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House Democrats propose new business tax targeted to education, social spending

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Lawmakers face a $1.6 billion gap between projected income and anticipated spending this year.

Democratic leaders of the Oregon House have proposed a new tax on business sales, but less than what voters defeated last fall, with $2.1 billion in net proceeds targeted to education and social spending in the next two years.PAMPLIN MEDIA GROUP: PETER WONG - Rep. Phil Barnhart, from left, House Speaker Tina Kotek and Rep. Nancy Nathanson speak about linkage of a new business tax to targeted education and social spending to a joint legislative committee on Thursday, May 4, in Salem

House Speaker Tina Kotek of Portland and leaders of the budget and tax committees say their plan — coupled with cost-saving measures and other spending cuts — would balance the next state budget and boost education spending as advocated by business groups.

"I doubt we can grow this economy, continue to maintain growth and grow our workforce without these types of investments," Kotek said Thursday (May 4) to a joint committee considering new taxes.

"Does another generation of students have to wait while the grownups figure it out?"

Lawmakers face a $1.6 billion gap between projected income and anticipated spending, although the Oregon Health Plan for low-income people accounts for a chunk of that and renewed taxes on hospitals and health plans could narrow that amount.

Later, under questioning by a House Republican, Kotek returned to her generational reference.

"This is all about choices — about whether we believe the No. 1 priority for the Legislature is to provide for essential services and public education … and to balance the budget in a way that grows our economy and protects the citizens to have what they need to be successful," she said.

"We are adults, and we make choices. My choice is to march up the hill and try to do this."

Her comments were in response to Rep. Cliff Bentz, R-Ontario, who agreed with the goals but said the proposed tax was too similar to what was proposed in Measure 97, which voters defeated by a 60 percent majority.

"This particular solution has been damaged badly by what happened last fall," Bentz said.

"I would suggest the case (for it) is still lacking… What is it that has suddenly changed? Most people are still going to see this as a sales tax, and they are going to be unhappy with it."

Business tax changes

Under the plan, most businesses would pay a flat filing fee of $250.

A new tax of .95 percent would apply to businesses with Oregon sales exceeding $5 million. It would replace the state's corporate income tax, which at 6.6 percent or 7.6 percent applies to business profits.

According to Rep. Phil Barnhart, D-Eugene, who leads the House Revenue Committee, the new tax would affect 5,000 businesses.

"It is a significant step in the right direction," he said.

The plan envisions cost-saving measures — such as requiring public employees once again to contribute a share to their pensions and slowing the growth of their health insurance expenses — and spending cuts of $250 million.

Senate President Peter Courtney, D-Salem, did not formally endorse the plan but said it's time for business groups to step up to the table.

"They told us if we would rein in costs, they would support raising revenue. We have shown we're serious about cutting costs. What we haven't seen is the business community get serious about raising revenue," he said in a statement.

"I applaud the speaker (Kotek) for putting forward a real proposal. I can't tell you at this stage if this will be the plan. It is an important step forward in the process. We've got work to do. The clock is ticking."

Measure 97 lost after a record amount was raised by public employee unions to promote it and by business groups to defeat it. It would have imposed a 2.5 percent tax on C-corporations with Oregon sales exceeding $25 million annually.

Targeted spending

Although the newly proposed tax would raise an estimated $3 billion every two years — about half of Measure 97's projected total — a net of $2.1 billion would be available for spending.

In addition to an end to the state corporate tax, which dates back more than 80 years, the plan would reduce personal income taxes for lower-income households, assuming that businesses would pass on some of the new costs to consumers.

Of the $2.1 billion, the plan envisions $1 billion more for school districts, $250 million more for higher education, and $150 million more for early childhood programs.

In addition, the plan would put $350 million into three ballot measures approved by voters last fall but not funded fully — career and technical education, outdoor school and veterans' services — and $250 million into other services.

"We know that if all we do is close the funding gap barely, we will have a deficit in future cycles," said Rep. Nancy Nathanson, D-Eugene, House co-chairwoman of the Legislature's joint budget committee.

"Oregonians will not see education improved. You will not be seeing us move the dial in a significant way ... to the degree we want to. All of that is at stake if we do not invest. We will continue funding mediocrity."

House Republican Leader Mike McLane of Powell Butte said schools should get more money, but not through a tax he described as "a wolf in sheep's clothing."

New or increased taxes would require 60 percent majorities for approval in both chambers, so if all Democrats support it, at least one Republican in each chamber would have to join them. Even if that were to occur, opponents could petition to force a statewide election.

The 60 percent majority also applies if lawmakers refer it to voters, according to the Legislature's own lawyer.

Predictable reactions

Reaction to the latest plan drew predictable reactions.

Praising the plan was A Better Oregon, a union-led coalition that has advocated a renewed push for more money for schools and state services.

"Oregon's economy and our families benefit when we have good schools and affordable higher education," said Hannah Love, campaign manager.

"Oregonians pay our part for those services, this plan makes corporations start to pay theirs. Without investment from taxpayers and from corporations together, Oregon students will never have the schools and opportunities they deserve."

The Oregon Education Association, American Federation of Teachers-Oregon and other education advocates also support it.

Priority Oregon, a business-oriented group whose spokesman is former Republican Rep. John Davis of Wilsonville, decried the process by which the plan was developed — and the result.

"Oregonians know that a tax on company sales is really just a tax on us and they won't stand for it just like Measure 97," the group said in a statement. "The members of this committee need to be honest with Oregonians. Their massive new tax will hurt Oregonians and small businesses, not just big corporations."

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