Awesome post!

Almost 800 words, and I can't tell if the author wants to raise or lower capital gains taxes in Oregon.

What's worse, is that Mr. Packer seems to think that most capital gains are created by robots engaging in computerized trading.

In the real world, most capital gains are earned by entrepreneurs who take a risk on a business idea and win. In the real world, capital gains are earned by savers who put money in securities markets with the expectation that their investments will grow and pay for their kids' college or their own retirement. While its growing, that money is used by firms to start and expand their businesses. Businesses that hire people.

Just last week, entrepreneurs and investors were giving the state an earful about its anti-business and anti-entrepreneurial environment. I hope that is part of the "discussion."

http://exitoregon.blogspot.com/2010/03/oregons-new-taxes-spark-entrepreneurial.html

Always nice to hear from the Oregon Chamber of Commerce.

Exit Oregon:

Set!!!!

Now please live up to your name, you useless spewer of disproven and counterproductive talking points.

So when he says capital gains tax should be fixed, he's saying the kind of people who can afford to pay a little extra to address the State's problems, are people like him. He's putting his nation's interest before his own.

Let me modify that slightly. He's showing some concern for the nation's interest because it is also in his interest to do so. The same applies to all of us. When we give some thought to the nation's interest and not just to our own short-term selfish interest it is our long-term interest and that of future generations.

Steve,

The term "idiot butthead republican" is redundant on so many levels.

Grammatically yours,

Scott

One fix may already be in hand, and has been for quite awhile.

Many Oregonians have 401K, 403b, or IRA accounts that hold stocks. The gains in these accounts are deferred until there are actual withdrawals; at that time, the distributions are treated as ordinary income, and taxed accordingly. There are no provisions for long-term capital gains.

What Steve Packer suggests is that Oregon may want to look specifically at long-term capital gains related to investments in taxable trading accounts; ti.e. not within retirement accounts.

Does anyone have any stats on capital gains in Oregon, broken down by taxable and retirement accounts? Is there a significant amount of revenue to gain by looking at how capital gains are treated in Oregon?

Some of the preferential treatment for capital gains is already reduced by the fact that the deduction for Federal tax paid by Oregonians is already capped. This raises the effective income that is taxed by Oregon.

On the federal side of things, the AMT also captures additional tax by reducing some of the benefit of employee stock options and grants. In some cases, it is possible that taxes may exceed actual realized gains. For AMT, the paper gain for some incentive stock options incurs an AMT liability even if the gain is not actually realized. Later, the underlying stock may decline and actually result in a significant loss.

One other aspect of investment income is that it is not always recognized by Oregon when it comes to calculating benefits such as unemployment. Unemployment benefits are calculated based on past earned income. It is possible for unemployed people to collect unemployment benefits while trading stocks to supplement their income. Perhaps means testing should also be looked at by Oregon so that the truly needy are the ones receiving state benefits.

im sure Steve's comments were very insightful but i didnt understand exactly what he was saying either. does he think cap gains should be taxed at a higher rate than ordinary income? is he proposing to do what Mass. did until the late 90s-that is taxing "unearned income" (interest, dividents, capital gains) at twice the rate "earned income" is taxed at?

also, i have my own tax proposal id like to make. id like to abolish tuition at public colleges & universities and abolish fares on public/mass transit in Oregon. id propose buying down the tuition & fares by creating a Capital Stock Tax. This tax would apply to the capital stock on businesses incorporated in Oregon (corporations). capital stock is basically a corporations net worth. and lets say the rates of this tax would be anywhere from .1-1.5%. there are a handful of states that have this tax-my home state of Pa has it but has been slowly abolishing it for the last 12 or so yrs.

so what do u guys think of these proposals?

Steve Maurer:

Love the tone of your post. Libs don't speak enough in moral terms and often give these corporate right-wingers far too much respect. Everyone knows exactly where you stand.

Once upon a time when Wayne Scott was Majority Leader, there were 2 capital gains tax cuts being discussed.

Plan A was a bipartisan bill which paid for itself (the budget did not take a hit to pay for the changes).

Plan B did not pay for itself (the budget took a hit) but by golly it had Wayne Scott's name on it.

