warner

1997 is the base year used because there is complete data.

.

064

Chair Shetterly

When it is updated, when will it update to?

 

065

 

070

Warner

 

Warner

Believe it is 2000.

 

OTIM assumes have to balance budget, it reduces expenditures by equal amounts to restore balance.  Less confident of feedbacks on spending side, for example education. Comfortable on the tax side in terms of behavior.

 

083

Rep. Scott

Why doesn’t the business cycle affect household, supply and revenue?

 

089

 

 

 

100

Warner

It doesn’t affect responses, it affects overall level of activity, key parameters are its response to prices; how workers respond to changes in wages; capital response to net returns.

 

Questions and discussion regarding effect of responses.

 

131

Rep. Scott

What would be the margin of error?

 

134

Warner

It will vary with individual assumptions.

 

151

Chair Shetterly

On each of these bills the margin of error would be comparable; concern may be comparative value rather than actual accuracy?

 

154

Warner

Answered affirmatively.  Revenue impact is prepared in the usual way, and then tied to the latest economic and revenue forecast.  It is then modified on percentage basis based on OTIM feedbacks.

 

163

Martin-Mahar

Discussed OTIM results averaged over 5 years. Discussed comparison criteria from tax cut proposals. (Page 3, Exhibit 4).  Discussed rankings.

 

208

Chair Shetterly

The positive feedback is the growth stimulus affect of each proposal?

 

210

Martin-Mahar

Answered affirmatively.

 

212

Warner

The positive feedback is a revenue feedback determined by the revenue system.

 

240

Martin-Mahar

Discussed static and dynamic revenue impacts of the four bills.

 

254

Warner

Discussed how OTIM is affected if consumer spending is increased.

 

273

Rep. Verger

21.5% does it make the assumption that the RD credit was successful?

 

292

Warner

Shows that as a result of the RD credit, the net after tax return to capital is higher in Oregon than before the tax change.

 

305

Martin-Mahar

Discussed personal income criteria.

 

324

Rep. Hass

For every $1 million spent in RD, the result is 1.98?

 

328

Martin-Mahar

Answered affirmatively, it is personal income that is created in the economy.

 

339

Rep. Hass

Personal income, not revenue to the state?

 

333

 

 

Warner

Answered affirmatively.  Personal income is measure of overall economic activity.

 

343

Chair Shetterly

What is the connection between $1 million spent and $1.98 million in additional revenue?  Where is that coming from?

 

345

 

 

360

Martin-Mahar

RD is a very broad credit, causes firms to invest more in their capital.  Discussed single-sales apportionment.

 

Discussion of RD credit affects.

 

381

 

Questions and discussion regarding 5 years and RD credit.

 

405

 

Discussion regarding equilibrium.

 

428

 

 

430

Martin-Mahar

 

 

Martin-Mahar

Change in investment is what is driving the increase in personal income; RD is ranked 1, followed by single sales apportionment; and capital gains.

 

Discussed net job change when shocked; the most employment and increase in wages would come from the capital gains tax cut.

 

480

Chair Shetterly

OTIM says capital gains tax cut would generate more new employment, and generate less in additional personal income, please explain?

 

486

Martin-Mahar

Function of in-migration and out-migration, not stimulating production factors.  Not as great a stimulus as RD credit or single sales factor which changes prices of capital encouraging firms to stimulate the economy.

 

 

TAPE 97, SIDE B

 

046

Warner

OTIM looks at long term competitive position, does not deal with the business cycle. Net job growth comes from getting more labor to come to Oregon.  RD credit pulls in new capital and gives existing workers more to work with. Capital gains increases net income of high income households;. OTIM assumes this group has a higher mobility and will respond more to a higher net income.

 

065

Martin-Mahar

Capital gains tax cut produces largest net jobs; RD ranks second, single sales ranks third.

 

071

 

 

081

 

 

092

Martin-Mahar

 

 

Martin-Mahar

 

 

Martin-Mahar

Single sales benefits manufacturers, those with property and payroll, but does not help labor-intensive industries such as retail.

 

Discussed capital index.  RD gives biggest percentage increase in return to capital; followed by single sales; capital gains does not create an incentive.

 

Discussed wage affects:  RD positive return followed by single sales; capital gain causes a reduction because of net migration of individuals to the state.

 

094

Chair Shetterly

Is that because RD and single sales focus on industries with higher paying jobs?  Capital gains affects a broader spectrum and lower paying jobs?

 

102

 

 

116

 

 

118

Warner

 

 

Warner

Capital gains increases the supply of labor, reduction in wage is offset by increased number of jobs in higher income.

 

RD and apportionment benefit manufacturing sector where higher paying jobs are.

