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Oregon Business Tax Breaks Would Mostly Flow To Top Earners

<p>The release of an eye-catching list of possible budget cuts signals the start of the Oregon Legislature's end game: negotiations about taxes and budgets.</p>

Bradley W. Parks

The release of an eye-catching list of possible budget cuts signals the start of the Oregon Legislature's end game: negotiations about taxes and budgets.

A controversial Oregon tax break sought by the business community would mostly benefit taxpayers with incomes of more than $210,000 a year, according to state tax experts.

An analysis from the Legislative Revenue Office shows that more than 60 percent of the tax break would flow to the top 5 percent of taxpayers with business income. That covers fewer than 20,000 of the estimated 370,000 Oregon taxpayers reporting business profits.

The analysis — some of it newly provided at the request of OPB — comes as Gov. Kate Brown is deciding whether to sign a bill passed by the Legislature that would prevent the business tax break from taking effect. If she vetoes the bill, state revenues would be cut by about $200 million a year.

Chris Pair, Brown’s communications director, said the governor is meeting with groups on both sides of the issue.

“It’s the most deliberative process for any bill that came out of the session,” he said. The measure, Senate Bill 1528, was passed by Brown’s fellow Democrats in the Legislature and did not attract any Republican votes.

Brown has said she wants to take a "hard look" at the bill and is concerned both about the impact on small businesses, as well as how it would affect the state budget.

The fight over taxes paid by many small and mid-sized businesses in Oregon was sparked by the new federal tax cut signed into law late last year by President Donald Trump.

Oregon automatically connects with several federal definitions of income. One of the most consequential provisions allowed a large break to business owners who pay personal income taxes on their profits. These so-called “pass-through” businesses would be allowed to exempt up to 20 percent of their income from taxation, depending on the nature and size of their business.

Chris Allanach, the state’s acting legislative revenue officer, said he was not surprised that most of the benefits from this break would flow to those with higher incomes.

“The state has some very large pass-through entities,” he said, noting that many larger businesses decide not to incorporate and thus be subject to corporate income taxes.

Critics of the tax break say the problem is that it too often gets portrayed as a balm just for struggling small businesses.

“It’s not the Avon lady,” said Jody Wiser, who heads Tax Fairness Oregon, a left-of-center group that often opposes business tax breaks.

“If you don’t make much money, you don’t save much money” from this break, Wiser added.

Wiser and other proponents of the measure passed by the Legislature also argue that the state continues to struggle to pay for schools, health care and other services. They say the state should not surrender another $200 million because of a decision made by Congress.

Rep. Julie Parrish, R-West Linn, has urged Brown to veto the bill. Parrish said she thinks the money will benefit small businesses. She added that tens of thousands of small businesses in Oregon are just scraping by while facing higher minimum wage and health care costs.

In many cases, she said, businesses are taxed on income they would be using in future years to invest in their companies.

“It’s the small businesses that struggle the most,” she said. “They’re not going to walk into Wells Fargo and necessarily be granted a large line of operating capital."

Supporters of the tax break also argue that the state overall will eventually pick up more revenue from tax reform. That’s because the state is connecting to the federal code on some provisions that will bring in more tax money to the state.

Allanach, the legislative tax expert, said the data on how the benefits are distributed by income category doesn’t include just business profits. For example, a tax-filer could be a couple in which one has a salaried job and the other owns a business.

If Brown decides to veto the bill, she has to first issue a public notice by April 6. She has until April 13 to take final action on the measure.

Copyright 2018 Oregon Public Broadcasting

Jeff Mapes is a senior political reporter at Oregon Public Broadcasting. Previously, Jeff covered state and national politics for The Oregonian for nearly 32 years. He has covered numerous presidential, congressional, gubernatorial and ballot measure campaigns, as well as many sessions of the Legislature, stretching back to 1985. Jeff graduated from San Jose State University with a B.A. in journalism.