Oregon lawmakers seem just hours away from ending a legislature in large part notable for the staggering amounts of money they spend on affordable housing and shelters, forest fire response and reconstruction, mental health treatment and addiction as well as for infrastructure projects.
Vulnerable Oregonians and worn out public facilities aren’t the only winners of this session, however. Businesses of all sizes and from all sectors, regardless of their profitability during the pandemic, could benefit from a new state tax break that could save them $ 450-600 million and reduce state revenues by a similar amount, according to one state estimate.
The tax cut is available to businesses and the self-employed who have received forgivable loans through the Paycheck Protection Program, a $ 780 billion federal effort to help businesses keep their employees on payroll amid the uncertainty of a pandemic. Not only are taxpayer-funded payouts tax-free under federal law, but Congress passed a provision in December that allows companies to deduct their taxpayer expenses from taxes they may owe on profits.
U.S. Senator Ron Wyden, D-Oregon, in his role as chairman of a tax committee, urged the change in 2020 after the IRS and the U.S. Treasury Department issued guidance that recipients of public spending could not write off corporate expenses. In a May 2020 press release, Wyden suggested that companies may not want the forgivable federal loans if they lack the added benefit of serving as a potential tax write-off. “Our bipartisan bill would fix that flaw and ensure companies are confident using PPP money to keep their workers busy,” said Wyden of a proposal he tabled with Republicans and another Democrat.
Oregon is heavily dependent on income tax revenue and generally automatically mirrors federal income tax laws. So shortly after the legislature began in January, the Democrats debated whether to pursue laws that would prevent the state from copying federal policies by Wyden and his colleagues. Critics of the double tax breaks in federal aid payments described them as the “double-dip” program to protect paychecks.
“Congress is creating these new tax breaks for the rich and corporate, and because Oregon is automatically copying federal tax law, we often copy the same lavish tax breaks,” Khanh Pham, Portland Rep., Said in a March interview. “This is money that we need for our schools, for rebuilding after forest fires, for rebuilding the public health infrastructure.”
The House Democrats proposed taxing the waived loans as income, and the Senate Democrats considered scaling back the tax-free treatment so that only the first $ 100,000 of a corporate federal loan would be exempt. After a public hearing on May 25 in the Senate Finance and Revenue Committee at which lobbyists from corporate groups and representatives of the chambers of commerce opposed the plan, the Democrats dropped it.
Scott Bruun, director of tax and fiscal policy for the state’s largest corporate lobby group, Oregon Business & Industry, cited the state’s latest unexpected revenue forecast of an additional $ 1 billion in the current fiscal cycle and an additional $ 1 billion in 2021-2023 predicted.
“Simply put, the state coffers are full, they are even bursting,” said Bruun. He cited an analysis paid by Oregon Business & Industry of the cumulative impact of the new corporate taxes going into effect in the state, including a gross income tax to fund schools. It found that if those tax increases are all in place, Oregon’s business tax burden could rise from the 40th lowest in the nation to 20th.
JL Wilson, a lobbyist for the Oregon State Chambers of Commerce, said everyone he knows received a loan under the paycheck protection program. “I know the tremendous concern that went through small businesses when the Treasury Department announced that it would not allow you to deduct the costs paid for by the PPP loans,” said Wilson. “It sent shock waves through our community.”
One opponent of the tax break was Bennett Minton, a volunteer with the Tax Fairness Oregon group, which advocates a progressive tax policy. Minton said in a written testimony that while loans issued are usually treated as income, “as an incentive for recipients to pay employees and other expenses to strengthen the economy, it is a rational policy.”
Minton cited information from legislative economists that 83% of Oregon paycheck protection loans were no more than $ 100,000, but most of the loans’ value – 74% – was lost in the remaining 17% of the loans. “The richest companies have got the biggest loans and can get huge tax breaks,” Minton wrote. If lawmakers were to “spend half a billion dollars, (they) should do so on the basis of equity, not a special interest rate scheme instigated by lobbyists in Washington,” Minton wrote.
In December, The Oregonian / OregonLive reported that nearly a third of the $ 7 billion Oregon companies were receiving through the Paycheck Protection program at the time went to 1,054 companies, which make up just 1.6% of the state’s loan recipients. In March, the news agency’s parent company announced that it would raise funds through the program.
In an interview last week, Senator Ginny Burdick, a Portland Democrat who chairs the Senate Finance and Revenue Committee, said the big May sales forecast cited by the Oregon Business & Industry lobbyist was the death knell for changing the cut the tax break was. “The prediction killed that,” said Burdick. “It’s not a good policy. But it was difficult to justify (change). “
The actual amount of the tax cut could change significantly as economists worked with incomplete information when estimating revenue losses in May: around 40% of loan recipients have not yet applied for a waiver, said economist Kaitlyn Harger.
Not all Oregonians who have received federal pandemic aid receive state tax breaks. After lawmakers on both parties expressed an interest in a $ 300 million increase in income tax, primarily for low and middle income people, tied to receiving federal stimulus payments, The Oregonian / OregonLive reported that the Democrats abandoned this plan in the last few days of the meeting.
– Hillary Borrud; [email protected]; @hborrud
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