 

Discussion effects on personal income for each reduction

 

137

Martin-Mahar

OTIM adds a tax incident model, breaks down households and the impacts they will feel from tax changes.  OTIM can add tax reforms together and show overall tax burden.

 

165

 

171

Martin-Mahar

 

Martin-Mahar

Discussed HB 2505 capital gains tax cut proposal (Exhibit 5)

 

Discussed how HB 2506, HB 3183, and HB 2950 affect OTIM and tax liability for various income groups.

 

233

Chair Shetterly

What accounts for jump under capital gains 3%, to 14%, to 8% (Page 3, Exhibit 4)?

 

220

Martin-Mahar

Could be the seniors in this category.

 

242

Rep. Hass

Ultimate question, which would do the most to stimulate the economy, short term, long term?

 

251

Warner

OTIM gives results based on best economic theory; depends on what you are trying to achieve.  If trying to increase personal income, comparing to loss in revenue, the biggest feedback would come from RD credit.  If trying to increase long run employment, then biggest feedback is with capital gains. Role as policy maker is to decide what is trying to be accomplished.

 

Questions and discussion regarding capital gains.

 

300

 

Martin-Mahar

Discussed HB 2950 revenue impact, (Exhibit 6).

342

Martin-Mahar

Discussed HB 2506 revenue impact, (Exhibit 7).

 

368

Chair Shetterly

Rep. Hass, are the amendments available on these?

 

 

 

370

Rep. Hass

No.

 

370

Martin-Mahar

Discussed HB 3183 revenue impact, (Exhibit 8).

 

403

Martin-Mahar

Discussed HB 2505 revenue impact, (Exhibit 9).

 

 

TAPE 98, SIDE B

 

020

Curt Copenhagen

Spoke in opposition to HB 3183, the bill when full implemented would cost the company $500,000 a year. 

 

060

Joe Schweinhart

Spoke in support of HB 2505; discussed OTIM model, concerned that it does not look at business cycle.  Capital gains effects economy now vs. the future.

 

072

Chair Shetterly

Shows $1.2 million revenue impact for 2003-2004, assumes a low impact in terms of real dollars?

 

074

Martin-Mahar

That’s correct, the underlying assumptions as coming from OEA, we use the forecast from DAS for capital gains assumptions, it is not OTIM’s.

 

098

 

123

 

 

 

 

137

 

 

149

 

153

 

159

 

Schweinhart

 

Schweinhart

 

 

 

 

Schweinhart

 

 

Schweinhart

 

Schweinhart

 

Schweinhart

 

Discussed assumptions on which capital gains arguments are made. 

 

Discussed importing in-migration of workers, how does that affect capital gains?  Need to see study over last few years where capital gains is going to affect revenue stream, then look at long term when economy starts to come back.

 

Individuals make most of capital gains; the consumer spends the money that drives the economy the more money in their hands, the better.

 

Discussed analysis of capital gains, (Exhibit 10). 

 

Described affects of cuts in capital gains, (Exhibit 11).

 

Two points to consider: Capital gains is most volatile and hardest revenue to forecast; capital gains reduction is the number one issue for this legislative session, constituents contend this tax is harmful for business growth.

 

170

Schweinhart

Bipartisan Growth Caucus has said that the reduction in capital gains is part of their plan.

 

 

 

 

 

 

 

 

 

183

Chair Shetterly

Meeting adjourned at 10:10 a.m.

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant Reviewed by Kim Taylor James

 

Exhibit Summary:

1.       Malik, “Staff Measure Summary HB 3050”, 1 page

2.       Burglehaus, “Testimony HB 3050”, 2 pages

3.       Oregon League of Cities, “Testimony HB 3050”, 1 page

4.       Martin-Mahar, “Description of OTIM”, 3 pages

5.       Martin-Mahar, “HB 2505 – Phase in of 5% Capital Gains Rate – Static and Dynamic Revenue Impact”, 1 page

6.       Martin-Mahar, “Revenue, Fiscal Impacts HB 2950”, 2 pages

7.       Martin-Mahar, “Revenue, Fiscal Impacts HB 2906”, 2 pages

8.       Martin-Mahar, “Revenue, Fiscal Impacts HB 3183”, 2 pages

9.       Martin-Mahar, “Revenue Impact HB 2505”, 1 page

10.   Schweinhart, “Capital Gains Taxes and U.S. Economic Growth:  A Retrospective Look”, 2 pages

11.   Schweinhart, “Double Whammy for U.S. Investors:  Federal and State Capital Gains Tax Rates High”, 5 pages.

12.   Schnitzer Steel Industries, Inc., “Written testimony HB 3183”, 1 page