Guess which one died in committee and which one went to the House floor.

There are people who would welcome a serious discussion along the lines of Plan A, but were made cynical by Scott's plan B.

Steve, if you are willing to talk about a specific plan or want to know about the sponsors of Plan A (interesting bipartisan co-sponsors) that would be fine with me.

But I don't do generic " we should talk about..." when it comes to taxes.

"The issue is reducing the volatility of our revenue. Partisan issues aside, we should have a spending commitment that is based on practical model of the real world. "

Steve, some people think Plan A was left to die in committee not because of issues but because of sheer orneriness---Scott was going to get Scott's bill to the floor, by golly!

But about your quote:

There are those of us who will discuss specifics but not generalities.

Life out in the real world where most of us live is logistics, it is details, not generalities.

Arranging a meeting with a friend by checking work schedules to see when it is convenient. When to go grocery shopping and what to buy. Most of us deal with details at work. Many of us work at jobs where we deal with others and are often called upon to solve problems.

Some people even work with students helping them develop critical thinking skills.

Using your quote in such an exercise might go something like this:

A) "reducing the volatility of our revenue"

1) Define revenue volatility. 2) Many think reducing revenue volatility would be a good thing. What are some steps we might take to do that? Is there more than one way of doing that? How would it be done--change of law? If so, how many votes would be required and from whom?

B)"we should have a spending commitment that is based on practical model of the real world. "

1) Define Spending committment Practical model *Real world

2) Who decides what is practical?

3) Who decides what the real world is like---a few powerful people, or the sort of folks who vote but do little else politically?

The way Karen Minnis and Wayne Scott defined those terms was "whatever we say they mean".

In a free country, no one is required to accept that, which is why they lost majority.

But there are current legislators who sound like they are balking at defining such terms---thus sounding like the ivory tower types who don't want open public debate with the general population, because after all, they have the revealed truth!.

Steve, you may have the greatest idea in the world, the single silver bullet which will solve all our budget problems without ever addressing the kicker or the out of state money which dominates too many ballot measure campaigns.

But we will never know if your terms are not defined.

Just because there are people in politics who say "that's the way things are done", that does not stop annoying people like me saying that there was a time in Oregon when defining terms, engaging in open debate with opponents and with the general public (see the recent Portland Kitzhaber v. Bradbury debate for the first, and Ron Wyden town hall meetings for the second) not stooping to spin, generalities, and propaganda were the way things were done in Oregon.

Ever considered that might be why so many people don't register with major parties anymore?

If we go to casinos in Las Vegas or elsewhere we risk money. If we win we can claim our winnings to be a reward for the risk we took, but income tax laws require that these winnings be taxed. This is a generally accepted practice.

Investing is stocks is very much the same as betting in a casino so much so that many commentators refer to Wall Street as the big American casino. So what's the difference? Why should winnings in an official casino be taxed but not in the stock market which is a virtual casino in most cases?

I BELIEVE VOLATILITY IS A PROBLEM!

I don't think that sentence solves anything.

" If you do not believe there is an inherent volatility in the stock market and a subsequent volatility in the capital gains revenue for Oregon, then we have nothing to talk about"

OK, if we implement your idea verbatim, stock market volatility will cease?

I heard Ben Westlund speak last June. He spoke about how the state had a AA credit rating but there were 3 things keeping Oregon from having a AAA credit rating:

*Oregon's volatile tax structure

*Oregon's permissive initiative system--- big out of state money can come in, put a measure on the ballot with paid signature gatherers, and potentially blow a hole in the state budget.

*"Oregon's unique, and uniquely bad, kicker law".

THAT is the level of specifics I am looking for.

You respond with sentences like "Such a policy would not be difficult for a business as we have lots of historical data, but for a political decision, it will take a lot of us pushing."

What exactly do you mean by "lots of pushing"? Lobbying legislators to pass your idea?

What if they ask specific questions like I have asked?

What if they say they will send the idea to LRO and ask for an evaluation?

Call me dense, call me "not believing there is volatlity", but I have no clue what you mean by

"we should look for a procedure to balance our commitment for spending with a long term average for the revenue"

You sound like an old friend who used to speak in such vague terms and sometimes in discussions would get very frustrated and say "I ask you a general question and you come back at me with specific details".

