May 24, 2011
May 24, 2011
Business tax credits could see 75% reduction
By J.L. Wilson
Associated Oregon Industries
Oregon’s largest business advocate
Legislature set to repeal most business tax credits
Oregon’s business community has about $38 million in tax credits that are set to expire at the end of this year. This includes such credits as the R&D Tax Credit, the Business Energy Tax Credit (BETC) and the Film & Video Production Credit.
New information coming out from key legislators points to an agreement in principle that the legislature will only renew about $10 million worth of credits – an overall reduction in total business tax credits of about 75%.
The information coming out from key legislative leaders suggest that the big winner in the tax credit sweepstakes will be the Film & Video Production Credit, which may largely be held intact. Due to the size of this credit, the likely outcome is that all other tax credits are likely to be repealed in order to stay under the $10 million threshold.
It is becoming increasingly clear that the BETC will not survive in any iteration. The fate of the R&D Tax Credit, while only $1.6 million, is unclear. Even though this is a key job-creating tax credit for many AOI members, it appears on track to be repealed as well.
Just to be clear – Oregon’s tax credit strategy appears to be headed in a direction to reward movie producers while abandoning Oregon’s economic core. While AOI supports the film and video credit as part of a comprehensive economic strategy, it seems an incoherent economic strategy to support tax credits for short-term film projects while simultaneously repealing incentives to increase long-term technical payroll (scientists, engineers, etc.) in the state.
While some states consider expansion of the R&D tax credit to attract these critical jobs, it appears Oregon may once again revert to being distracted by shiny objects while companies allocate their R&D payroll and expenditures to states that want them.
AOI Reader Poll: Should Business Community Support New “Revenue Stability” Plan?
In February, the AOI Board of Directors adopted a position to support a legislative package to reform the way the state saves money and tax investments. The purpose of supporting such a plan was to proactively respond to some of the most damaging features of Oregon’s tax system, including the highest capital gains taxes in the nation, a lack of state savings to cushion economic downturns, and an overall lack of stability in Oregon’s system of finance.
The AOI Board agreed that such a “Stability” plan must include these four elements:
A diversion of a portion of personal kicker proceeds into the state Rainy Day Fund (RDF) until fund reaches at least 12% of General Fund. When the fund reaches capacity, all kicker proceeds must be returned to taxpayers.
Use of the entire corporate kicker is appropriate to support a Higher Education Stability Fund.
The legislature must start making savings a priority by allocating up to 3% of General Fund monies into the RDF.
Oregon’s highest-in-the-nation capital gains tax rate must be reduced to 5%.
Early in the legislative session, it appeared that the Legislature may consider such a proposal. Over the course of several months; however, it appears the AOI-supported “Stability” package is no longer in play. The package under consideration today looks like this:
The personal kicker diversion into the RDF is fully intact, up to 14% of General Fund (Senate Joint Resolution 26).
The corporate kicker diversion into Higher Ed Stability Fund is fully intact (SB 754).
The General Fund allocation into the RDF is now declared dead (SB 968) due to public union opposition.
Capital gains reduction is now diluted – essentially a 40% reduction (effective rate of 5.94%) implemented over eight years that applies to long term holdings of five years or more.
In essence, the “new” package consists of the original kicker reform coupled with a diluted capital gains rate reduction.
Now several legislators are calling on business groups to step up to the plate to support the new measure.
So the question for the business community is simply this: Is the new Stability package worth supporting even though it is missing critical elements (e.g. it lets the Legislature off the hook by not requiring them to save any General Fund money)?
What complicates this question is the fact that business groups will have to spend considerable resources to pass such a measure at the ballot box because the changes to the “kicker” law require a vote of the people. Polling indicates that Oregonians overwhelmingly favor the current “kicker” law.
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