OREGON HOUSE REPUBLICAN OFFICE
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Gov. Kate Brown’s election-year epiphany
The Oregonian Editorial Board
How odd that Gov. Kate Brown would be convening legislators for a special session to expand a controversial tax break benefiting businesses. She is, after all, the same governor who has railed about Oregon’s businesses not paying their “fair share” of taxes. She has bemoaned cuts to government services as revenue hasn’t kept up with spending. But suddenly, Brown is so distressed that some businesses haven’t been eligible for a three-year-old tax break that she is calling an emergency session for lawmakers to write them in? “Odd” doesn’t begin to describe the weirdness of her position.
“Opportunistic,” however, does.
In this election year, Brown is looking to make amends with small businesses after she signed a bill to disconnect Oregon’s tax code from a new federal tax deduction benefiting “pass-through” businesses whose owners report business income on their personal tax returns. The disconnect means those businesses could not claim that deduction in calculating their state taxes as they normally would.
But this is more than a political stunt. Brown’s proposal to allow sole proprietorships to claim millions in tax breaks is a reckless step in the wrong direction for a state that has no plan for how it will absorb Medicaid costs and pension contributions that are set to escalate in 2019. Instead, her proposal would create a new giveaway that largely benefits wealthier sole proprietorships without any clear payoff for the public. It also helps cement the existence of a controversial tax break that legislators have rightly been looking to undo. And it only ramps up the difficulty in overhauling Oregon’s tax system into one that is fairer, less volatile and delivers the revenue that this state needs.
As awkward as it might be, Brown should recognize the harm of expanding this tax break, cancel the special session and win voters over by showing leadership on matters of true urgency.
Cancelling now could save her embarrassment down the road. Senate President Peter Courtney, who questioned the need for a special session, told The Oregonian/OregonLive’s Hillary Borrud that it’s unclear whether Brown has the votes to pass her proposal. That’s not entirely surprising considering House Democrats last year sought to dramatically narrow the tax break, which was passed in 2013 as part of the “Grand Bargain” of tax and pension changes choreographed by former Gov. John Kitzhaber. Most of the pension reforms were invalidated by the Oregon Supreme Court. But the tax break, which lets pass-through business owners pay lower marginal tax rates on their income up to $5 million, survived, benefiting law firms, doctors’ offices and many high-income earners that employed at least one non-family member. Sole proprietorships were excluded from the break, the “inequity” that Brown is now seeking to rectify years after the fact.
Chris Pair, Brown’s spokesman, said the governor has no intention of canceling the special session and is unwilling to put it off any longer. “Waiting until 2019 to make this change will only cost the businesses themselves,” Brown’s office said in a prepared statement about the proposed legislation.
That’s not a reason to convene lawmakers out of session; in fact, that’s an argument for waiting. Because changing it now will cost Oregonians about $11 million a year, according to the Legislative Revenue Office. While that’s a small sum compared to the budget as a whole, it’s a significant amount for the agencies and programs that have had to cut services due to insufficient appropriations in this current budget cycle.
Pair also said that there’s broad agreement among legislators that “it is only fair for small businesses to receive the same tax treatment as large businesses in this state.” Funny that that didn’t concern Brown or many legislators last year when they passed a new Medicaid tax that hit small businesses – but not large companies like Nike and Intel.
And, to be clear, while Brown likes to say that her proposal helps Oregon’s “mom and pop” businesses, many won’t be able to take advantage of it. Brown is creating her own “inequity” among sole proprietorships by barring from eligibility any that do not employ at least one non-family member for at least 30 hours a week. Including them would cost Oregon even more in foregone revenue, digging the state’s financial hole even deeper.
It’s not surprising that Brown would be trying to shore up support in the business community. She’s alienated many with her reluctance to address skyrocketing spending, her support for expensive mandates on employers and the selectively-applied Medicaid tax. But while Brown is expected to easily win the Democratic primary, she could face a far tougher race in November if Bend legislator Knute Buehler wins the Republican primary next week.
Brown could try burnishing her credentials by countering Buehler’s thoughtful proposals for addressing Oregon’s fiscal problems with some of her own. Unfortunately, her call for a special session to “fix” a non-urgent matter of debatable “inequity” reveals a governor of gimmicks, not gumption.