Maybe it is a difference of point of view. I see the world from a detail-oriented point of view. The jobs I have worked in all required attention to detail.

If you have a specific idea, let's hear it.

If not, I'd like to suggest that any discussion of capital gains taxes must be more specific than you have been so far.

"Are you resisting the assertion that Oregon's capital gains revenue is volatile? "

No, I resist the premise that if we all hold hands and say "Oregon's capital gains revenue is volatile", anything will change.

It is the same mentality which leads me to agree with the commenter who asked the Bradbury supporters what legislators had lined up to support the Bradbury idea being discussed.

My challenge to you.

Complete these sentences:

"Oregon's capital gains revenue is volatile, and the proof of that is___",

"In order to end the volatility, the following steps should be followed: 1) 2) 3) 4) etc."

I am concerned with nuts and bolts.

I could say THE KICKER SHOULD BE REFORMED.

That would not specify which reform proposal is better, whether we need to have favorable poll results before we even start a serious discussion, or which facts the general public deserves to know (do kicker checks go out of state and if so why, what is the amount of the largest kicker checks, for instance) and whether my state rep. has a good idea in her proposal to change the way the kicker is calculated.

If you think acceptance of your general premise solves all problems, good luck selling that point of view to a legislator--esp. a legislator on a committee which would hear such an idea should it become a bill.

Or were you thinking of the ballot measure route for your idea instead?

"And, for me, encouraging Americans to own their own companies is not gambling. "

Steve: I was deliberately not absolute in my position. There are many instance where investments are made to promote a business, but there are the others, probably a majority, where people are not so much concerned with the business whose stock they buy as they are whether it will gain in price and they can cash in and make a profit. What is needed is a way of identifying legitimate business investments and the others that are casino plays.

Revenue volatility isn't a problem if you have a good rainy day fund.

I think the question we should be asking is 'what is the fairest way to raise the revenue we need?' If the fairest way relies on volatile taxes such as income and capital gains, fine. We'll put extra money away in good years to use in the bad years.

" But we have not agreed there is a problem so discussions of solutions are premature"???

Posted by: Humphrey | Mar 18, 2010 10:06:54 AM you are a man after mine own heart on this matter.

Steve, Ben was discussing what to do about volatility last year, so no, I will not "Stay in problem space for a while." Ben was discussing volatility solutions last June (maybe not the ones you want, but solutions), so it is wrong to say such discussions are premature.

BTW, I have told Wheeler and Metsger that I will not be involved in their primary. I will wait until late April or early May and decide which one reminds me most of Ben and vote accordingly.

We deserve the solution-oriented, intellectually rigorous, political breath of fresh air we saw from Ben in our new state treasurer.

High bar to meet? Sure. But what we deserve.

The tax on capital gains definitely needs to be not only revised, but the taxes on the first $25,000.of capital gains need to be eliminated for individuals earning less that $125,000 and couples earning less than $250,000. This is the way only to spur investment in our economy from the working class and retirees. It also spreads the wealth away from Wall Street investors.

Additionally, the legislators and budget writers in Salem need to replace the present budget processes with a zero based budgeting process, make actual cuts instead of just cuts to the increases, and eliminate all line items that attempt to implement social engineering.

Terry, I agree with your first paragraph.

Your second paragraph, however.....

"make actual cuts instead of just cuts to the increases, and eliminate all line items that attempt to implement social engineering. "

My guess is that there are current Ways and Means members who would dispute there were no "actual cuts", incl. some Republicans.

As far as "social engineering", you will never see any change on that score until there is a majority in the legislature who agree with your definition of "social engineering"---whatever that definition may be.

Tax policy makers have to make a decision: Do you want the capital gains tax to be fair, or do you want to maximize the revenue from the capital gains tax? If you want the capital gains tax to be fair, then capital gains should be taxed at the same rate, if not more, than the rate on wages and salaries.

If you want to maximize revenues from the capital gains tax, then the rate needs to be set low enough to make investors willing to recognize their capital gains, in spite of the capital gains tax. If you raise the capital gains tax rate, it will likely result in a loss of revenue.

