INFORMATIONAL MEETING

 

TAPES 4-5, A-B

 

HOUSE REVENUE COMMITTEE

JANUARY 14, 2005   1:00 PM   STATE CAPITOL BUILDING

 

Members Present:                        Rep. Tom Butler, Chair

                                                Rep. Vicki Berger, Acting chair

                                                Rep. Brian Boquist

                                                Rep. Sal Esquivel

                                                Rep. Larry Galizio

                                                Rep. Betty Komp

                                                Rep. Andy Olson

                                                Rep. Chuck Riley

                       

 

Members Excused:                      Rep. Mark Hass

 

 

Staff Present:                            Paul Warner, Legislative Revenue Officer

                                                Lizbeth Martin-Mahar, Economist

                                                Kristi Bowman, Committee Assistant

 

TAPE 4, SIDE A

004

Acting Chair Berger

Calls meeting to order at 1:30 P.M.

 

ORIENTATION MEETING

 

012

Paul Warner

Introduces Lizbeth Martin-Mahar, staff economist in Legislative Revenue Office.

 

 

 

025

Lizbeth Martin-Mahar

Overview of income tax presentation.(Exhibit 1). Much of the information included in the slides is based on the Oregon Personal Income Tax Statistics for Tax Year 2002 (Exhibit 2).

 

 

 

40

Martin-Mahar

Slide 2: OR income and property taxes collection

 

 

 

73

Martin-Mahar

Slide 3: General Fund Revenues

 

 

 

103

Martin-Mahar

Slide 4: Number of Tax Returns. Clarification questions interspersed during discussion.

 

 

 

165

Martin-Mahar

Continuation of slide 4 discussion.

 

 

 

204

Martin-Mahar

Slide 5: Tax Withheld.

 

 

 

290

Rep. Butler

Clarification question on taxable year time frames. Martin-Mahar responds that figures refer to actual collections for a specific tax year.

 

 

 

268

Warner

In response to Rep. Butler’s question, Warner states that employer withholding taxes received by July 10, 2002 were included in 2002 figures.

 

 

 

312

Martin-Mahar

Slide 6: Breakdown by Industry and Month of Tax Withholdings Index 1998-2004.

 

 

 

374

Martin-Mahar

Slide 7: Industry Sectors

 

 

 

405

Martin-Mahar

Slide 8: Change in Industries’ Tax Withholdings

 

 

 

450

Rep. Berger

Points out that what this slide doesn’t show is how important each one of these sectors are important to OR as a percentage. These are numbers that would be better understandable if one knows how important manufacturing is to our state.

 

 

 

460

Martin-Mahar

Responds that this slide gives the committee an understanding about an industry that has struggled quite significantly in recent years. The same type of  information will be reviewed on the corporate side in a later slide.

 

465

 

Rep. Galizio

Asks question about what constitutes manufacturing versus wholesale trade. Is there a federal criteria about these categories?

 

470

Martin-Mahar

Response: This is a North American Industry Sector, including the United States, Canada, and Mexico. These categories have been approved by the federal government. It also is in the employment data that is used by the state.

 

TAPE 5 SIDE A

41

Rep. Boquist

Two questions about the Information line and the Arts and Entertainment line. The information line reflects a decline, though not as steep. In the Arts and Entertainment line, it looks like we’re not seeing as much tourism or not  as much consumer confidence in luxury spending items.

 

48

Martin-Mahar

Arts and entertainment is just that. This category does not include hotel or motel spending—there is a separate category for that. It is things like going to the movies or the art museum. It reflects the extra money that people have to spend on pleasure recreational items. It is one of the first things to be cut during a recession.

 

51

Martin-Mahar

Slide 9: Industries with Highest Percentage Growth of different industries as discussed before. Finance and insurance are still growing. Public administration has seen some growth because there were such cutbacks in local and state in 2001, and now some of that has come back.

 

 

 

63

Martin-Mahar

Previous slides were the big picture overview of the trends. The following slides pertain to the details. (Slide 10: Title page of OR Income Taxes: Details on the Personal Income Tax).

 

 

 

65

Martin-Mahar

Slide 11: OR Personal Income Tax. This slide pertains to how OR’s income tax is connected to the federal tax system.

 

 

 

121

Martin-Mahar

“Oregon additions” is defined as income that the federal government does not tax but OR does, e.g., non-OR bonds, federal income tax up to $4000 or social security income. This is something to keep in mind  for the committee to consider if the committee wants to add in to the OR tax code. It is a process already in place. The Department of Revenue can add in a new line.

 

178

Butler

Comments on making the tax system much more simplified because it would be a lot easier on the state system and the audit process.

 

 

 

190

Martin-Mahar

Slide 12: Trends in Largest OR Subtractions. Graphs on the significant subtraction categories. One of the categories that has grown significantly is the “special medical” category—deductions for medical care and a result of Measure 30. “Other” is defined as military active pay duty, scholarship awards for housing. “Federal pension” is for federal service prior to 10/1/91 and becomes pro-rated if you have service prior to that date. It should eventually start to decline. “Bond interest” is for US government bonds. Less liability at the federal level means that you can’t claim as large a federal tax deduction.

 

 

 

264

Butler

Clarification of social security income for 2003. Is the $1B on the chart the total receipts as taxable income on the federal return?

 

278

Martin-Mahar

Responds yes.

 

281

Butler

Follow-up question. If OR didn’t have a constitutional provision which precluded us from taxing the social security receipts at the average 8% out of a 9% bracket, and there is a billion plus, that could generate the equivalent of $80 million; for a biennium it would be a $160 million item potentially.

 

291

Martin-Mahar

Responds yes. The chart reflects all of the income not taxed by OR.

