PUBLIC HEARING

HB 2574, 2046, 2332

INFORMATIONAL REPORT

LOW INCOME RELIEF WORK GROUP

 

TAPES 123-124 A-B, 125 A

 

HOUSE REVENUE COMMITTEE

APRIL 20, 2005   1:00 PM   STATE CAPITOL BUILDING

 

Members Present:                      Tom Butler, Chair

                                                Rep. Vicki Berger, Vice-Chair

                                                Rep. Mark Hass, Vice-Chair

                                                Rep. Brian Boquist

                                                Rep. Sal Esquivel

                                                Rep. Larry Galizio

                                                Rep. Betty Komp

                                                Rep. Andy Olson

                                                Rep. Chuck Riley

 

                       

Witnesses Present:                      Patti Whitney-Wise, Oregon Hunger Relief Task Force

                                                Chuck Sheketoff, Oregon Center for Public Policy (OCPP)

                                                Ellen Lowe, Oregon Food Bank & Oregon Law Center

                                                Bob Castagna, Oregon Catholic Conferences

Laurie Wimmer Whelan, Oregon Education Assn. OEA) & Oregon Revenue Coalition

                                                Arthur Towers, Service Employees International Union (SEIU)

                                                Tim Nesbitt, Oregon AFL-CIO

                                                Linc Cannon, Oregon Forest Industries Council

                                                Joe Schweinhart, Associated Oregon Industries

                                                Debra Buchanan, Dept. of Revenue (DOR)                                    

                                               

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Lizbeth Martin-Mahar, Economist

                                                Kristi Bowman, Committee Assistant

                                               

 

TAPE 123, SIDE A

002

Chair Butler

Calls meeting to order at 1:12 p.m.

 

 

 

INFORMATIONAL MEETING--LOW INCOME RELIEF WORKGROUP REPORT

 

 

 

008

Chair Butler

Gives overview of workgroup’s purpose. The members of the workgroup are: Rep. Hass, Rep. Galizio, and Rep. Olson.

 

 

 

016

Rep. Hass

Comments that the workgroup pooled bills heard on rent relief and housing tax credit. The workgroup drafted amendments making the Earned Income Tax Credit (EITC) refundable and goes a long way toward making the income tax system more progressive, especially for the working poor.

 

 

 

036

Chair Butler

Asks about issues discussed pertaining to other tax credits.

 

 

 

 

040

Rep. Hass

The group realized that it is difficult for the Dept. of Revenue (DOR) to administer rules and mail rebate checks to students at a university dorm or to a roommate of a renter.  A tax credit is a cleaner way to help mostly the same people; it conforms to federal tax law and meets compliance issues.

 

 

 

050

Rep. Olson

Comments that the working poor receiving a low-income tax break will be good for the economy.

 

 

 

060

Chair Butler

Discussion with Rep. Olson about the benefits of students receiving the EITC credit instead of a rent rebate.

 

 

 

073

Rep. Galizio

Comments that the college student scenario was the best reason to support the tax credit idea.

 

 

 

CLOSES INFORMATIONAL MEETING

 

 

 

OPENS PUBLIC HEARING FOR HOUSE BILL 2046

 

 

 

100

Lizbeth Martin-Mahar

Discusses amendment HB 2046-1 and measure summary (Exhibits 1 and 2). The amendment phases in an increase in the percentage of the federal EITC for Oregon’s EITC. Refers to the revenue impact statement and handout on the Oregon Tax Incidence Model (OTIM) (Exhibits 3 and 4). Discusses positive feedback effects. As the economy grows, there is an assumption that fewer people will qualify for the EITC.

 

 

 

147

Chair Butler

Asks for more explanation about the feedback effects.

 

 

 

149

Martin-Mahar

Discusses information on OTIM handout (Exhibit 3). Comments that any time there is any kind of an economic shock such as a tax credit, there will be a positive feedback effect. Discusses the impacts of all three bills concerned with tax credits: HB 2574 and HB 2332-4 (capital gains cut); HB 3355-1 (investment tax credit); HB 2046-1 (Earned Income Tax Credit (EITC) refundable tax credit).  Although a specific income group is being targeted, there are impacts throughout the economy.

 

 

 

322

Chair Butler

Asks about demographics regarding age and family sizes and their relative earning capacity.

 

 

 

324

Martin-Mahar

Responds that she can provide a distribution model for a certain income sector. Adds that tax credits increase in-migration to the state and stimulate the economy.

 

 

 

363

Rep. Berger

Asks why 1997 is used for the OTIM model in the handout (Exhibit 4).