Like Tom Hartmann, I’d roll back both the Bush and the Reagan tax cuts to return us to a steeper graduation.

Contrary to the conventional misunderstanding, the facts are that the Bush and Reagan tax cuts made the federal income tax more progressive, not less. In 2004, the top 1% paid 36% of all federal income taxes, as compared with only 19% in 1980. Are you really proposing reducing the share of income taxes paid by the top 1%?

"I’d treat short term gains just like income and tax it at the rate of income."

Once upon a time there was a proposal (to encourage long term investment) which would have taxed any capital gain from something held less than a week at like 90%, something held less than 6 months at maybe 80%, something held a year at a smaller percentage, and something held for many years at a very small rate.

That is a thoughtful proposal.

"We must cut capital gains taxes" with no details is just a slogan.

This shows how right wing Americans are. TEA people want every tax discussed, and every tax gets discussed. Meanwhile progressives have wanted to discuss population policy for decades and it never gets a word.

Posted by: Fred Thompson | Mar 19, 2010 8:13:42 PM

The problem is not revenue volatility

Which is a commonly cited reason why a sales tax is not a good idea.

"That is a solution to the problem that is largely workable and feasible, meaning capable of being done. Moreover, it would also go a long way toward mitigating the effects of the personal income tax kicker. "

Because an idea is feasible theoretically, the actual people in the legislature in any given year will act that way? "utilize historic revenue numbers to forecast an average and spend to this forecast"?

This debate reminds me of a debate years ago when Dan Doyle had proposed the "bucket plan" (complex and deserves to be forgotten, involved a spending limit).

There was a committee hearing where Doyle and his former ally Rep. Close were debating his plan. It was a time when the price of fuel --incl. school bus fuel--was going up faster than predicted.

Most intelligent question I ever heard Rep. Close ask was her question to Doyle. How would he deal with the rising cost of bus fuel---require schools to cut something else out of their budget? "Is this a proposal going forward or a historical construct" (if I recall the quote correctly).

In our legislative system, budget decisions are made, line item by line item.

Who exactly is going to bring about the change from the current system? Theoriticians? Are candidates going to run on this idea and if they win claim a mandate?

There are folks like me (and some people I know) who live by the slogan that life is logistics.

This is just theory.

They spend to the revenue forecast given on specific dates by the state economist.

That is different from "utilize historic revenue numbers to forecast an average and spend to this forecast".

But if anyone wants to campaign on "Oregon needs to change their revenue forecast to the one Chile uses so effectively", be my guest.

Like any other idea, it goes nowhere unless there are at least 31 votes in the House and 16 in the Senate.

Anything else is just part of an online debate.

If Oregon puts together a budget that always spends every dollar of the forecasted revenue, we will always be in a world of hurt when revenues don't meet the forecast.

This "peak detecting" budget model is not sustainable when a downturn occurs.

One other comment worth repeating: short term capital realized gains are always taxed as ordinary income, after offsets from previous capital losses (short and long term). Long term capital gains have historically been taxed at a lower rate to encourage savings; to encourage investments.

The volatility discussed here is simple: in good times, the tax revenues are flush; in dire times, revenues are reduced. We can't have a sustainable state budget that builds in permanent spending requirements that cannot be scaled back when times are tough.

Possible solution: build a budget that is based on some constants that don't change so readily - property values and earned income. Combine that with a formula to build the rainy day funds when revenues exceed the forecast - and balance the rainy day fund building with some sort of kicker.

Fred: I agree with you. Perhaps I did not state it well.

We do have a habit of putting in place permanent spending when the state coffers are flush (2007 is the most recent example). Setting us up for the current quandary, where an actual spending increase is viewed as a cut since the spending cannot grow at the wished for rate.

Basing a budget solely on immediate forecasts leads us into the boom-bust problems we have experienced in recent years.

Perhaps putting together a budget with fixed and variable spending with a priority to certain services. This will become more and more important if revenues flatten or actually decline. Even with temporary measures like 66/67, there are still issues if revenues don't meet forecast.

I am just happy I don't make enough money any more to worry about all these new taxes. I don't really care to make more at this point either. Not worth the risk of losing just to give away "my fair share once I win one time in my risk. I bet I am not alone.

