SALEM – The amount of new corporate taxes that Oregon House Democrats plan to raise appears to be dwindling by the day, with the latest proposal clocking in at roughly $200 million instead of the $900 million they'd hoped for two weeks ago.
And with the days ticking down to the July 10 deadline to balance the state budget, House Democrats also appear ready to pass their new plan without any Republican support. The move could cause a turbulent end to the session and imperil important legislation, such as a transportation funding bill that is already on the rocks.
House Minority Leader Mike McLane, R-Powell Butte, warned that passing Democrats' plan – which would scale back a 2013 tax break for certain businesses – with a simple majority vote would violate a requirement in the Oregon Constitution for a three-fifths supermajority to raise taxes. Democrats need one Republican vote in both the House and Senate to achieve a supermajority.
House Speaker Tina Kotek, D-Portland, "is putting her own reputation and the credibility of the Legislature at risk in a desperate money grab," McLane said in a statement Wednesday. "Her actions show a shocking level of disregard for this institution and for the people we collectively swore an oath to serve."
But a spokeswoman for Kotek said House Democrats would be on firm legal ground if they pass the tax plan by a simple majority. "Either way, the speaker hopes there will be broad bipartisan support for (the plan) because it's necessary to fix the unintended consequences of the runaway tax break from 2013," spokeswoman Lindsey O'Brien said.
Some Democrats say the tax break intended for farmers and other small businesses was exploited by wealthy law practices, doctor's offices and others who can afford to pay more.
McLane and other Republicans particularly object to scaling back the 2013 tax break because it was part of a deal known as the "grand bargain" under which opposing sides agreed to make tough choices to both raise taxes and cut public pension costs in a spirit of cooperation for the good of the state. Pension reforms passed as part of that deal were subsequently largely undone by a 2015 Supreme Court ruling, however.
"That was less than four years ago," McLane said. "Sadly, it appears that the word of Democratic leadership has a shelf life."
When it passed, the combination of tax cuts and increases in the grand bargain was expected to raise a net total of more than $200 million in new revenue, with $100 million of that going to K-12 schools and the remainder to higher education and human services.
Since then, questions have arisen over whether the business tax break served its original purpose to help grow traded-sector companies and increase employment. It applies to companies whose owners and shareholders report the profits on their personal income tax returns. Sen. Mark Hass, D-Beaverton, recently said it had the unintended consequence of lowering taxes for "suits and scrubs" – lawyers and doctors who weren't the intended beneficiaries.
Gov. Kate Brown called for the elimination of the tax break in her December budget proposal, and at least one bipartisan proposal from the Joint Committee on Tax Reform would also scale it back.
The plan Democrats voted out of the House Committee on Revenue Wednesday would limit the 2013 tax break to businesses with at least 10 employees, in the following sectors: agriculture, mining, manufacturing, wholesale trade, transportation and warehousing, information, and accommodation and food services. It would apply retroactively to the 2017 tax year that is already underway for many businesses.
Lawyers for the Legislature disagree with Republican claims that it would be illegal to scale back the tax cut on a simple majority vote. Legislative Counsel Dexter Johnson and Special Counsel Catherine Tosswill said on Wednesday that only bills that impose a new tax or raise a tax rate are subject to the supermajority vote requirement, and a 2015 Oregon Supreme Court ruling reinforced that case law.
"Our opinion is it is not a bill for raising revenue," Johnson said of House Democrats' plan.
It's unclear whether Democrats in the Senate would be willing to pass the bill on a simple majority vote.
"I would consider it," Sen. Richard Devlin, D-Tualatin, said on Wednesday. "Everyone likes to have services. No one wants to pay."
A spokesman for Senate President Peter Courtney said the Salem Democrat was unavailable Wednesday and his position on the issue as unknown.
Rep. Phil Barnhart, a Eugene Democrat who's chairman of the House Committee on Revenue, left open the possibility on Wednesday that his committee might consider additional bills to raise revenue, such as a so-called gross receipts tax that would calculate business taxes based on a company's sales in Oregon.
-- Hillary Borrud