In the tradition of Stephen Colbert … it’s my very first edition of Tip of the Hat / Wag of the Finger! Today’s topic is ‘tax breaks and statewide candidates.’ Today I am tipping my hat to Ron Wyden, who is proposing a job-creating attack on one of the biggest, most problematic Federal corporate tax breaks, the deferral of taxation on profits American multinationals make in other countries (a break which filters down to the State level as well) … and wagging my finger at Bill Bradbury, who is offering up the complete fantasy that we can solve our State budget problems by cutting $2 billion in unnamed tax expenditures.
Full disclosure: My former campaign manager is now running Ron Wyden’s re-election campaign and I have endorsed John Kitzhaber. But I also have a long history of calling for abolition of the foreign profits deferral and of warning fellow Democrats about various incarnations of the tax expenditure fantasy – which might fairly be called the Left’s version of the Right’s “waste fraud and abuse” fantasy.
First, Ron Wyden. Under current American tax law, an American multinational that makes profits overseas does not pay American taxes on those profits until it brings the money home. That creates an incentive to do business in overseas tax havens, move jobs to overseas tax havens, and keep money in overseas tax havens. It also creates an incentive for companies to play games with numbers – for example, engage in intra-corporate transactions that have the effect of artificially increasing the amount of profits attributed to the corporation's operations in the low-tax foreign country and decreasing the amount attributable to American operations. (The multinational gets to deduct the taxes it pays to the other country, so the deferral only matters if it’s doing business in a lower-tax country.)
In his recent tax reform bill, submitted with Republican Senator Judd Gregg, Ron would eliminate the deferral. He’d also reduce the official corporate profits tax rate. Which is all right with me; right now the U.S. officially has one of the highest profits tax rate in the world (a great talking point for the right wing), but what corporations actually pay bears no relationship to that official rate. Promoting American job growth and taking away a right-wing talking point at the same time … that’s what I call a win-win.
Ron’s bill – or, alternatively, a State bill that would disconnect Oregon from the ‘deferral’ part of the Federal tax code – would generate about $33 million per biennium of tax revenue for the State of Oregon. I think that if Ron doesn’t succeed at the Federal level, our Legislature should do that disconnect. $33 million is real money. I also think (based on my review of the State Tax Expenditure Report’s comments on the issue) that the Legislature should at least consider eliminating the special tax break for like-kind exchanges of real estate, a special break for certain complex real estate transactions. That would be another $22 million.
But beyond that, when I go through the State’s Tax Expenditure Report – which I have done, thoroughly and repeatedly, numerous times since 1997 - I don’t see many obvious tax break targets. Which is why I’m very frustrated by Bill Bradbury suggesting that he can fund schools and other services by cutting $2 billion in ‘tax expenditures,’ without making any attempt to explain WHICH $2 billion in tax expenditures.
The fact is that the biggest tax expenditures are mostly things like the home mortgage interest deduction, and the exemption of employee health benefits from taxation. I don’t hear Bradbury taking on the home mortgage interest deduction, or proposing taxing employee health benefits as income. (The BETC is an unusual case of a tax expenditure that did become – justifiably – a juicy political target.)
What Bradbury is doing is saying (I’m quoting his web site): “Currently, the state forgoes about $30 billion in tax revenue per biennium, more than the spending for education, health care and public safety combined. As Governor, I will work to reduce this lost revenue by 5 percent, either through the Legislature or through the voters by ballot measure.”
Well, my friends, that is exactly as intellectually barren a statement as Chris Dudley’s statement that he will set aside 3% of the State budget in a rainy day fund without saying what parts of the budget he would actually cut. If we don’t accept right-wingers blithely asserting that it’s easy to cut 5%, or 3%, of the budget for services, without specifics, we shouldn’t accept progressives blithely saying that we can easily cut 5% of the tax expenditures, without specifics.
I would add that in a way, Bradbury’s talking point is an insult to our bold legislators, like Phil Barnhart and Ginny Burdick, who bit the bullet and passed the bills that became Measures 66 and 67. If there were $2 billion in wasteful tax breaks lying around, wouldn’t Barnhart and Burdick have cut them?
Ron Wyden has taken a bold step – one that will alienate many big, powerful interests – toward changing the Federal tax code in a way that would encourage job growth in America, rather than in overseas tax havens. Bill Bradbury has offered up $2 billion in fools’ gold. I honor Bill for being out there with us on the front lines for Measures 66 and 67; that was real. What he’s saying about tax expenditures. Is fantasy.