SALEM – Oregon House Democrats narrowly passed a plan Friday that would raise $200 million by scaling back a 2013 business tax break. The vote came after three hours of contentious debate featuring allegations of broken promises and class warfare.
Democrats in both chambers of the Legislature have said the tax cut helped wealthy doctors and lawyers -- "suits and scrubs," they complained -- rather than the manufacturing and other export businesses it was supposed to help grow.
But on the House floor Friday, Republicans said a broader spectrum of small businesses, and agriculture in particular, have benefitted.
"You're going to be surprised how many of those people you know in your districts, except they wear jeans, T-shirts and boots, and they work hard for a living," said Rep. Carl Wilson, R-Grants Pass.
The bill barely passed on a 31-28 vote, with three Democrats present joining all House Republicans to vote against it. The Democrats who voted "no" were Rep. Teresa Alonso León, D-Woodburn, Rep. Brad Witt, D-Clatskanie and Rep. Caddy McKeown, D-Coos Bay.
Republicans objected to Democrats passing the bill on a simple majority vote, rather than the supermajority required under the state Constitution to raise taxes, because shaving the tax break is expected to raise more than $200 million over the next two years. They also accused Democrats on breaking the 2013 "grand bargain" that cut public pension costs, a Republican priority, and achieved the Democrat's goal of a net increase in tax revenue.
"We all made a deal," said Rep. Julie Parrish, R-West Linn. "And today you're breaking that deal."
Rep. Mark Johnson, R-Hood River, agreed. "I believe this bill on the floor today will make it virtually impossible to forge another grand bargain, which we so desperately need," Johnson said. Both Johnson and Parrish are moderate Republicans.
House Speaker Tina Kotek, D-Portland, said the tax break received less vetting than other elements of the 2013 deal, and it was fair to make changes. "We had no idea how this thing would actually operate," Kotek said.
Legislative economists have predicted the 2013 tax cut, if left in place, would save Oregon taxpayers about $277 million over the next two years. The state has only analyzed a sample of tax return data from 2015, the first year the tax break was available, and it showed the state lost out a bit less in taxes than anticipated. But anecdotal reports suggest more tax filers have since taken advantage of the break as they learned it is available, said Legislative Revenue Office Senior Economist Chris Allanach.
The tax break allows people who draw personal income from business partnerships, limited liability corporations and S-Corporations with at least one employee to pay lower taxes on that income than other forms of personal income. For example, someone with income up to $250,000 from one of those businesses would pay a 7 percent tax, the rate available to other joint filers only if their combined income is in the range of $6,700 to $16,800.
The 2013 law can save someone with $5 million or more in this type of business income up to $76,000, Allanach said.
House Majority Leader Jennifer Williamson, D-Portland, said her husband is a lawyer and saved much less on his tax bill: $350. Williamson, who voted to curtail the tax break, said her husband was previously unaware of the "windfall" and certainly hadn't used it to hire new employees.
The House plan approved Friday would limit the tax break to businesses with a minimum of 10 employees in the following sectors: agriculture, mining, manufacturing, wholesale trade, transportation and warehousing, information, and accommodation and food services. The limitation on the tax break would apply retroactively to the 2017 tax year.
The bill will now go to the Senate, where it must be vetted by a committee before an eventual floor vote. It's not yet clear whether Senate President Peter Courtney, D-Salem, will bring the bill up for a vote, and a spokesman for Courtney said the senator was unavailable to comment Friday afternoon.
If House Bill 2060 passes in the Senate, it would also likely be on a slim margin. Democrats hold a 17-13 majority there, but some Democrats including Sen. Betsy Johnson, D-Scappoose, might vote against it. Johnson said Friday that she had not read the bill but "on the face of it, I'm in all likelihood not going to be very supportive."
Johnson said she'd already been the target of a so-called "robocall" campaign starting Friday morning that resulted in a lot of people calling to urge her to vote against the bill. Many callers did not actually know what the bill would do. Johnson said the automated calls claiming to know her position on a bill she is still learning about "enrages me."
-- Hillary Borrud
503-294-4034; @hborrud