 

286

Butler

Introduction of family members.

 

 

 

300

Martin-Mahar

Slide 13: Top Five OR Subtractions. Same information as previous slide in table form showing amounts for tax year 2002.

 

 

 

325

Rep. Boquist

Question about the increasing age of the workforce and the growing social security income. Boquist asks for a percentage estimate—5%, 10% or?

 

 

330

Warner

Responds that the growth is in the 3 – 4 % range, tied into the changes in the Consumer Price Index, which the forecast is tied in to. We’ve had relatively low inflation. Where the increase will occur will be in the next few years.

 

355

Martin-Mahar

Slide 14: Number of Itemized and Standard Tax Returns. Chart shows graph of increase of itemized returns because of the increase of home ownership and growth of personal income tax.

 

 

 

383

Martin-Mahar

Slide 15: Trends in Largest Fed Itemized Deductions and the largest federal itemized that OR is connected to. It shows the impact of the increase of home ownership due to the mortgage interest deduction.

 

 

 

443

Chair Berger

Due to time restraints, Berger asked that discussion be kept to a minimum. Questions will be entertained. Discussion of Slide 15 continued.

 

 

 

465

Martin-Mahar

Slide 16: Top Five Federal Itemized Deductions. Same information as slide 15 in table form with amounts for tax year 2002.

 

 

 

TAPE 4 SIDE B

43

Martin-Mahar

Slide 17 and 18: 2004 Personal Income Tax Rates

 

 

 

63

Martin-Mahar

Slide 19: Trends in Largest OR Credits: categories are retirement, child care, political, earned income, working family, and taxes paid.

 

 

 

80

Chair Berger

Asks what the personal income tax credit is indexed to?

 

 

 

83

Martin-Mahar

The index used is CPI, Consumer Price Index.

 

110

Martin-Mahar

Slide 20: Top Five OR Credits. Categories: personal exemption, tax paid to other states, working family, earned income, and child care.

 

 

 

115

Martin-Mahar

Slide 21: Pie Chart of Income Tax Credits

 

 

 

123

Martin-Mahar

Slide 22: Key Features of OR’s Earned Income and Working Family Child Care Credits

 

 

 

171

Martin-Mahar

Slide 23: Historical Utilization of EIC and WFCC

 

 

 

185

Martin-Mahar

Slide 24: Bar Graph of previous slide information

 

 

 

207

Martin-Mahar

Slide 25: Income Tax Rate and Credit Rate by Income

 

 

 

232

Martin-Mahar

Slide 26: Distribution of Tax Returns

 

 

 

268

Martin-Mahar

Slide 27: Pie Chart of  Adjusted Growth Income (AGI) Components (1990)

 

 

 

288

Martin-Mahar

Slide 28: Pie Chart of AGI Components (2002)

 

 

 

306

Martin-Mahar

Slide 29: Change in Major Components of AGI

 

 

 

329

Martin-Mahar

Slide 30: Distribution of AGI Components bar graph (1990)

 

 

 

340

Martin-Mahar

Slide 31: Distribution of AGI Components bar graph (2002)

 

370

Martin-Mahar

Slide 32: Average AGI (2002 and 1990)

 

390

Berger

Clarification that the dollars are “real” dollars, not adjusted for any changes in value.

 

400

Martin-Mahar

Answers yes.

 

403

Boquist

Stated that tax returns with losses has been excluded. Asks if there is an average of that amount.

 

407

Martin-Mahar

Responds that the amount is not very large—may 1 to 2%. The exact amount is in the OR Personal Income Tax Statistics book (exhibit 3).

 

410

Martin-Mahar

Slide 33: Average AGI by County 2002 (state map)

 

 

 

439

Martin-Mahar

Slide 34: Average Tax by County 2002 (state map)

 

 

 

456

Martin-Mahar

Slide 35: Average Tax by County 1990 (state map)

 

 

 

466

Martin-Mahar

Slide 36: Check-off Donations on tax statement.

 

 

 

489

Martin-Mahar

Slide 37: Part Year and Nonresident Taxpayers

 

 

 

TAPE 5 SIDE B

51

Martin-Mahar

Slide 38: continuation of slide 37

 

 

 

55

Martin-Mahar

Slide 39: Part-Year Resident

 

 

 

59

Martin-Mahar

Slide 41: Title page for Surplus Kicker and Tips in Designing Personal Income Tax Changes.

 

 

 

60

Martin-Mahar

Slide 42: 2% Kicker

 

 

 

 

Martin-Mahar

Slide 43: History of Surplus Kicker Refunds versus corporate tax rebate.

 

 

 

80

Martin-Mahar

Slide 44: Tips in Designing Personal Income Tax Policy Changes. Martin-Mahar invites members to contact her for further information and analysis when bills come up for discussion.

 

 

 

135

Martin-Mahar

Concludes presentation.

 

 

 

136

Chair Berger

Announcements from the Chair.

 

 

 

151

Warner

Announcement of committee meeting at lottery commission headquarters on January 21,2005 in lieu of meeting in the hearing room. This will be a public meeting.

 

 

 

162

Chair Berger

Meeting adjourned at 3:05 p.m.

 

Tape Log Submitted by:

Reviewed by:

 

Kristi Bowman, Committee Assistant

Kim Taylor James, Committee Coordinator

 

Exhibit Summary:

  • 1.      Slide Presentation: OR Income Taxes, LRO Staff, 22 pp., 01/14/05
  • 2.      Legislative Revenue Office Research Report, LRO Staff, 9 pp., 12/04
  • 3.      OR Personal Income Tax Statistics (2002), Dept. of Revenue, 203 pp., Rev. 04/04