Wednesday, April 25, 2018

Jessica Gomez ends the honeymoon.

Her video introduction was lovely.  Smiles, everyone happy, community.  That's over.  She is a politician now.

She is defending a tax loophole to help "small business." Most of the benefit goes to the very wealthiest.

It turns out she is a Republican after all.
Jessica Gomez posted in Facebook that she is disappointed that the legislature passed, and Governor Kate Brown signed, a bill that closed a loophole in the Oregon income tax. 

Gomez is making the transition into the hard slog of being a politician.

The new federal tax law allowed certain kinds of businesses characterized as Pass Through entities to get a 20% tax deduction for Qualified Business Income.  

Only some people qualify for the deduction, because it isn't based on being a small business, or jobs created, but rather whether a business is organized as a "pass through" entity or not. Wage earners don't get it. Some types of business aren't eligible, some very big businesses are. Lawyers and accountants are scrambling to see if their clients can reorganize their ownership in order to qualify. Some can, some cannot.

Oregon, by default, would normally adjust its tax rules to comply with the federal code, creating for those lucky people the 20% deduction on the taxes they would pay to the State of Oregon. Senate Bill 1528, signed by Brown, stops that, leaving Oregon's rules as they were. No special treatment for LLCs on Oregon taxes.

In Salem this was argued as a "small business tax increase", and Republican legislators opposed it.  In fact it was a benefit for a certain kind of business structure, neither large nor small, and the Senate Bill kept the status quo in Oregon.

Gomez acted like a Republican soldier here. All Republicans opposed the bill, meaning they wanted the provision extended to Oregon taxes as well. She is a member of the Republican tribe.

Who was really helped by the change in federal law to create the special tax cut for pass through businesses, and should Oregon incorporate that into Oregon law?

The Congressional Joint Committee on Taxation published a report. It showed that almost all the dollar benefit goes to the top 2 percent of taxpayers, and with nearly half the benefit going to people earning $1,000,000 or more a year.  That is the small business getting the special tax break federally, then urged by Republican legislators to be extended to Oregon.
Click for the PDF file

This is a problem and opportunity for Gomez. There is a case to be made that very high income people in Oregon feel over-taxed, and they need a courageous new legislative defender, and Jessica Gomez can play that role. Jessica Gomez can make her case that people with incomes above $1,000,000 should have more tax breaks, like the one closed by Senate Bill 1528. Having made out so well with a federal tax cut, they should also do well with a reduction of state taxes. 

It could be a tough sell to the general public. Most Oregonians don't think people making a million dollars a year are "small" anything.

Selling the pass through loophole details on its merits has the difficulty that some people get it and some don't, with no apparent reason in equity or policy. If it is worth doing, why do it via a deduction for certain business organizations, but not others? Is a pass through organization any better for Oregon than a sole proprietorship or C-Corp. A business person whose company makes a medical device might qualify, but if he has multiple stock holders would not.  Why benefit a businessman making a million dollars a year who can organize his business as a pass through, but not a physician working on salary at La Clinica, earning a fraction of that? Is that fair?  The special treatment isn't for "small business." It is for businesses of any size whose accountants can manage to shoehorn their business organization to fit the law.  Forbes Magazine explains some of the quirky inclusions and exclusions:  Click: Good Forbes article  
Click for the lovely video

Jessica Gomez is on record wanting to preserve the Tax Code 199A exemption to the Oregon income tax, that is both haphazard and which primarily benefits the very richest taxpayers. 

She has a problem whatever she does.

If Gomez attempts to wiggle away from defending the special benefit for pass through entities on its merits, she would look weak. She does not have credible GOP primary opposition, but, still, she cannot let herself look disloyal to her GOP team. 

On the other hand, if she defends the special benefit for pass through entities, presenting it as a benefit to "small business" when in fact something with primary benefit to the richest Oregonians she can be made to look out of touch with the average Oregonian. Most Oregonians don't think people with $200,000, $500,000, and $1,000,000 incomes need tax breaks. 

1 comment:

  1. "Small Business" is a misnomer whomever uses it, but I digress.

    It's a clever tactic by government to design tax policy to collect as many times in the transaction chain as they can. This opens the door to lobbyists to make a case for their particular clients, usually large well financed businesses.

    In principle I would have to say that exempting corporations from taxes funnels a lot of money into the churning washing machine of capital markets, with unpredictable results. Wages, infrastructure upgrades, education, and more suffer.

    Regressives worship the myth of the "rugged individual" who should be allowed to keep all he wrests from the earth, a notion that is as archaic as wig powder and snuff.


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