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A Portland accounting firm says a tax measure on the Multnomah County ballot to offer relief to tenants facing eviction would be “volatile, cumbersome and costly.”
The measure would impose a 0.75% tax on all capital gains earned by county residents and devote the proceeds—$12 million to $15 million a year, backers estimate—to legal and financial aid for tenants facing eviction.
Perkins & Co, the largest locally owned accounting firm in Portland, prepared a five-page report on the tax, the only local measure on the May 16 ballot. The Perkins report, produced for opponents of the measure, highlights risks and potential shortcomings of what would be the nation’s first local capital gains tax.
Among them: the potential that the tax rate could be raised or lowered depending on how many county residents profit from the stock market each year, and the possibility that home sales and retirement plans could be subject to the tax.
Colleen Carroll, a spokeswoman for the Eviction Representation for All campaign, says such risks for the county’s highest-earning residents are exaggerated, and nothing compared to the threat that thousands of county residents face each month: losing their homes. Most tenants facing eviction can’t afford a lawyer, and few show up in court.
“The impacts of evictions are felt by individuals, their families, and the whole community,” Carroll says. “It can take years to clean up your credit and rent another place.”
The arrival of the Perkins report offers an opportunity to examine some key questions voters must consider in two months.
Why is this measure on the ballot?
Portland consistently ranks among the nation’s least affordable cities. That means home prices and rents are high relative to incomes. That’s borne out by a residential vacancy rate last year that ranked second lowest in the nation.
One result: evictions, and lots of them. After eviction protections lapsed last summer, data gathered by Portland State University researchers shows evictions are now 40% higher than pre-pandemic levels, with 847 new evictions filed in Multnomah County in January alone.
Carroll of Eviction Representation for All says after looking at similar efforts in other cities, the campaign landed on a tax that would call on the most able to pay to help the least able. Denver and Boulder, for instance, levy a tax on apartments, Carroll says. “It was important to us not to impact the working class and have it be passed along to renters.”
What are capital gains?
The Eviction Representation for All campaign chose the IRS definition for capital gains, which are the profits realized from the sale of a capital asset—such as a stock, bond or mutual fund—held for more than a year.
The Perkins analysis raised one issue with capital gains taxes: volatility.
From 2001 to 2002, for example, capital gains revenues at the state level (a good proxy for Multnomah County) fell by more than 50% and didn’t get back to 2001 levels until 2005. In the Great Recession, revenues fell 60% from 2007 to 2008 and didn’t reach 2007 levels again until 2020.
And the measure allows the tax rate to be raised or lowered annually. “Volatility could lead to political pressure to increase the local capital gains tax rate or to impose new taxes to make up for revenue shortfalls,” the Perkins analysis says.
What about people’s homes?
An FAQ published by the campaign provides one answer: “Does every profitable sale of an asset count as a ‘capital gain’? Would this include my home? No!” The campaign relies on a federal IRS rule that gives a one-time exemption of $500,000 on the sale of a residence.
Perkins disagrees with that analysis, noting that home sale exclusion is a federal provision—and not included anywhere in the measure.
“We believe that residents selling their home would not benefit from the exclusion on the sale of their principal residence and would owe the proposed local capital gains tax on all gains from the sale,” the firm says.
Carroll says that can be fixed later. “If the text of the measure doesn’t include [an exemption of home sales], it would be easy for the county to align it later,” she says. “It’s our intention that be the case, and we would strongly lobby for it.”
What about retirement accounts?
Unlike Multnomah County’s Preschool for All measure and Metro’s supportive homeless services measure, both of which tax high-income earners, the ERA measure is not means tested. If you have a capital gain, you pay, no matter what your income.
Although capital gains disproportionately accrue to the wealthy—the Oregon Center for Public Policy says 5% of Oregonians took home 85% of capital gains in 2020—Perkins says the tax could hit ordinary retirees taking money from IRAs, 401(k)s and other retirement plans that hold stocks, bonds and mutual funds: “As seniors withdraw savings from retirement investment accounts, they may not be subject to federal or Oregon income taxes, but they could have to pay the ERA capital gains tax on the savings which would reduce their retirement income if their withdrawals are categorized as capital gains.”
Carroll disagrees. “People with retirement plans can rest assured that won’t affect their money because it’s taxed as regular income,” she says.
Are businesses subject to the tax?
Again, Perkins and the campaign see things differently. The measure’s explanatory statement seems explicit: “Businesses are not subject to the tax,” it says.
But Perkins says that’s misleading. “We believe this tax would also apply to small and medium-sized business owners,” the report says. “Businesses organized as pass-through entities, such as a sole proprietorship, partnership, limited liability company (except those electing to be taxed as a C corporation), and S corporation, are taxed at the individual level.” That means the capital gains any of those businesses record would be subject to the new tax.
Carroll says that’s a distraction. “Eighty percent of people in Oregon don’t pay any capital gains tax,” she says. “Our point is that the very few people who make money this way [through capital gains] are paying less tax overall because of the federal treatment.” (The federal capital gains rate ranges from 15% to 20%, far less than the top income tax rate of 37%.)
How does this fit with other taxes?
As has been widely reported, Multnomah County residents at the top end pay a higher rate of income taxes than all but New York City residents. Perkins says the overlay of local taxes, each of which requires a different form, creates headaches and is expensive for local jurisdictions to administer—and creates incentives to leave Multnomah County.
“A resident small business owner currently has to comply with a minimum of eight different taxes,” Perkins says. “If a resident sells an investment located in another county or state, that resident could be subject to this tax on any gains received. Conversely, we believe that a nonresident may have gains on investments located in Multnomah County that would not be subject to this tax.”
Carroll says adding a modest tax—$7.50 on each $1,000 of gain—is a small sacrifice compared to the whopping rent increases many tenants face, even under the state’s new rent control law.
“A lot of tenants are facing a 14.6% rent increase,” Carroll says. “If you are making a lot of money, being asked to pay a little more so that this place is livable doesn’t seem too much to ask.”
Correction: This story initially misstated the tax that would be due on a $1,000 capital gain. WW regrets the error.