Measure 104 Becomes Debate Over What Is A Tax In Oregon

Oct 8, 2018
Originally published on October 5, 2018 5:33 pm

Oregon voters will decide this November whether to make it more difficult for the state Legislature to raise taxes and fees.

To both supporters and opponents, it’s a battle over how power is wielded in the state Capitol.

If you’re raising taxes, said business lobbyist Shaun Jillions, “you should have a broad consensus of legislators doing that, regardless of their party affiliation.”

But Gov. Kate Brown says Measure 104 — which would expand the kinds of revenue measures that require a three-fifths vote for approval — is really a power grab by interests upset with Democrats who run the state.

“They want to make things extremely difficult for the majorities down in Salem,” said Brown, arguing that Measure 104 raises the prospect of an extended gridlock over passing the state’s budget.

One thing is clear. Measure 104 is yet another chapter in Oregon’s long war over taxes. From initiatives limiting property taxes to the long search for a stable source of school funding, the issue of how to pay for government services has been a constant in much of the state’s history.

In a sense, the Measure 104 story starts in the mid-1990s when Republicans ran the state Legislature. They persuaded voters to approve a constitutional amendment requiring a three-fifths vote in the House and Senate to approve a tax increase.

For nearly two decades, that essentially meant that any bill that produced significant new tax revenues for the state had to meet the supermajority threshold. Bills needed 18 votes in the Senate and 36 in the House, instead of the normal majority of 16 and 31.

But a 2015 Oregon Supreme Court decision and a subsequent legislative counsel opinion has led to a new definition.

Dexter Johnson, the Legislature’s chief lawyer, told lawmakers in 2016 that his office would no longer treat all revenue increases the same. Introducing a new tax or raising rates — like on the state income tax — would still require a three-fifths vote.

But what about a bill changing deductions or tax credits?

“We believe the correct analysis is that that is not a bill for raising revenue,” Dexter said, adding that it “does not have the essential features of a tax.”

Jillions, who helped write Measure 104, said this interpretation worried his clients, particularly the Oregon Association of Realtors. Democrats had been looking at trimming a variety of tax deductions — including the deduction for interest payments on mortgages.

Measure 104, he said, makes clear what voters thought they were doing when they put that three-fifths requirement in the Oregon Constitution.

“People certainly thought deductions and credits and other items on your taxes — that if eliminated would cause you to pay more in taxes — were included” in the requirement for a supermajority, Jillions said.

But Democratic opponents of M104 said it is crazy to let legislators pass a special-interest tax break on a simple majority — and then require a super-majority to repeal it.

“I think a super-majority just means a super-minority gets to rule,” said Barbara Smith Warner, D-Portland, and a member of the tax-writing House Revenue Committee. She argued that it just “takes a bad idea and makes it worse.”

The issue burst into the legislative spotlight early this year. New federal tax cuts signed into law by President Donald Trump included provisions affecting Oregon taxes. That’s because the state ties many definitions of income to federal law.

One of the big changes is that the federal tax cuts automatically gave Oregon small businesses an additional state tax break that totaled more than $1 billion over the next five years.

Democrats said the break was too much and they pushed through a bill keeping that bill from taking effect.

Senate Finance Chairman Mark Hass, D-Beaverton, defended the action, saying that the state had already handed out a similar tax break to many small businesses just a few years before.

“All did was say, 'Oregon is going to opt out of this federal tax cut,'” said Hass, arguing that nobody would actually pay more in taxes as a result of this than they did in previous years.

But anger from Republicans and the business community helped fuel the initiative drive for Measure 104. In its lead argument in the Oregon Voters’ Pamphlet, the Yes on 104 campaign accused Democratic lawmakers of “stealing federal tax cuts designed to help create jobs and grow the economy.”

Sen. Brian Boquist, R-Dallas, led Republican opposition in the Senate and wound up filing a lawsuit — now moving forward in Oregon Tax Court — charging that the bill should have complied with the supermajority provision in the Constitution.

In essence, Boquist said, the Democrats are trying to argue that “it’s just incidental that it happened to raise $1.3 billion. And of course, we all said, ‘Bullshit.’”

Measure 104 also does more than just restore the rules for when to have supermajority votes to the way they were before the 2015 Oregon Supreme Court decision.

That’s because it also includes fees, like hunting licenses.

Jillions said fees were included in Measure 104 because many people in the business community were concerned that fees were a central part of a cap and trade bill legislators are considering. The clean energy bill would require companies to buy permits for carbon emissions. Firms effective at reducing their emissions could sell those permits to others.

Supporters of the clean energy bill disagree that their effort meets the classic definition of a fee. But whatever the case, if Measure 104 passes it could potentially have a huge impact on dozens of state agencies that depend on fees. One of the biggest: the Department of Environmental Quality, which assesses industries to enforce clean air and water laws.

Requiring a supermajority on fees is “just one more way to tie the hands of legislators who have to manage Oregon on a day-to-day basis,” said Hass, the Senate Finance chairman.

Whatever happens to Measure 104, this won’t be the last word on tax votes. In the November election, Democrats hope to win at least one more seat in each chamber. That would give them the 18 and 36 they need for their own supermajority.

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