New Oregon business tax plan faces opposition from GOP

Of the Associated Press

SALEM — Oregon lawmakers rolled out a broad plan to overhaul the state's corporate tax system Tuesday that could net anywhere between $288 million and $3 billion in extra funds for the cash-strapped state over the next two years.

The tax plan would replace Oregon's corporate income tax — among the nation's lowest — with a tax on businesses’ gross receipts, or revenues from business-to-business transactions for things like equipment and materials, beginning in 2018. It's a “mellow version,” as one Democrat described the proposal, of the voter-rejected Measure 97 tax hike initiative, which would have raised $6 billion for the next two years.

The highest estimate of what the plan would raise, about $3 billion, is roughly equal to what the state says it needs to keep operations running at current levels through the next two years. It would also help the state address a $1.6 billion deficit that could otherwise force cuts to various public programs and services, kick thousands off Medicaid health plans and scale back public-sector employment and benefits.

But those estimates don't account for other proposals — including tax hikes on tobacco products, moving public-employee health plans into coordinated care organizations and statewide hiring freezes — that are also being eyed for the 2017-19 budget. The potential savings from spending cuts revealed last month are still unclear.

Under the revenue-making plan, low-income households could also see their tax burdens trimmed through things like personal income tax cuts or increases to the standard deduction. Various exemptions for certain business dealings, such as donations to nonprofits and transactions with government or among “closely related business entities,” were also included to help soften the impact of higher consumer prices, which state revenue officials say would be inevitable.

Republicans in both chambers, however, appeared ready to double-down on their opposition. “No gross receipts tax, period. Oregonians slammed the doors shut on Measure 97 and they want to have a conversation not on a hidden sales tax, but on reining in out-of-control government spending,” Senate Republican Leader Ted Ferrioli said in a statement.

The minority party's support for the proposal is needed because without it, the Legislature won't have the three-fifths, or 60 percent, approval that any tax increase needs from lawmakers before signing into law by the governor.

One way around that requirement, however, is to instead send the proposal to voters for final approval in a special election this fall. That would require only a simple majority, although its survival then rests in the hands of many of the same voters who struck down Measure 97 in November.

Democratic Sen. Mark Hass, who has helped lead local tax reform efforts for almost two years, said he hopes this latest proposal combined with other spending cuts could still make for a convincing package.

The range of potential tax rates, 0.25 percent to 1 percent, is more comparable to other states and smaller than the 2.5 percent outlined in the labor union-backed Measure 97. The lower gross receipts tax rates would also be applied broadly, affecting more than 18,000 companies with gross revenues over $1 million versus the 1,000 or so wealthiest companies with over $25 million in gross revenues that were targeted in the ballot measure.

Hass also stressed that any tax revenue plan is off the table without inclusion of cuts in government costs, such as those recently ordered by Democratic Gov. Kate Brown and proposed by a bipartisan group of experienced lawmakers.

Democrats and labor unions have been squaring off with Republicans and businesses over whether Oregon's budget woes stem from corporations not paying their fair share or runaway government spending that's reaching unsustainable levels.

Both sides, at the same time, agree Oregon's tax structure needs major revision. Its heavy reliance on personal income taxes creates volatility during tough economic times, while voter-approved property tax caps from the 1990s have reduced funds to education and other services by roughly $2.8 billion annually by today's standards. Oregon's lack of a sales tax also further hampers potential new sources of revenue.

“Unfortunately, our outdated, broken revenue system has forced us to piece together years of inadequate, unstable budgets,” Democratic House Majority Leader Jennifer Williamson said.

Yet some in the local business community say a broad tax structure re-do is more appropriate after, not during, the 2017 session.

“Several states (Michigan, New Jersey and Kentucky) tried gross receipts taxes a decade ago and quickly repealed them because of their negative economic consequences,” Sandra McDonough, president and CEO of the Portland Business Alliance, said in a statement on behalf of Brighter Oregon, the new campaign name of the Oregon Business Plan Coalition.

Ben Unger, executive director of Our Oregon, the labor union-backed nonprofit that brought Measure 97 to the ballot, blasted McDonough's statement as back-peddling on previous agreements by the business community to negotiate after the November election.

“They're clearly not interested in fixing this problem,” Unger said. “We can't sit around anymore and pretend they're going to be part of the solution while schools suffer, our health care gets cut — it's not fair.”


This story has been corrected to show that voter-approved property tax caps from the 1990s have reduced funds to education and other services by roughly $2.8 billion, not $1.8 billion.

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