Tax Break for Wealthiest Oregonians Exceeds Lost Timber Payments
Chuck Sheketoff
As rural counties in Oregon grapple with the loss of federal timber payments, a new study estimates that the tax break enjoyed by the wealthiest Oregonians as a result of federal tax cuts on capital gains and dividends exceeds the amount of the counties’ loss.
The preferential tax rates on capital gains and dividends enacted by Congress in 2003 will slash more than $350 million from the 2009 tax bill of the wealthiest 1 percent of Oregonians, according to the Washington, D.C.-based Citizens for Tax Justice (CTJ). The wealthiest fifth (the top 20 percent) of Oregonians are expected to reap about $500 million next year from the preferential tax treatment.
The amount going to the wealthiest 1 percent of Oregonians alone is more than the approximately $300 million shortfall that Oregon rural counties face this year as a result of the expiration of federal timber payments.
The loss of federal timber payments threatens the ability of rural counties to fund key services such as road repairs, schools and public safety.
Congress must rethink its priorities. Instead of giving special tax benefits to the very wealthy, who can get along without them, we should be investing in our people and infrastructure.
The great majority of taxpayers in Oregon get little or no benefit from the tax cut on capital gains and dividends, according to CTJ. In 2009, the benefit will average just $21 for the 60 percent of taxpayers at the bottom of the income scale — many of whom will receive nothing at all. [Click on graph to enlarge.]
By contrast, CTJ has calculated that the wealthiest 1 percent of Oregon taxpayers — with projected average incomes of more than $1.1 million — will on average save almost $21,000. As a group, Oregon’s wealthiest 1 percent of taxpayers will get 63 percent of all 2009 tax cut dollars going to state taxpayers, CTJ estimated.
Oregonians distressed by the loss of federal timber payments and its devastating impact on Oregon's rural infrastructure should question our members of Congress and candidates for Congress about the priority of lavishing tax cuts on the state's wealthiest residents.
The 2003 tax cuts championed by the Bush Administration lowered the top tax rate on capital gains — profits on investments such as stocks and bonds — from 20 percent to 15 percent. It also set the tax rate on dividends — profits paid out by corporations to shareholders — at 15 percent. Previously, dividends were taxed as ordinary income.
In 2005 alone, the tax cuts on capital gains and dividends sliced federal revenue by almost $92 billion nationwide, according to CTJ.
The tax cuts are set to expire in 2010, and the question of whether to extend them has become a political issue this campaign season.
The CTJ study aimed to dispel the myth that allowing the tax cuts to expire would harm the middle class, as suggested by ABC News’ Charlie Gibson in a question that he posed during last month’s Democratic presidential debate in Pennsylvania.
The data shows that the often repeated claim that ending the Bush tax cut on capital gains would hurt the middle class is simply baseless.
Most taxpayers do not benefit from the tax cuts on capital gains and dividends, notes CTJ, because most of the stock they own is in 401(k) plans or Individual Retirement Accounts in which taxes are deferred until retirement, at which time they are taxed as ordinary income.
It’s time to end the Bush Administration's preferential tax treatment for capital gains. It’s wrong that people who get their income from stock investments pay a lower tax rate than the vast majority of Americans, who work for their wages. And it is the wrong priority for Oregon.
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</p
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connect with blueoregon
May 14, '08
Yet another reason why I'm voting for Steve Novick over Jeff Merkley. Tax fairness across the board. Period. Rich people moving money around shouldn't pay less in taxes then us regular folks have to.
May 14, '08
"It’s wrong that people who get their income from stock investments pay a lower tax rate than the vast majority of Americans, who work for their wages."
Investors usually do not make their income from capital gains on stock trading - too volatile, but dividends provide an income stream that is taxed as ordinary income. Also those wealthy enough to live off of investments are investing in Bonds-Corp bonds are taxed as income on the interest recieved and cap gains tax on price of bond if the bond is sold before maturity. Or they may be investing in Tax Free Muni bonds.
May 14, '08
oops my mistake - forgot that dividends are now taxed at cap gains rate. But I still think its important to note that those living off investments are typically investing in debt rather then equity.
May 14, '08
gl -- what's your point?
You're wrong that investors don't make their income from capital gains. How do you think that Warren Buffet made his billions of $$$. Not by getting paid an hourly wage. As as Warren himself will tell you, he pays a lower tax rate than his secretary, due to the lower tax rate on capital gains.
May 14, '08
Thanks, Chuck for bringing this to our attention. We are already seeing devastating cuts to county public health departments and there will be many more to come.
May 14, '08
SJ
uh I did not argue about cutting the tax rate. And Buffet accumulated WEALTH not INCOME from his LONG TERM equity positions.
May 14, '08
Bush ammended the tax law in 2003 so that dividends are taxed at a maximum rate of 15% instead of 30%. This saved Bill Gates $300 million dollars every year. He said he was opposed to the tax cuts because he didn't need them.
May 14, '08
gl -- i'm not sure what you're arguing.
When Buffet liquidates stock positions held for over a year, he reports the gains in that year's tax return. That's income. And yet he pays a lower tax rate on those earnings than many workers that earn a fraction of his pay.
Is that fair?