 

 

 

370

Martin-Mahar

Responds that 1997 is used as a reference year for OTIM data.

414

Patty Whitney Wise

Testifies in support of HB 2046 and submits written testimony (Exhibit 5) and a handout (Exhibit 6). 

 

 

 

435

Chuck Sheketoff

Testifies in support of HB 2046 “because it is a good bill and should pass.” Discusses the OCCP Executive Summary booklet (Exhibit 7).

 

 

 

TAPE 124, SIDE A

047

Ellen Lowe

Testifies in support of HB 2046. A refundable EITC credit is the most efficient way to target relief to the most needy who are part of the working poor in Oregon.

 

 

 

090

Bob Castagna

Testifies in support of HB 2046. This bill is the latest “chapter” in a 17 year discussion on this issue. If HB 2046 is enacted it will show the legislature’s support of the working poor in alleviating their tax burden.

 

 

 

 

CLOSES PUBLIC HEARING FOR HOUSE BILL 2046

 

OPENS PUBLIC HEARING FOR HOUSE BILL 2574

 

115

Martin-Mahar

Gives summary of amendments HB 2574-1, HB 2574-2, HB 2574-3 pertaining to capital gains (Exhibit 8).  All amendments delete the original bill (Exhibits 9 – 11).  Adds that the corporate capital gains reduction begins in 2010; the personal capital gains reduction begins in 2006.

 

 

 

191

Rep. Galizio

Discusses the “big-picture thinking” of the amendments for HB 2574. Comments on a meeting with seniors in his district about their feelings on capital gains. Amendment HB 2574-1 is a capital gains tax cut for middle income taxpayers. Amendment HB 2574-2 is the same as the HB 2574-1 amendment, but it cuts the exemption in half. Amendment HB 2574-3 is a capital gains tax cut for investments in Oregon companies and Oregon properties. Advocates that the effective date of the HB 2542-3 amendment should be the same as the other two amendments, which is on or after 01/01/06.

 

 

 

OPENS PUBLIC HEARING FOR HOUSE BILL 2332

 

324

Laurie Wimmer Whelan

Testifies in opposition to HB 2574 and HB 2332 and reads from written testimony (Exhibit 12). Refers to fact sheet included with testimony. Comments that she would support the HB 2574-3 amendment modeled on the Colorado plan.

 

 

 

TAPE 123, SIDE B

034

Chair Butler

Asks about a scenario of Oregon residents who live near Washington or California. What would prevent them from moving to those states for one year to avoid payment of Oregon capital gains taxes?

 

041

Wimmer Whelan

Responds that based on research she has read, residents moving to another state for a temporary period is largely a myth. Continues reading from written testimony.

 

 

 

088

Arthur Towers

Testifies in opposition to HB 2574 and HB 2332. The idea of providing tax relief to upper income people at the expense of lower income people is something his organization cannot support. Comments on the “balloon-payment nature” of both of these bills.

 

 

 

114

Sheketoff

Testifies in opposition of HB 2574 and HB 2332. Reads from memo to Tim Nesbit and handout from Len Burman (Exhibit 13). Comments on in-migration to Oregon in spite of the current capital gains tax structure in Oregon.  

 

 

 

183

Rep. Riley

Asks the witnesses if any of the amendments were substituted would they then support the bill.

 

 

 

193

Wimmer Whelan

Responds that the OEA and Coalition would support the amendments.

 

 

 

194

Towers

Responds that although he has not had an opportunity to review the amendments, the SEIU would be in favor of the amendments and will respond to Rep. Riley at a later date.

 

 

 

197

Sheketoff

Responds that he has not had an opportunity to look at the detailed language, but based on the description of the amendments, he could not support them. He does not believe the capital gains reduction would have a significant impact.

 

 

 

205

Martin-Mahar

Clarifies that the percentages stated in the handout (Exhibit 8) are a percent of the total income change for the household, not for specific income groups.

 

 

 

222

Tim Nesbitt

Testifies in opposition to HB 2574 and HB 2332 and submits handout (Exhibit 14) showing all taxes paid by various income groups. The AFL-CIO supports the revenue impact findings of the Legislative Revenue Office (LRO) but disagrees with the Conerly report done for Associated Oregon Industries (AOI). Discusses the impacts of the tax credits associated with both of these bills. His organization does not think the capital gains reduction is fair or is good policy.

 

 

 

293

Rep. Riley

Asks Nesbitt about his support of the amendments [HB 2332-1, HB 2332-2, HB 2332-3].

