The Oregon Senate Committee on Finance and Revenue held a hearing on March 23, 2011 on several bills related to capital gains reductions. There are many proposals floating around, from a straight cut in the capital gains tax rate to cuts for individuals who reinvest the gain in Oregon companies, to cuts for qualified Oregon investments.
Oregon’s capital gains tax rate is tied for highest-in-the-nation status with Hawaii. Because of Oregon’s proximity to Washington State, where residents can enjoy the same quality of life amenities but pay no income and capital gains tax, Oregon’s tax policy is sort of a “wealth repellant.” Bills aimed at reducing capital gains taxes are sponsored by legislators in both parties, several of whom testified on behalf of their bills at the Senate hearing. Most legislators on the committee agreed that Oregon should do something to change its status as a place that penalizes wealth, but the key question was asked by Senator Mark Hass: How do we offset the revenue loss that would come from reducing the capital gains tax rate? Reducing capital gains taxes will help to attract and keep more wealthy individuals in Oregon which will contribute greatly to the flow of private capital as well as tax revenue. However, there would be an immediate hit to expected revenues from capital gains, and the state is in a fierce budget crunch.
One option would be to phase in a capital gains reduction to minimize an immediate impact on the General Fund and to reform the state’s kicker law so that some of those unanticipated revenues are placed in a rainy day/reserve fund for use during tough economic times. Overall, the state could break even on the deal and our tax system would be more stable and more supportive of job and income growth.