A8
BUSINESS
Blue Mountain Eagle
Wednesday, April 17, 2019
Long-awaited business tax proposal unveiled
By Mark Miller
Oregon Capital Bureau
Oregonians could pay less on
their state income taxes but pay
more for some goods and services
under a legislative proposal to
raise money for the state’s strug-
gling public school system.
The long-awaited proposal
will tax businesses just under one-
half of 1 percent of their gross
receipts over $1 million while
cutting Oregonians’ income tax
rates by one-quarter of a percent
for all but the top bracket. Sales
of groceries, gasoline and die-
sel would not be taxed under the
proposal.
The smallest businesses —
those that make less than $1 mil-
lion in taxable revenue per year —
will not be subject to the tax, nor
will any that already pay the med-
ical provider tax. Businesses that
are taxed will be able to allay the
impact by deducting one-quarter
of either their labor costs or the
amount they paid to other busi-
nesses during the course of the
year.
A small group of state sen-
ators and representatives from
both parties, led by Sen. Mark
Hass, D-Beaverton, and Rep.
Nancy Nathanson, D-Eugene, has
been meeting for weeks to ham-
mer out a business tax proposal.
In addition to taxing businesses
on their sales, they have agreed to
cut Oregon’s personal income tax
rates as a way to offset costs that
companies will likely pass along
to consumers.
Gov. Kate Brown called last
year for lawmakers to find new
revenue for K-12 education over
the next biennium. Hass said he
is shooting for at least $1 billion
per year.
Money from the new tax will
go into a new state fund called the ity tax. That proposal resembled
Fund for Student Success, which Ballot Measure 97, a proposed
will support K-12 and early child- gross-receipts tax that Oregon
hood education statewide.
voters rejected in 2016.
Revenue from the corporate
The current plan is a blend of
activity tax will pay for the $2 bil- the two competing concepts.
lion Student Success Act that leg-
“I want to do the best pol-
islators unveiled last week. The icy that is most fair to most busi-
tax plan, which is still subject nesses,” Hass said earlier this
spring.
“I’m
to change, is a
“WE WERE HAPPY going to avoid a
part of that act.
where
A version
TO SEE THAT THEY situation
this places a
of the proposal
was posted as HAVE INTRODUCED greater burden
on one sector
an amendment
on the Legis- THIS CONCEPT OF A or one size of
lature’s web- HYBRID THAT STARTS business.”
site
briefly
Melissa
TO ADDRESS SOME Unger, exec-
on
Thurs-
day afternoon
director
OF OUR CONCERNS utive
before being
of SEIU 503,
taken
down ABOUT PYRAMIDING.” reacted
pos-
itively to the
due to drafting
errors, accord- Sandra McDonough, Oregon Business & plan.
Industry executive director
ing to Hass’
“We
are
office, which
encouraged
confirmed the
about the direc-
tion the Legislature is headed,
basic outlines of the plan.
Hass, Nathanson and other funding critical services with a
key legislators have been study- reasonable corporate tax,” Unger
ing two closely related models for said Thursday.
several months, trying to decide
OBI isn’t quite on board yet,
how to craft their corporate activ- said its executive director, San-
ity tax plan.
dra McDonough, but it does see
Oregon Business & Industry, encouraging aspects of the plan
a coalition of some of the state’s now on the table.
largest employers, suggested
“We were happy to see that
that lawmakers look into a val- they have introduced this concept
ue-added tax to ensure businesses of a hybrid that starts to address
don’t have to pay more for every some of our concerns about pyra-
step in their production process. miding,” McDonough said, refer-
At least some production costs ring to the accumulation of taxes
would be deducted from the tax on every stage in the production
bill — an idea lawmakers have process. Gross-receipts tax critics
argue that pyramiding is unfair
incorporated into their plan.
A rival group called Coali- because it disproportionately
tion for the Common Good, made affects producers of complex
up primarily of labor groups and goods.
She added, “It’s not where we
Beaverton-based Nike Inc., put
forward another option modeled think it needs to be, but we’ve
off of Ohio’s commercial activ- indicated we’re willing to con-
tinue the conversation.”
In Oregon, raising taxes or
creating a new tax requires the
approval of three-fifths of sena-
tors and three-fifths of representa-
tives. That gives the Democratic
majority a narrow path to pas-
sage, as the 18 Senate Democrats
constitute exactly three-fifths of
the chamber.
Lawmakers also have other
major issues to sort through.
The education package itself
is complex, and it has already
faced pushback from Brown, who
said Thursday she wants a share
of the new tax revenue to bolster
career and technical education
and expand financial aid for col-
lege students.
As proposed by legislators,
the Student Success Act would
invest $2 billion over a biennium
into K-12 education. Those dol-
lars would pay for more teachers
and support staff, instructional
days, elective and extracurricu-
lar activities while also investing
in early childhood education and
preschool programs, mental and
behavioral health resources and
recovery planning for struggling
school districts, among other
areas.
Both the business tax and the
lower personal income tax rates
would take effect next year. Pro-
jections suggest the tax plan
would bring in just shy of $1 bil-
lion for K-12 education in 2020.
However, opponents could
force a statewide vote on the tax
changes if they get through the
Legislature. Controversial bills
are often referred to the ballot, a
process that a senator and a repre-
sentative can initiate.
