Policy Documents

Research & Commentary: Oregon Capital Gains Tax Reform

November 20, 2012

As Congress considers whether to allow the capital gains tax rate to increase at the beginning of 2013, states across the nation are debating whether to change their own capital gains tax rates.

Oregon’s capital gains taxes are among the nation’s highest. According to the Federation of Tax Administrators, Oregon is tied with Hawaii for the highest capital gains tax rate at the upper bracket, at 11 percent. Although not every citizen pays capital gains taxes, the levies can do much damage to a state’s economy by slowing capital formation and reducing wages. 

According to research by the Cascade Policy Institute and the Oregon Governor’s Council of Economic Advisors, Oregon’s capital gains tax has been an unreliable source of income, and reducing or eliminating it could create thousands of new jobs in the state. In today’s economy, businesses can and do move away from states that charge high taxes. Oregon’s neighbor to the north, Washington, has no capital gains tax. 

In written testimony before the Oregon House Committee on Revenue, Steve Buckstein, a senior policy analyst and founder of the Cascade Policy Institute, argues reforming Oregon’s capital gains tax would likely spur economic development and attract new capital. “Reducing or eliminating Oregon’s capital gains rate would send a positive message to business people and investors everywhere. It not only would unleash more economic activity from those already living in Oregon, it would help attract such people to relocate to Oregon and bring their capital with them,” he states. 

Oregon should focus on implementing tax policies that encourage capital formation and investment in their state. Lowering or eliminating the state’s capital gains tax would be a big step in bringing capital back into the state and promoting economic growth. 

The following articles examine state capital gains taxes from multiple perspectives. 

Oregon’s Capital Gains Tax is Too High
http://www.oregonlive.com/opinion/index.ssf/2012/09/oregons_capital_gains_tax_is_t.html 
The editors of the Oregonian state Oregon’s capital gains tax, among the nation’s highest, should be lowered to keep citizens from moving out of the state: “The rates imposed by individual states matter because people may move freely, and taxpayers can time their capital gains. Don’t want to pay the tax? Don’t sell your asset until you’ve established residency in a more hospitable state—like Washington, which, like eight other states, does not tax capital gains.” 

Testimony in Favor of Reducing Oregon’s Capital Gains Tax Rate
http://cascadepolicy.org/?p=8953
Steve Buckstein, a senior policy analyst and founder of the Cascade Policy Institute, testifies before the House Committee on Revenue in favor of reducing Oregon’s capital gains tax rate: “So, rather than trying to pick winners and losers, in this case trying to direct more capital to Oregon businesses through favors in the tax code, simply ensure a level playing field and then trust in the market’s ability to evaluate good deals and invest in them. The more attractive you make Oregon as a place to do business, the more business and investment capital will flow here.” 

Politifact: Tobias Read Says Oregon Has One of the Highest Capital Gains Taxes in the Nation
http://www.politifact.com/oregon/statements/2011/mar/21/tobias-read/tobias-read-says-oregon-has-one-highest-capital-ga/
Politifact confirms the truth of Oregon state Rep. Tobias Read’s claim that Oregon has one of the highest capital gains tax rates in the nation. According to the Federation of Tax Administrators, as of January 1, 2011 Oregon was tied with Hawaii for the highest rate at the upper bracket, 11 percent. 

Research & Commentary: Capital Gains Taxes Update
http://heartland.org/policy-documents/research-commentary-capital-gains-taxes-update
Matthew Glans and John Nothdurft of The Heartland Institute examine the proposed hike in the federal capital gains tax rate and its expected effects on investment and the economy: “An increase in the capital gains tax rate, combined with a hike in dividend taxes and high inflation, dramatically increases the effective tax rates paid by taxpayers. With the U.S. economy still struggling to crawl out of the economic downturn, it’s important to avoid policies that hinder capital formation and investment in U.S. markets, as raising capital gains tax rates would do.” 

State and Federal Individual Capital Gains Tax Rates: How High Could They Go?
http://heartland.org/policy-documents/state-and-federal-individual-capital-gains-tax-rates-how-high-could-they-go
The American Council for Capital Formation’s Center for Policy Research highlights the effects of higher federal tax rates on long-term individual capital gains when federal, state, and, in some cases, local taxes are combined. The study found a low capital gains tax rate is important in fostering economic growth. 

The Effect of the Capital Gains Tax Rate on Economic Activity and Total Tax Revenue
http://heartland.org/policy-documents/effect-capital-gains-tax-rate-economic-activity-and-total-tax-revenue
The Institute for Research on the Economics of Taxation identifies how taxpayers and investors react to capital gains tax rates: “The tax treatment of capital gains and dividends greatly affects the quantity of capital created and employed. The quantity of capital affects the productivity, wages, and employment of labor. Output and incomes are lower at higher levels of taxation of capital. Raising the tax rate on capital by increasing the tax rate on dividends and capital gains from current levels would shrink national income across the board.” 

The Economic Costs of Capital Gains Taxes
http://heartland.org/policy-documents/economic-costs-capital-gains-taxes
The Fraser Institute outlines the effects of capital gains taxes: “Unfortunately, the cost of capital gains taxes is not limited to the amount of tax collected. Capital gains taxes impose additional costs on the economy because they reduce returns on investment and, thereby, cause individuals and businesses to alter their behaviour.” 

A Capital Gains Primer
http://online.wsj.com/article/SB10001424052702303753904577452260437934858.html
In this Review & Outlook article from the Wall Street Journal, the authors argue that increasing capital gains tax rates is counterproductive and could have damaging effects on financial markets: “Moving rates higher has damaging effects. Economist Allen Sinai estimates in a report for the American Council for Capital Formation that raising the capital gains rate to between 20% and 28% would reduce U.S. employment by between 231,000 and 602,000 jobs a year, and that with slower growth and a weaker stock market ‘the federal budget deficit actually ends up larger.’” 

Capital Gains Taxation: Federal and State
http://www.house.leg.state.mn.us/hrd/pubs/ss/sscapgain.pdf
In a short research document, the Minnesota House of Representatives identifies which states use a capital gains tax and examines how the tax is used, how different states charge it, and why. 

Seeking Economic Boost, Arizona Cuts Capital Gains Taxes
http://www.pewstates.org/projects/stateline/headlines/seeking-economic-boost-arizona-cuts-capital-gains-taxes-85899386385
Josh Goodman of PewStates examines Arizona’s efforts to cut its capital gains tax rates and the efforts of other states to change their taxation of capital gains. 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the FIRE Policy News Web site at http://news.heartland.org/insurance-and-finance, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.