SALEM — In the waning weeks of the legislative session, two leading Democrats have come up with a tax reform plan to address the state's $1.4 billion revenue shortfall.
The plan by Sen. Mark Hass of Beaverton, and House Speaker Tina Kotek of Portland would raise an estimated $900 million in the next two years.
"Momentum is building to go forward with revenue reform this session. ... Now, we finally have a breakthrough," Kotek said Wednesday. "This plan, along with long-term cost containment, is our best chance to increase investments in education while also providing significant tax relief for small businesses and personal tax relief for middle- and low-income families."
Hass emphasized that the plan is a package that includes tax reform, containment of state government costs and reductions in state employees' pension benefits.
"These are hard votes for Democrats in the House, but I think they will vote for those, if they know there also is a revenue tax reform package. Without a revenue package, those won't pass, so this is a two-step dance. We have to have both."
If revenue reform fails this session, union leaders say they are poised to petition for a ballot measure to make corporations pay more taxes.
Hass and Kotek have yet to seek official approval from the Joint Committee on Tax Reform, which has to vote on the proposal before it can move to the House floor.
The plan would temporarily hike corporate income taxes in 2017 and 2018 from 6.6 percent and 7.6 percent to 8 percent and 9 percent in order to help raise the $900 million. The corporate income tax would then be repealed in 2019 and replaced with a commercial activity tax on businesses with annual sales of $3 million or greater. The change would effectively mean small businesses would no longer have to pay corporate taxes, only a $250 filing fee, Hass said. The commercial activity tax would yield an estimated $1.1 billion in 2019-2021.
Other states have pursued similar tax reforms to help stabilize their corporate income revenue, he said.
The five-tier rate is proposed at 0.75 percent for services, 0.35 percent for retail trade, 0.25 percent for wholesale, 0.15 percent for agriculture, forestry and fishing, and 0.48 percent for all other industries.
The new tax would come in tandem with a reduction in the personal income tax to account for any nominal price increases resulting from the commercial activity tax, Hass said.