- Associated Press - Tuesday, June 13, 2017

SALEM, Ore. (AP) - After a dozen meetings since early May, the Joint Tax Reform Committee invited the public this week to weigh-in for the first time on a large-scale makeover to Oregon’s corporate tax system.

The committee could vote on the proposal, now called House Bill 2830, on Thursday and send it to the House floor as early as next week. It would raise roughly $900 million for the 2017-19 biennium, and gradually increase in future budgets, by increasing the existing corporate income tax for one calendar year, then shift to a levy on business-to-business transactions, dubbed a gross receipts tax.

It’s a similar concept to what businesses spent millions of dollars fighting, and voters ultimately rejected, in November through labor unions’ Measure 97, although it’d raise a fraction of the money and be applied more broadly and at different rates. Like Measure 97, a portion of the funds could go to education.

John Calhoun, who spent much of his 45-year career doing financial management for Intel, was among several who testified in favor on Tuesday.

“As long as a tax is based on income, large corporations will continue to find ways to avoid paying taxes,” he said. “The (proposal) will solve that problem.”

The proposal’s Measure 97-like concept has been largely responsible for the stalled progress on the upcoming $1.4 billion budget deficit, which lawmakers are constitutionally required to solve by July 10. The division has been trickling into other matters, with Democrats in the House demanding a business tax before they’ll pass a K-12 education budget and labor unions threatening to derail a 10-year transportation package at the ballot without new revenue.

Republicans want to see the state’s spending whittled down first, and Tom Hammer, a local resident with small business experience in the manufacturing and retail sectors, echoed those sentiments.

“When the public sector takes money out of the private sector faster than wealth is created, private citizens lose economic freedom. That’s what this (proposal) will do,” Hammer said. “It rewards out of control public spending and adds dues-paying members to the PERS pyramid scheme.”

The problem is partly due to Oregon’s tax system, which relies most heavily on personal income taxes. Voters have struck down a statewide sales tax multiple times at the ballot and, back in the 1990s, they capped the growth of property taxes. That narrows new revenue options for lawmakers, and Democrats say today’s economic upswing is an opportune time to bring corporations’ low tax burden in line with national averages.

The other issue is that revenues can’t keep up with the state’s expenses, largely due to health care and retirement costs of retired and current public employees. Portland State University noted this dynamic in a study Monday, saying reducing classroom sizes and adding 10 days to the school year would require 8,500 new teachers and another $1.5 billion next biennium - a cost that’d continually increase in future budgets since collective bargaining is done at the individual school district level.

In December, Gov. Kate Brown proposed an $8 billion K-12 budget, a figure intended to keep current services going. Three months later, the Oregon Association of School Business Officials said that number should look more like $8.4 billion because school employees’ health care and salary increases were initially low-balled.

Last week, the Oregon Senate passed a K-12 budget in the middle of those two figures, $8.2 billion, up 11 percent from the current budget ending June 30 and over $150 million more than what schools initially asked for. It now awaits final approval by the House, where Democratic Speaker Tina Kotek wants to see another $300 million before her chamber votes.

Schools get most of their money from the state’s general and lottery funds, which are funded by income taxes and tobacco, liquor and lottery sales. Yet, the state has little say on how dollars are spent; those decisions are instead up to school board members at each of the state’s 197 districts.

That dynamic drove some of the controversy behind Measure 97, which would’ve indirectly boosted the K-12 budget by pumping new revenues, $3 billion annually, into the general fund. The current proposal, spearheaded by Kotek and fellow Democrat Sen. Mark Hass, would funnel extra cash to schools in a similar way.

In the House chamber, a final vote on the education budget may hinge on passage of the business tax.

“It’s unclear whether there are the votes in the House to pass a status quo K-12 budget at this point,” Kotek said in a statement late last week. “I’m still fighting to pass a compromise on business tax reform and cost containment that allows us to invest more in our schools this session.”

At least some support from Republicans, the minority party, is needed for the corporate tax, which requires a three-fifths supermajority in each chamber, starting in the House, then the Senate where it may face the toughest opposition.

“Think about it this way,” Senate Republican Minority Leader Ted Ferrioli said in a statement, “a gross receipts tax makes even the simplest things in life more expensive…. There are not the legally-required votes for a gross receipts tax in this caucus because it is an outdated, hidden sales tax that Oregonians just massively defeated.”

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