Kitzhaber talks of capital gains tax break

PORTLAND — Call it a sneak preview of this fall's campaigns: Democrat John Kitzhaber raised the possibility Monday of a capital gains tax break in Oregon.

In an Associated Press interview, the former governor who is running again for the office, said there could be a rationale for deferring taxes on capital gains that are plowed back into Oregon enterprises that create jobs.

The suggestion shows that as voting in the May 18 primary gets under way, Kitzhaber is increasingly looking toward the fall election and a debate about how to create jobs.

Both Republican candidates, Allen Alley and Chris Dudley, have made cutting capital gains taxes a top priority.

None of the proposals have been entirely fleshed out with proposed rates and estimates of the impact on the state treasury and the number of jobs the tax cuts would create.

The candidates will be challenged to pencil out a tax cut when Oregon confronts a budget situation in 2011 that Gov. Ted Kulongoski describes as headed over a cliff.

Kitzhaber's Democratic primary opponent, Bill Bradbury, has proposed a state-owned bank to funnel capital to Oregon businesses and on Monday derided cutting capital gains.

"This is the type of tax cuts for the rich we saw enacted by the Bush administration that led us from a record surplus to the worst economic recession since the Great Depression," he said in a statement. "The evidence is very clear on this point — cutting taxes for the rich does not spur job creation."

In the interview, Kitzhaber brought up the possibility of such a limited capital gains tax break in the context of his idea of a state budget framework that looks beyond a two-year cycle.

Reducing capital gains taxes, he said, "loses you money in one biennium, but may gain you significant resources if it produces jobs,"

He also said it could keep money in Oregon that might otherwise go elsewhere when people who realize large capital gains establish an out-of-state address first.

"A lot of folks take those dollars out of state because of the capital gains taxes," Kitzhaber said.

Alley has proposed eliminating taxes on capital gains realized in Oregon — passive investments in out-of-state vehicles such as mutual funds wouldn't qualify. He said his initial thinking is that it would apply to investments going forward — as distinguished from investments already made. He said details need to be hashed out.

"The interesting thing is I'm starting to hear my arguments played back to me," he said.

The first paragraph in Dudley's "Recovery Plan" for Oregon calls for reducing the capital gains tax rate, using more generous, federal depreciation provisions in state taxes, and reducing "Oregon's highest in the nation tax that unfairly tax too many small, unprofitable and startup businesses."

"No one will believe that after proposing more tax increases than any other governor, including a sales tax last week, that John Kitzhaber will now support reducing taxes to help business create jobs. It's simply not credible," Dudley said in a statement.

House Speaker Dave Hunt, a Democrat who would have a lot to say about any tax bills if his party can hang on to legislative majorities, said a capital gains measure wouldn't undo what Democrats achieved in tax increases on the wealthy and on business that voters affirmed in January.

A targeted tax break could cost the state treasury much less than a general cut in rates and create jobs, he said. He acknowledged that finding a way to replace the revenue would be difficult in 2011.

Still, he said, "I think it's very attractive."

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