The Smartest Move Our Legislators Can Make
Chuck Sheketoff
Today the President signed the Economic Stimulus Act of 2008. The act contains a tax break primarily used by large businesses – bonus depreciation – that will cost Oregon $100 million because the state automatically connects to changes in the federal definition of taxable income.
Unless the Legislative Assembly chooses to decouple (or “disconnect”) from the provision, legislators will be staring at a budget shortfall and the unpleasant task of doling out pain to Oregonians in the form of cuts to vital public services.
In Fiscal Danger Ahead: Why Oregon must decouple from the bonus depreciation business tax break to save $100 million and protect public services> (HTML or here in PDF) you will find answers to these questions:
- Why decouple if Oregon isn’t currently projecting a revenue shortfall?
- Will bonus depreciation stimulate Oregon’s economy?
- Isn’t bonus depreciation just a timing shift with no net cost to Oregon?
- Will decoupling be difficult to administer or to comply with?
- Will decoupling from bonus depreciation hurt small businesses?
- Should Oregon also decouple from the Section 179 expensing increase?
- Is the American Electronics Association correct in implying that bonus depreciation benefits small businesses?
- Don’t other provisions in the federal stimulus bill fully offset the $100 million cost?
- Has Oregon always automatically followed the federal definition of taxable income?
Bonus depreciation is not only an ineffectual stimulus measure, it is a fiscal hazard that threatens to damage Oregon’s coffers by $100 million. Absent decoupling from the federal legislation, bonus depreciation will trigger a revenue shortfall and necessitate a round of painful cuts to vital public services.
If stimulating Oregon’s economy is the goal, then avoiding a budget shortfall would be good start. According to Zandi, each dollar spent mitigating state budget shortfalls could yield $1.36 in increased economic growth.
That’s why decoupling, which for now would keep Oregon in the plus column, is the smartest move our legislators can make.
Read Fiscal Danger Ahead: Why Oregon must decouple from the bonus depreciation business tax break to save $100 million and protect public services> (HTML or here in PDF).
Find your legislator and tell him/her what you think. Write a letter to an editor.
Chuck Sheketoff is the executive director of the
Oregon Center for Public Policy.
You can sign up to receive email notification of OCPP materials at www.ocpp.org
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connect with blueoregon
Feb 13, '08
You really didn’t think the government was going to give you $600 each, did you? It's taxable income, the amount credited to your 2007 taxes will be added to your 2008 taxes.
Feb 14, '08
Chuck,
Any word if you're just shouting into the proverbial wind, or have any legislators commented on this? Any chance the decoupling will actually happen? Doesn't it take 36 votes for this type of stuff?
6:27 a.m.
Feb 14, '08
There are bills that can be the vehicle and legislators are aware of the issue. For instance, SB 1081 passed the Senate and is up for a hearing again in the House Revenue Committee Friday morning.
If the Legislature does nothing in the special session or in 2009 in response to the federal stimulus legislation, they will be giving away the revenue and simultaneously allowing three-quarters of taxpayers who itemize to be taxed on their rebate checks -- fodder for all in the tax debates.
There's caselaw supporting the position that it would not take a 3/5's vote - eliminating bonus depreciation would not be a generally applicable tax. In a case years ago a federal court ruled that eliminating a property tax break was found not to be "a bill for raising revenue." That said, the current Legislature probably thinks they need a 3/5 vote and may not have an interest in testing the limits of their authority. Had they acted before the measure became law, they certainly would have only needed a simple majority.
<h2>And yes, there's a certain irony that by the Legislature doing nothing some Oregonians get a tax increase (3/4s of itemizers) and some businesses get a tax decrease. The Legislature has shown remarkably little interest in recouping their authority by ending rolling reconnect. They could do that prospectively with a simple majority in SB 1081 or another bill.</h2>