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Sen. Mark Hass takes point in tax proposal

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The Beaverton lawmaker said he is trying to address Oregon's revenue problems. He is suggesting cuts to income tax while creating a new tax on gross business receipts.

FILE - Beaverton Sen. Mark Hass is trying to craft a package of changes to the way Oregon collects its revenue. The current system is too volatile, he argues.Oregon lawmakers began discussions Tuesday, May 2, on the broad strokes of proposed changes in state taxes that could raise as much as $3 billion per budget cycle.

The proposed changes, under an outline formally released Tuesday, could include three main features — a new tax on gross business sales; the elimination of the corporate income tax; and reductions in the personal income tax.

Sen. Mark Hass, D-Beaverton, co-chair of the legislature's newly formed Joint Committee on Tax Reform, said the plan released Tuesday is an attempt to address what he has described as a volatile state revenue system that relies on the personal income tax.

The plan's proposed reductions to the personal income tax also seem intended to counter criticisms that a tax on business sales will increase consumer prices.

Lawmakers are contending with a $1.6 billion gap between what the state anticipates in revenue and what it will cost to maintain current services in the upcoming two-year budget.

Hass has been leading the charge on efforts to vet changes to the tax system. Legislative Revenue Officer Paul Warner called the information presented Tuesday a "guidepost" to drafting a formal tax proposal.

Under the plan, a new tax would apply to all businesses with more than $150,000 in annual sales in Oregon. Companies with sales between $150,000 and $1 million would be charged a flat rate of $250, while those with sales of more than $1 million would pay the flat fee and a percentage of gross receipts exceeding $1 million. That percentage remains undecided.

The nonpartisan Legislative Revenue Office estimated — by extrapolating information from Ohio — that a rate of .25 percent, combined with eliminating the corporate income tax, would bring in an additional $288 million in the upcoming two-year budget if both policies started Jan. 1, 2018. At the high end, a 1 percent rate could bring in about $3.1 billion in the next two-year budget.

Some Democratic lawmakers, including Hass, seemed eager Tuesday to distinguish the proposal from Ballot Measure 97, a tax proposal voters rejected in November.

That proposal, brought forward by union groups, would have created a gross receipts tax, but at a 2.5 percent rate, and just on certain corporations with annual gross receipts of more than $25 million. It was expected to bring in about $6 billion per budget period.

A gross receipts tax could affect certain businesses differently. A grocer, for example, typically has low profit margins compared to professional services firms such as lawyers' offices.

Washington state's business and occupation tax accounts for these differences in sectors by assessing different rates for diffrent sectors, while Ohio has opted for one rate in its commercial activities tax to keep the base wide, and therefore rates low, according to Legislative Revenue Office documents prepared for Tuesday's meeting.

The Legislative Revenue Office says that the disadvantages of a gross receipts tax included "pyramiding" — when a tax is assessed at multiple stages of the production process — and "upward pressure" placed on consumer prices.

Detractors say a gross receipts tax could be regressive, as people earning lower incomes pay a greater share of their income on consumer goods. Part of the proposal discussed Tuesday includes lower rates for income taxes for lower-income earners, expanding the earned income tax credit and increasing the standard deduction and personal exemption credit.

In proposing a plan, the work group aimed for four policy "principles", Warner said, including a broad base and a simplification of state business taxes.

In the wake of Measure 97's failure, labor groups have maintained their call for changes to the state's revenue system, and in particular, higher business taxes. They say their aim is not just to address the $1.6 billion gap presently before lawmakers, but what they characterize as the structural pitfalls of a budget that relies heavily on the personal income tax.

"We'll be watching closely to see if this plan generates revenues above and beyond the deficit," SEIU Local 503 President Steve Demarest said in a prepared statement. "Because that's what Oregon needs to make real investments in education, healthcare, and other critical public services."

Pam Treece, executive director of the Westside Economic Alliance, praised Hass for working on the issue of revenue, "so diligently for so many years," but said it's too early for her business group to weigh in on the proposal. "They've had one meeting. I'd like to wait and see where they plan to go," Treece said.

Brighter Oregon, another business group, that has coalesced around the state's budget issues, contends the proposal merely passes costs onto consumers in the style of Measure 97, and said that changes to the state's revenue system could wait until the Legislature adjourns in July.

"Consideration of tax increases to fund vital investments can occur once cost controls are in place," said Sandra McDonough, president and CEO of the Portland Business Alliance.

A Better Oregon — a coalition of groups calling for increased business taxes — claimed businesses are "stalling."

"This is yet another example of business' brazen moving of the goal posts when it comes to meaningful compromise," said Hannah Love, campaign manager for A Better Oregon, in a statement.

A Brighter Oregon has said they are willing to consider revenue reform once the Legislature prioritizes economic growth and containing the state's costs. Yet another, separate group, calling itself Priority Oregon, has formed opposition specifically to any gross receipts tax.

Republican leaders in the Legislature also called for addressing the state's costs first, saying they believed Oregonians would reject another gross receipts tax, which they characterized as a descendant of Measure 97.

"While I appreciate the efforts of Sen. Hass, I do not believe Oregonians would support this latest rendition of Measure 97," said House Minority Leader Mike McLane, R-Powell Butte.

By contrast, House Majority Leader Jennifer Williamson, D-Portland, called the plan a "great step forward" and argued it would simplify business taxes, stabilize school funding and relieve "working families."

A bipartisan group of legislators released a broad list of possible strategies to address the state's cost drivers April 21; last week, the governor announced efforts to step up the state's debt collection and make changes to collective bargaining with public employees.

Lawmakers on the tax reform committee will continue discussing business taxes at their next meeting, scheduled for this morning.