 

 

 

294

Nesbitt

Responds that he would support amendments HB 2332-1 and HB 2332-2 because they would take effect during this biennium. He would support HB 2332-3 if it had a subsequent referral to the Ways and Means Committee and it could be balanced to the proposed $12.393 billion budget.

 

 

 

303

Chair Butler

Comments that a referral to Ways and Means would be appropriate if there was a fiscal impact for the current biennium.

 

 

 

314

Rep Hass

Comments that there is a proposed amendment for HB 2332 that hasn’t yet been discussed in this public hearing that would start in this biennium.

 

 

 

324

Lincoln Cannon

Testifies in support of HB 2574 and HB 2332. Discusses issues brought up by previous witnesses: 1) people relocating to other states to avoid high capital gains taxes; 2) equity—capital gains taxes income and inflation, for instance, as in the timber harvest industry; 3) taxation on capital gains for corporations is an inequity because corporations are taxed twice; 4) tax implications of the ownership of forestlands.

 

 

 

TAPE 124, SIDE B

038

Chair Butler

Discussion with Cannon about his concerns with non-profits who invest in forestland for retirement accounts.

 

 

 

050

Joe Schweinhart

Testifies in support of HB 2332 and HB 2574. Comments that capital gains is proven through studies and surveys that it does work. Adds that states with low capital gains taxes are successful. Cutting the capital gains rate will prepare the state for economic well-being and prosperity. Capital gains punishes the elderly who want to cash in their investments.

 

 

 

091

Rep. Galizio

Discussion with Schweinhart about the difference in numbers stated in Conerly’s study and the OTIM model for jobs created.

 

 

 

129

Rep. Hass

Comments that CA has a higher capital gains rate and has a more successful venture capital investment than Oregon does. Comments that Conerly agrees that there is a problem with knowing whether Oregonians will invest their tax credit in Oregon companies.

 

 

 

137

Schweinhart

Responds that the investment issue is similar to education—children go to school, but there is no guarantee that they will stay in Oregon.

 

 

 

150

Chair Butler

General comments about capital gains and discussion with Rep. Hass.

 

 

 

187

Schweinhart

Adds comments about amendment HB 2332-3. We don’t want to limit the possibilities for out-of-state investment in Oregon companies.

 

 

 

200

Chair Butler

Comments about fiscal impacts on the HB 2332 amendments.

 

 

 

220

Rep. Galizio

Comments on Schweinhart’s analogy of education and investments in Oregon companies.

 

 

 

 

240

 

Rep. Riley

 

Discussion with Schweinhart regarding data comparing the tax distribution of capital gains among different states.  

 

 

 

264

Rep. Komp

Asks what Schweinhart’s definition is of a successful state.

 

 

 

265

Schweinhart

Responds that a successful state is defined in relation to its economy. For example, Texas has a zero capital gains tax and does well with getting investment and jobs brought into the state.

 

 

 

270

Chair Butler

Asks LRO staff about a state income drop of approximately 80% for capital gains during 2002.

 

 

 

281

Paul Warner

Responds that capital gains data come in at a lag compared to other economic data, and the actual drop in 2002 was closer to 54%. Adds that impacts of capital gains are seen on extended returns filed the following Sept. of the next tax year. Discussion with Chair Butler on the impacts of capital gains. Adds that the state economist states that capital gains is the most difficult to predict and is one of the most volatile components of the Adjusted Gross Income (AGI).

 

 

 

316

Chair Butler

General comments about income tax reporting of capital gains.

 

 

 

336

Martin-Mahar

Discusses amendments for HB 2332 (Amendments HB 2332-1, HB 2332-2, and HB 2332-3 are the same as the HB 2574 amendments).

Refers to the summary sheet for HB 2332 amendments (Exhibit 16) and discusses the HB 2332-4 and HB 2332-5 amendments. (Exhibits 17-21 are the amendments for HB 2332).

 

 

 

TAPE 125, SIDE A

047

Martin-Mahar

Discusses the revenue impact statements for each amendment (Exhibits 22-26).

 

 

 

134

Debra Buchanan

Testifies about the fiscal impacts on the Dept. of Revenue of HB 2046, HB 2574, and HB 2332. Comments that in 1990 the DOR projected a savings of $600,000 from the elimination of the homeowner and renter relief program. The DOR did a preliminary calculation of the costs to start a new low-renter program and estimates it would cost a little over $1 M. The fiscal impact for the EITC (HB 2046) was estimated to be slightly over $200,000. Regarding capital gains tax changes proposed in HB 2574, the fiscal impact would be $400,000 because it requires a separate tax calculation during the phase-in period. Discusses the fiscal impacts of each amendment to HB 2332.