“We’re ready for that,” Hass
said of a potential referral. “If
that’s the way it goes, that’s the
way it goes.”
The last time a major tax
increase was on the statewide bal-
lot in Oregon was Measure 97 in
2016. Voters shot down the pro-
posed $3 billion corporate sales
tax, with 59 percent voting “no”
to bury the measure.
Hass attempted to marshal
support for a more modest tax
package in 2017, but his plan died
without a vote.
Last fall, Brown proposed
$12.3 billion in spending for the
Department of Education, 11 per-
cent more than the current budget.
Oregon has the second-low-
est high school graduation rate
in the country, according to U.S.
Department of Education data.
Only New Mexico graduates
fewer of its high school students
within four years.
Funding levels for Oregon
schools have declined since vot-
ers approved Measure 5 in 1990,
slashing the amount of money
schools receive from local prop-
erty taxes. Instructional time has
fallen in many school districts, as
have staffing levels.
Ballooning public pension
costs have also hit school dis-
tricts hard. McDonough said OBI
believes “cost control” needs to
be addressed if taxes are being
raised:
“Specifically
PERS
reform, so that we can make sure
that any new dollars raised actu-
ally make it to the education pack-
age that they want to support.”
The
Legislature
passed
major PERS reforms in 2013,
but the Oregon Supreme Court
invalidated most of them in
2015.
A citizens’ group including
former Gov. Ted Kulongoski and
former state Sen. Chris Telfer is
working toward petitioning PERS
pension cuts onto the ballot in
2020.
Business interests pushing for PERS reform
By Claire Withycombe
Oregon Capital Bureau
Current and future public
employees wouldn’t have as
generous a retirement under
initiative petitions being
pushed by business inter-
ests in yet another effort to
reform the state’s notori-
ously complex and expen-
sive retirement system.
The effort has attracted
two big names in Oregon
politics — former Gov.
Ted Kulongoski and Chris
Telfer, a former state sen-
ator and currently a mem-
ber of the Oregon Lottery
Commission.
Kulongoski and Telfer
say the amount that local
governments, like cities and
school districts, pay to the
Public Employees Retire-
ment System each year is
poised to grow so much that
they will struggle to provide
basic services.
Oregon PERS Solutions,
a business-funded group
backing the petitions, esti-
mates those payments will
increase by $10 billion over
the next eight years if the
system isn’t changed.
Instead, Kulongoski and
Telfer want some of that
money to go to other needs
such as road repairs and
teacher salaries.
They are putting their
political might behind two
ballot measure initiatives
that would reduce future
retirement benefits for cur-
rent and new public employ-
ees starting in 2021.
The state’s 145,000
current retirees in PERS
wouldn’t be affected.
Backers estimate one
approach could save pub-
lic employers $5 billion, and
the second could save $3.3
billion. The backers would
advance only one measure to
the 2020 election.
PERS is a hybrid system,
which, in simple terms, con-
sists of two parts: a basic pen-
sion and a retirement savings
account similar to a 401(k).
If successful, the effort
may mean that for new
employees, the state could
emulate OHSU’s retirement
options.
Workers there have the
option to either get the pen-
sion plan or to contribute to
a 401(k)-style savings plan,
but not both.
Under both petitions, cur-
rent public employees would
contribute to the costs of their
pension. But they wouldn’t
have to contribute more
money than they already do
to retirement, because the
money they contribute to the
existing 401(k)-style plan
could get redirected to make
the required pension pay-
ment instead.
And the state would either
create a new 401(k)-style
savings plan for new hires or
have the state treasury study
creating one.
Although benefits would
get reduced under the peti-
tions, backers argue pub-
lic employees and taxpay-
ers could see other positive
effects — such as being able
to hire more teachers or pay-
ing those teachers more.
But if the state does
nothing, schools and other
public entities would have
to make cuts to cover ris-
ing PERS bills, said Tim
Nesbitt, interim executive
director of Oregon PERS
Solutions.
“If we make no changes,
the path we’re on means lay-
offs, and tighter budgets for
raises,” Nesbitt said.
Nesbitt was a chief of
staff to Kulongoski when
he was governor and, before
that, was a state union
leader. As part of Kulon-
goski’s post-recession Reset
cabinet, Nesbitt authored a
report on the state’s fiscal
problems.
Oregon PERS Solutions
has received funding from
the Oregon Business Coun-
cil to push the petitions.
The Oregon Business
Council’s directors include
representatives of major
Oregon businesses such
as Intel, Portland Gen-
eral Electric and Columbia
Sportswear.
Employer assessments
to fund retirements are
expected to subside eventu-
ally, as more current retirees
— who benefit from more
generous retirement plans
before the state made drastic
reforms in 2003 — die and
their benefits end.
Unions counter that the
latest proposal would effec-
tively add a fourth tier to
PERS, adding complexity to
a famously mind-boggling
system.
They also say cutting
future benefits wouldn’t pro-
vide any relief from the sys-
tem’s current $26.6 billion
pension debt, or unfunded
liability.
“These corporate-backed
proposals would drasti-
cally reduce the prom-
ised retirement benefits
to working teachers, fire-
fighters and other public
employees,” Patty Wentz, a
spokeswoman for the Ore-
gon PERS Coalition, said
in a statement. “They will
create more problems than
they solve, don’t reduce
the unfunded liability, and
would result in more lengthy
and costly legal battles for
the state and local school
districts.”
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