We're just a couple of weeks away from May 21, the date when Gov. Kate Brown has summoned legislators for a one-day special session to consider her proposal for lower tax rates for some small businesses.
For fans of political posturing, this special session could well shape up as truly a special occasion, as legislators and other elected officials pivot toward November's general election.
For fans of tax reform that could benefit a range of Oregon small businesses, the session might not turn out to be all that special.
Here's the background, if you're just getting up to speed on this issue: Last month, Brown signed a tax measure, Senate Bill 1528, which was the subject of considerable partisan debate during this year’s legislative session.
Here’s what you need to know about the measure: Oregon’s tax code is connected to its federal counterpart, so any tax reform enacted at the federal level, such as the measure passed last year by Congress, generally is duplicated in the state tax system. Last year's federal tax reform included a provision allowing owners of so-called "pass-through" businesses (generally sole proprietorships, partnerships, limited liability corporations and S corporations) to deduct as much as 20 percent of their business income on federal tax returns.
Since the federal tax system is connected to Oregon's tax code, owners of those businesses were in line to take the same deduction on their state returns. But the Legislature, without a single vote from a Republican, approved Senate Bill 1528, which breaks the connection between the federal tax reform and the state tax code on this particular provision.
The state winds up pocketing an additional $244 million in tax revenue, money that Brown said the state desperately needs. But as Brown announced her intention to sign the bill, she also said she planned to call the Legislature back into session to consider her proposal to give a tax break to sole proprietorships, which had been left out of a previous tax break, passed in 2013.
Give the governor credit for what amounts to a clever attempt to thread the tax needle: The state, which faces yet another budget shortfall next year (despite what will almost certainly be record revenue), pockets millions to start filling the gap. Brown's tax proposal, which is estimated to cost the state about $11 million, doesn't make that budget hole much deeper.
And, maybe most important from the governor's point of view, she gets to cast herself as a friend to Oregon's small businesses as she hits the re-election trail, perhaps taking some of the wind out of the sails of her GOP opponent.
Brown's proposal has a couple of problems, though: First, as we've noted, an analysis of the proposal suggested that her tax break wouldn't give relief to that many businesses: About 12,000 tax filers would qualify. To be fair, that number has increased from earlier analyses, but it still works out to just 4.3 percent of Oregon's sole proprietors.)
And now this: An analysis from the Legislative Revenue Office released last week found that Brown's tax break would mostly benefit those sole proprietors earning at least $200,000 a year. Less than 10 percent of the estimated $11 million tax cut would go to sole proprietors earning less than $100,000 a year.
A tax break that benefits mostly the wealthy? That does start to sound like the tax reform measure Congress passed last year — not something that comes from the desk of a governor who's positioned herself on the front lines of the opposition to President Donald Trump.
It all adds to the potential of a mischief-filled special session in two weeks' time — not the quick one-day event that Brown would prefer. And it all begs this question: Isn't it time our election officials and candidates got serious about floating plans for real tax reform? Just asking. (mm)