May 14, '08
Sj
NO its not fair I never said it was fair.
May 14, '08
Chuck,
excellent and revealing post. Gordon Smith, George Bush and the Republicans have completely failed rural Oregon by instituting tax cuts for the rich, authorizing expensive and endless foreign wars, and pitting people in Oregon against each other in a cynical attempt to start the timber wars again by claiming that we can raise money by reversing protection for old growth forests, water and fish. This last is a red-herring as most of the Bush/Smith logging plans won't stand up to lawsuits, and trying to boost logging only distracts from creating rural economic diversity. More clearcut logging to pay for our schools, roads and libraries is not the choice we should have to make in the 21st century, but the Bush/Smith backwards priorities over the last 6-8 years have people over a barrel and desperate. Smith's cronies in the timber industry are hovering like vultures, even as their CEO's are probably some of the biggest beneficiaries of these tax cuts.
In response to MollyM - this is exactly why I am voting for Jeff Merkley, because he can defeat Gordon Smith and will reverse this trend. Novick can't beat Smith outside of Portland. We need real change, not a don quixote candidate like Novick who makes Portlanders who live in an urban bubble feel like they are striking a blow against 'the man' but who will only ensure Smith and his timber industry and oil company CEO cronies get another six years to screw things up.
12:48 p.m.
May 14, '08
Hey Chuck, do you have any numbers on farm bill recipients in Oregon--specifically industrial-scale farmers who stand to reap some of the $5b Congress is set to approve? There was a nice piece about it on NPR this morning, and it was shocking to learn how much tax money goes to very wealthy farmers. In Idaho, probably Simplot is reaping those riches. Do we have a corrollary here?
May 14, '08
gl
I'm glad to see that we're on the same side . . .
May 14, '08
Chuck, we really get it. You love to attack the wealthy and set up stalking dogs. Here you have TOTALLY missed the point.
First, Oregonians don't directly fund the Timber Payments program. Second, if your "progressive" legislators (ala Merkley and Novick) would gget up off their dead rear ends and actually go to a rural community they would see that a sustainable cut could totally fund the counties and there would be NO NEED for the timber payments.
However, since the federales stole the O&C lands over a century ago, they have to guarantee the loss of property taxs from what was once productive, private lands.
Remind us again Chuck of the percentage of the total tax bite in Oregon those 1% top earners currently supply. Is it somewhat north of 75%? or is it closer to 85%?
May 14, '08
I take no issue with your analysis that the wealthy have been getting a free ride on taxes. My question is. How in the hell do you explain the HUGE shift of taxes in this state from business to the backs of hard working folks under 20 years of Demo Governers. To me that's the problem democrats need to address.
May 14, '08
I'd like to see incomes capped at $150K in Oregon. Anything above that would be distributed to schools, hospitals, urgent care, homeless etc.
Just cap the income levels - period.
I think this is the only way we'll see a significant reduction with the wealthy - allowing them to become more equal with the common working man.
2:18 p.m.
May 14, '08
Jeff,
You can find out more about farm subsidies at the Environmental Working Group.
And when there go to their database to look up names and dollars associated with Oregonians
3:23 p.m.
May 14, '08
Oooh, fascinating. Thanks Chuck.
($89 mil from '03-'03, ranking OR 29th--just .06% of the total. Iowa's the big winner at 1.5 billion, 10% of the total. 42 Oregon farms received over $50k in 2005, 76 over $40k.)
May 14, '08
Steve Hawley writes: "I'd like to see incomes capped at $150K in Oregon. Anything above that would be distributed to schools, hospitals, urgent care, homeless etc.
<h2>Just cap the income levels - period."</h2>I just googled him, and there are many of hims, including a Steve Hawley astronaut. If he is real, I'd be interested in finding out more about somebody who so publicly advocates for a socialist action that is so unAmerican and anti-free-enterprise. Of course, he may just be baiting, so I might have just bit on his shiny lure.
What is your definition of "income"? Salary? and Bonus? long term stock that vests over many years? Is deferred income included in "income"? Even that which a person can't spend for decades? Golf Club memberships?
But, in any event, how much would the CEO of Apple lose if you capped his CEO income at $150K? Doesn't he make $1 per year in income, plus stock options, grants, and even was given a Gulfstream GV worth over $30M in leu of his income of $1/year?
And why did you pick $150K? Why not $1 Million and soak only the really rich, instead of the middle-class?
I doubt you would find many socialist friends for this bad idea, even in Blue Oregon they don't make them this socialistic!
6:10 p.m.
May 14, '08
m,
Unfortunately I think that a lot of the hard working folk created part of that shift themselves, by going for property tax limitation initiatives put forward by right-wingers who structured them to benefit big business even more.
Also you might take a gander at who controlled the state legislature in that period -- governors can't legislate by fiat.
Once the property tax limits went through, Ds have been been divided between people who want to try to restore business property taxes to some degree, people who focus on income taxes either in general or corporate, and people who want some variety of sales tax to make the revenue stream more stable despite the regressivity. The knee-jerk anti-taxers always manage to peel off enough folks from the other groups to sink any one of them.
9:47 p.m.
May 14, '08
m -
The shift? Read The Great Corporate Tax Shift (PDF) from OCPP.