"LT: Steve's proposal was implicitly endorsed by the Joint Legislative Task Force on Revenue Restructuring (or at least something like it). "

And just like those proposals and the Pub. Comm. on the Legislature proposals, they don't go anywhere until candidates discuss them, legislators introduce them as bills, etc.

To my mind, one of Kate Brown's great moments as a Sec. of State candidate was when she brought up one of the PCOL proposals in a candidate debate. She thought it was dumb. I thought it was a good idea. But at least she brought it up and talked about it publicly.

Blog debates are not the real world. Go find yourself a candidate willing to campaign on your idea.

"Both proposals were under discussion in the the Gov's office when the Leg leadership announced they weren't willing to touch the issue during the special session."

Legislative leadership made the decision that they would only discuss top priorities during the special session. Agree or disagree, they did vote on their priorities and adjourn at the end of Feb. as had been their plan.

The candidates for Gov. and legislature should be discussing these ideas publicly, along with kicker reform. I have heard a few diff. kicker reform proposals discussed generally. But the only one I have heard discussed by a legislator in a public forum in 2010 is when my Republican state rep. told a town hall meeting after the Feb. session that she believes in the kicker but thinks the way it is calculated needs to be changed.

Are we going to see Democrats debating these issues publicly in this election year? Or do they have to see good poll results and the start of building a coalition before they will grace us with their views on these issues?

Why not tax capital gains at the same rate as earned income, but index the basis at a rate 1% higher than inflation? That would have the effect of a lower effective tax on capital gains when you hold an asset for a long time (thus, creating an incentive to invest for the long haul), but still capture the full income gained from short-term speculation.

Douglas,

Short term capital gains are already taxed at the same rate as earned income. Some more exotic investment vehicles are always treated as short-term gains, even if held for longer than a year, so are always already subject to the earned income tax rate. Most stock options granted in current times are "non-qualified" and are immediately subject to ordinary income tax when exercised, even if the underlying stock is held (in other words, the basis is adjusted when exercised, and the difference between the grant price and the stock price at exercise is treated as earned income).

If the basis is adjusted for inflation at any rate, the tax due may disappear entirely if the asset is held long enough or high inflation rates rear their ugly head as they are expected to in the next decade.

At the fed level, there have been proposals to add a transaction tax on trading.

Also, in the healthcare reform bill that is in the news, there is a 3.8% tax on realized capital gains, with no special rate for long term gains. Some interpretations of this provision is that the 3.8% may be for unrealized gains, so there may need to be mark-to-market calculations each year - a complexity that most people cannot deal with accurately.

All in all, I understand the attraction of taxing gains (of course, offset by losses, too). As the original question was proposed, what is a fair rate, and how should investors and savers be provided with incentives?

If the basis is adjusted for inflation at any rate, the tax due may disappear entirely if the asset is held long enough or high inflation rates rear their ugly head as they are expected to in the next decade.

I'd expect that. If inflation eats up your entire gain, you shouldn't be taxed on it, because you didn't actually make any money. On the other hand, if you have assets that really do appreciate, you should be able to sell them for a profit even after taking inflation into account.

I have been to busy to have caught this old convoluted market hubbub put out by wealthy people living off the returns of money making money.

As though the money that has already been taxed makes money earning interest or, dividends should not be taxed agian, it would be double taxation. This is the arguments that were made in the last Great Depression. I'm sure the Robber Barons were sure if they could make a buck on American suffarage, this would be good for all some day.

I think if we allow so few to sit on so much of the economy's capital, or park huge chunks of American resources in off shore accounts from American taxation, we strangle the possibilities of real job producing progress for the vast majority of Americans. A good JOB.

The proposition is this, if we keep falling into this "strangle government" with tax cuts to the wealthy and corporations, and deregulate banking and capital distribution to just trust the ones with all the wealth, we willingly let a few greedy wealthy drag America into the abyss of another Great Depression. I'll note that this is not a overly dramatic scenario, but a frighteningly real possiblity.

<h2>My humble opinion, humble to be sure, and yet I know I'm not alone in seeing what I see.</h2>