Oregon's rare loss from US tax law sets off political fight (copy) (copy) (copy)

This file photo from January shows dark clouds hovering over the Capitol in Salem. Perhaps no cloud over state government is darker than the one surrounding the state's public pension system.

When last we checked in with the Oregon Legislature's efforts to impose a $2 billion business tax hike, legislative leaders had sent a letter to the state's biggest business organization asking what types of taxes it might be willing to support.

The answer from Oregon Business & Industry President Sandra McDonough came back last week: The proposed $2 billion tax increase, a centerpiece of Gov. Kate Brown's plans to pump more money into public education, is "too much," McDonough wrote.

And McDonough made another vital point in her letter to Sen. Mark Hass, D-Beaverton, and Rep. Nancy Nathanson, D-Eugene (the two co-chairs of the Joint Committee on Student Success Subcommittee on Revenue): Any increase in taxes should be accompanied by cost-saving reforms to the state's Public Employees Retirement System.

That's not a surprise. Nor is it an unreasonable demand, considering that an analysis has shown how increasing premiums, required to keep the state's underfunded pension system afloat, would eat away half of the additional revenue generated by the business tax by 2023. In subsequent years, the analysis suggested, the PERS premiums would take even a bigger bite.

Some legislators might have argued that, even if this turned out to be case, at least schools would get a little extra cash for a few years. But McDonough didn't rise to that bait.

If all of this sounds familiar, it's because this is essentially the same place we were at two years ago in the Legislature: Business leaders were sending encouraging signs about possibly supporting some sort of additional tax, but wanted it to go hand-in-hand with PERS reforms. The nascent deal eventually ran off the rails, as legislators were reluctant to entertain serious overhauls to the pension system.

After that session ended, as you will recall, a coalition funded largely by public employee unions moved ahead on its own and qualified a business tax measure on the ballot; that proposal, Measure 97, was swatted down by voters. 

And so here we are, in the middle of the 2019 session, and Hass and Nathanson are leading the subcommittee looking at ways to raise more money for K-12 education. (While Gov. Brown has asked the Legislature to come up with the extra revenue, she has not spoken, at least publicly, about her preferred method of doing so.) Hass and Nathanson are moving carefully, and you would be too, considering what a minefield taxation has become in Oregon.

So it was worth their time to send the letter to McDonough. It's possible the legislators were hoping for a different answer, but they couldn't have been surprised to receive her response.

To be fair, McDonough left the door open for the legislators to consider a certain kind of business tax known as a value-added tax; these taxes are calculated on a business’ sales minus inputs, as opposed to a gross-receipts tax such as the one proposed in Measure 97. And the legislators and the business leader agreed to keep working together, a good sign. Hass said last week that he wants to get a tax bill out of the subcommittee by the first week of April — a worthy goal, and one that would allow plenty of time for legislators and others to take a hard look at the proposal. 

That task, and that timeline, will be challenged by McDonough's insistence that the PERS issue be added to the mix; that's probably part of the reason why the legislators wanted to set it aside at least for the time being. But that almost certainly was a futile hope, considering how quickly the rising cost of pension premiums would eat away at any new revenue. Here's the bottom line: This PERS issue isn't going to placidly sit on the sidelines. (mm)

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