Democrats in the Oregon Senate narrowly passed a plan Friday to respond to the federal tax overhaul, a move that would net the state budget a quarter billion dollars but left the chamber’s Republicans unusually resentful.
The Democrats got their way on taxes without a single Republican vote and a “no” vote from one of their own, Sen. Betsy Johnson of Scappoose.
Senate President Peter Courtney, a Salem Democrat, typically tries to secure at least one Republican vote on every bill he brings up for consideration by the full Senate. Following the tax vote Friday, Republican Sen. Brian Boquist of Dallas told Senate Democrats they were only creating an appearance of bipartisanship.
“I’m done with the charade, Mr. president,” Boquist told Courtney.
He then resigned in protest from an important committee Courtney formed last month in hopes it could formulate a bipartisan fix for the state’s mediocre public education system.
The roughly hour-long debate over the Democrats’ tax bill centered on a provision that would prevent Oregon from copying a new federal tax break for certain businesses into state law. Democrats were adamant that giving those businesses a double tax break would be unwise and unfair to working-class families and other regular wage earners. Republicans were just as convinced that the businesses deserve to get the same break as they won under the new federal tax law.
The 16-to-13 split on taxes followed similarly divisive votes on a tuition and financial aid bill for unauthorized immigrants Monday and a gun control bill Thursday. And it could presage another bitter fight next week when the Senate is scheduled to take up a bill to update the state’s advance directives that people can use to specify the health care they want if they become incapacitated.
Boquist said he plans to sue the state over legislative leaders’ decision to pass the tax bill on a simple majority vote, rather than the supermajority required for bills that raise taxes. “This is a revenue package,” Boquist said.
Boquist, who played a key role last year in passing a bipartisan transportation funding plan, also publicly announced he was quitting the joint legislative committee that Courtney created to identify ways to improve Oregon’s education system and secure necessary funding.
The tax measure, Senate Bill 1528, also includes a strategy to help higher income households avoid the new $10,000 federal cap on deductions for state taxes. That provision received little discussion on Friday, however. The state would allow those taxpayers to buy up to $14 million a year of new tax credits to raise money for an existing need-based scholarship program for in-state college students. Since the federal law did not cap charitable deductions, proponents believe that people who purchase the tax credits could turn around and claim that deduction on their federal returns.
The new federal tax break that Democrats want to keep out of state law is a deduction for people who earn income from so-called pass-through businesses such as partnerships and S corporations. Oregon generally follows federal tax code and if lawmakers don’t take action, Oregon taxpayers who earn money from pass-through corporations would receive the same deduction on their state taxes. Democrats object, because the benefit would be layered on top of an existing state tax break for pass-through earners that lawmakers passed in 2013.
Sen. Mark Hass, a Beaverton Democrat who carried Senate Bill 1528 on the floor Friday, said he believes “nobody gets seconds until everybody gets through the line.”
Nearly half the benefit of adding the tax break in Oregon would go to people with household incomes above $450,000, Hass said. “Of all the issues facing our state today, from housing to struggling schools, the fact we’re on the floor debating whether to lower taxes for people making $450,000 and above is the most absurd moment of my legislative career,” Hass said.
Sen. Rod Monroe, a Portland Democrat, said the bill will not result in any small business owner paying “a higher tax rate next year … than they did this year.”
“This is the most important bill before us this session,” Monroe said.
If the Legislature doesn’t pass the bill and the new federal tax break remains in state law, the state stands to lose roughly $120 million in the current budget. Conversely, the state budget would gain about $140 million in revenue if lawmakers act to keep the federal deduction out of state law.
Sen. Herman Baertschiger Jr., a Republican from Grants Pass, said the benefits of tax cuts for businesses trickle down to the community. He rejected Democrats’ argument that Oregon schools would suffer a revenue loss if the state were to state copy the federal tax cut for pass-through businesses.
“We will fund the schools if we have a good economy, because we’ll have more taxes,” Baertschiger said.