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It’s Tax Time in Salem!

Oregon House Democrats take run at tax-increase plan. They would levy a 0.95 percent tax on businesses’ Oregon-based sales over $5 million

Saul Hubbard, The Register-Guard, May 4, 2017

SALEM — House Democrats on Thursday unveiled their proposal for a new gross receipts tax on businesses, an aggressive plan that would generate $3.3 billion a biennium in new net tax revenue when fully phased in.

The plan would levy a 0.95 percent tax on businesses’ Oregon-­based sales — not profits — above $5 million. As an offset, the current corporate income tax would be repealed and personal income tax rates would be slightly reduced for low- and middle‑­income residents.

In exchange, House Democrats are willing to make $250 million in cuts to state services in the 2017-19 budget and save $400 million through “cost-containment” measures that would reduce public employee health insurance and pension costs.

The proposal comes as state lawmakers try to plug a $1.6 billion gap between projected spending and revenues in the 2017-19 budget, which starts July 1. Along with possible cost-containment measures, a major new corporate gross receipts tax has always been at the heart of those negotiations.

Earlier this week, majority Democrats released a broad framework for that tax, but with many key details left blank. With Thursday’s release, the Legislature’s most liberal caucus showed how it would like those specifics penciled in.

House Speaker Tina Kotek, a Portland Democrat, said their package could break a long cycle of “creative,” patched-up state budgets, and allow for big new spending in public education and other areas of the budget.

“Tightening our belts alone is not going to solve” Oregon’s structural budget problem, she said.

The framework would pump an extra $1 billion into K-12 public schools and $250 million into higher education in 2017-19. It could allow voter-approved ballot measures for career and technical education and veterans’ services to be full funded.

“Some people are going to say this is a really big” gross receipt tax, Kotek said at a public hearing. But “are we going to make another generation of students wait while the adults figure it out?”

Still, the size of House Democrats’ corporate tax increase will be a non-starter for most Republican lawmakers and is likely too rich for more moderate Senate Democrats as well.

The House Democrats’ framework would raise about half of what Measure 97 would have, the gross receipts tax that ­Oregon voters thrashed in November.

House Republican Leader Mike McLane of Powell Butte said the proposal represents a “massive” tax increase “akin to Measure 97” and is “a wolf in sheep’s clothing.”

“It is an admission of the fact that Democrats can’t balance the budget despite record revenues,” McLane said in a prepared statement.

“And once again Democrats claim, ‘It’s for the kids,’ even as they continue to drag their feet on what would truly secure lower class sizes and more school days — addressing (public employee pensions), health benefits and other cost drivers.”

To pass a major new business tax this session, Democrats will need the support of all their more moderate members plus at least one Republican in each chamber.

Rep. Cliff Bentz, an Ontario Republican, pointed out that any new corporate tax the Legislature passes will likely be referred to voters by the business community.

He asked Kotek what has changed since the resounding message of Measure 97’s defeat.

“Most people are still going to see this as a sales tax,” he said, adding that he didn’t want “to charge up this hill for nothing.”

Rep. Phil Barnhart, a Eugene Democrat, acknowledged that consumers would end up paying part of the gross receipts tax in the form of higher prices. But, to stay competitive, businesses would also have to extract some of the tax from their shareholders as well, he argued.

Barnhart added that the personal income tax cuts in the plan for low- and middle-income Oregonians — worth $300 million a biennium — would help reduce the impact of rising consumer prices.

But Senate President Peter Courtney, a Salem Democrat, and Sen. Mark Hass, a Beaverton Democrat and key tax crafter, were both noncommittal on the specifics of the House Democrats’ tax plan.

Courtney applauded Kotek for putting forward a “real proposal” but said he couldn’t say “at this stage if this will be the plan.” He also urged the business community to become more involved in the tax increase negotiations.

“We have shown we’re serious about cutting (government) costs,” Courtney said, in a prepared statement. “What we haven’t seen is the business community get serious about raising revenue.”

Hass, meanwhile, made clear that the House Democrats’ proposal is not the new consensus plan for majority Democrats.

Hass has championed a gross receipts tax that would apply to more businesses, but at a tax rate of between 0.25 and 1 percent.

The House Democrats’ plan, with the $5 million threshold, would hit an estimated 5,250 businesses in Oregon. Hass’s $1 million threshold means 18,387 companies would pay the gross receipts tax, spreading its burden more evenly, he argues.

Hass said that publicly laying out different options to address the state’s long-term budget needs is a good thing.

“This kind of give-and-take is essential,” he said.