 

 

 

183

Rep. Galizio

Asks for a more specific cost estimate of the HB 2332-2 amendment.

 

 

 

190

Buchanan

Responds that reducing the capital gains by 50% makes it less expensive than proposing incremental reductions. What increases the cost of the amendment is the farmer’s different application of capital gains on long-term investments versus net capital gains. It would require a worksheet and a number of calculations to compare the two applications.  It would be less costly for the DOR to implement if farmers were directed to do one or the other of the calculations, but not both.

 

 

 

221

Buchanan

Discusses the fiscal impacts of amendments HB 2332-4 and HB 2332-5 on the DOR. Adds that specific impact costs for amendments HB 2332-1, HB 2332-2, and HB 2332-3 were not discussed with DOR staff.

 

 

 

255

Chair Butler

Discussion with Martin-Mahar regarding information on the revenue impact statements.

 

 

 

300

Chair Butler

General committee business discussed.

 

 

 

CLOSES PUBLIC HEARING FOR HOUSE BILL 2574 and HOUSE BILL 2332.

 

 

 

316

Chair Butler

Adjourns meeting at 3:23 p.m.

 

 

Tape Log Submitted by:

Reviewed by:

 

 

 

Kristi Bowman, Committee Assistant

Kim Taylor James, Committee Coordinator

 

Exhibit Summary:

  • 1.      HB 2046, Amendment HB 2046-1, Legislative Counsel, 1 pg., 04/18/05
  • 2.      HB 2046, Staff Measure Summary, Martin-Mahar, 1 pg., 04/20/05
  • 3.      HB 2046, Revenue Impact Statement, Martin-Mahar, 1 pg., 04/20/05
  • 4.      HB 2046, OTIM Handout, Martin-Mahar, 1 pg., 04/20/05
  • 5.      HB 2046, Testimony, Whitney-Wise, 1 pg., 04/20/05
  • 6.      HB 2046, Handout, Whitney-Wise, 1 pg., 04/20/05
  • 7.      HB 2046, Executive Summary, Sheketoff, 14 pp., 02/25/05
  • 8.      HB 2574, Amendment Summary, Martin-Mahar, 1 pg., 04/20/05
  • 9.      HB 2574, Amendment HB 2574-1, Legislative Counsel, 6 pp., 04/19/05
  • 10.  HB 2574, Amendment HB 2574-2, Legislative Counsel, 6 pp., 04/19/05
  • 11.  HB 2574, Amendment HB 2574-3, Legislative Counsel, 9 pp., 04/19/05
  • 12.  HB 2574 and HB 2332, Testimony & Handout, Wimmer Whelan, 3 pp., 04/20/05
  • 13.  HB 2574 and HB 2332, Memo and Handout, Sheketoff, 9 pp., 04/20/05
  • 14.  HB 2574 and HB 2332, Handout: State & Local Taxes in 2002, Nesbitt, 2 pp., 01/03/05
  • 15.  HB 2574 and HB 2332, Handout: Executive Summary, Nesbitt, 1 pg., 02/25/05
  • 16.  HB 2332, Amendment Summary, Martin-Mahar, 3 pp., 04/20/05
  • 17.  HB 2332, Amendment HB 2332-1, Legislative Counsel, 6 pp., 04/19/05
  • 18.  HB 2332, Amendment HB 2332-2, Legislative Counsel, 6 pp., 04/19/05
  • 19.  HB 2332, Amendment HB 2332-3, Legislative Counsel, 9 pp., 04/19/05
  • 20.  HB 2332, Amendment HB 2332-4, Legislative Counsel, 7 pp., 04/20/05
  • 21.  HB 2332, Amendment HB 2332-5, Legislative Counsel, 8 pp., 04/20/05
  • 22.  HB 2332, Revenue Impact Statement, HB 2332-1, Martin-Mahar, 1 pg., 04/20/05
  • 23.  HB 2332, Revenue Impact Statement, HB 2332-2, Martin-Mahar, 1 pg., 04/20/05
  • 24.  HB 2332, Revenue Impact Statement, HB 2332-3, Martin-Mahar, 1 pg., 04/20/05
  • 25.  HB 2332, Revenue Impact Statement, HB 2332-4, Martin-Mahar, 1 pg., 04/20/05
  • 26.  HB 2332, Revenue Impact Statement, HB 2332-5, Martin-Mahar, 1 pg., 04/20/05