SALEM — Oregon Democrats’ sweeping plan to raise billions of dollars in new business taxes to spend on education is headed to the state Senate for a vote, after House lawmakers passed the plan on a party line vote Wednesday afternoon.

With 38 of the 60 seats in the House, Democrats had more than enough votes to meet the three-fifths supermajority requirement to pass a tax increase. The bill ultimately passed 37-21 with one Democrat, Rep. Jeff Barker, D-Aloha, and one Republican, Rep. Sherrie Sprenger, R-Scio, excused from the vote.

It could come up for a floor vote in the Senate as soon as Tuesday. That’s one day before teachers around Oregon plan a walkout to call for stepped up school funding.

Education spending under the plan has the potential to right decades of wrongs and “change the trajectory of our state,” Rep. Barbara Smith Warner, D-Portland, an architect of the plan, said in a floor speech.

“Inaction while we have the benefit of a strong economy is not a responsible choice,” said Rep. Nancy Nathanson, D-Eugene, another lawmaker who helped craft the plan. It will “address an education funding problem that impacts Oregonians in every corner of the state” and “is the product of negotiation and compromise,” Nathanson said.

The plan, crafted by Democrats in consultation with business groups and the education establishment, would impose more than $1 billion a year of taxes on an estimated 40,000 businesses’ gross receipts over $1 million. The money would go mainly to enhance school offerings, with 20 percent set aside for programs serving toddlers and preschoolers.

During more than three hours of floor debate, Democrats repeatedly described the business tax as a historic response to disinvestment in public education dating back to Measure 5’s property tax limitations, which voters approved in 1990.

Republicans countered that they were left out of negotiations over the weekend with the state’s largest business group, that the tax is too expensive for Oregon families and businesses and that Democrats are pushing it through the Legislature too quickly. And they pointed out that House Bill 3427 will do nothing to contain public pension costs that increasingly eat into school budgets.

“That’s not only the elephant in the room, it’s the herd,” said Rep. Lynn Findley, R-Vale.

Separately, Gov. Kate Brown has outlined a plan to protect the new education funding from rising pension contribution rates that districts must pay. She’s called for drawing money from an anticipated bump in estate and capital gains taxes and from the state’s workers’ compensation program. Brown also wants public employees to contribute to their own pensions.

However legislative leaders are considering their own pension changes and it’s unclear if they would do as much as the governor’s plan to address the long-term unfunded liability. House Speaker Tina Kotek has also said she wants any fixes to help all governments, not just schools, which would mean less protection for the new schools money.

Republicans, some of whom were included in the committee that developed the plan, repeatedly stressed on Wednesday that they want to spend more on education.

Rep. Daniel Bonham, R-The Dalles, described the education portion of the bill as “an investment that will yield returns in the future.”

“There are parts of this legislation that I absolutely love,” Bonham said. But said it’s paid for with “a sales tax on essentials, making life less affordable.”

Sales of groceries, gasoline, hospitals and long-term care would be exempt from the tax.

House Bill 3427A was the first item scheduled for a vote when the House convened at 11 a.m. Wednesday but thanks to Republican delay tactics, lawmakers spent a majority of the day on the bill as it was read aloud in its entirety and thoroughly debated on the House floor. They refused to waive a requirement to read bills in their entirety, requested a roll call so Democrats could not wander away, tried to refer the bill back to committee, closely questioned Democratic colleagues and delivered lengthy speeches. Democrats countered with lengthy speeches of their own.

Under the bill, businesses with at least $1 million in sales inside Oregon would pay a tax of 0.57 percent on their sales. However, the first $1 million in sales would be exempt from the tax and businesses could subtract 35 percent of either their labor or capital costs from their total sales.

The plan would also cut personal income tax rates by 0.25 percentage points for the lowest three of Oregon’s four tax brackets. Democrats included the tax cut to offset some of the impact to consumers from the new business tax, since economists expect companies would pass along some of the cost.

On the spending side, the bill would set aside about half the money for grants to local districts. The remainder would be split among programs for toddlers and preschoolers, full funding for a 2016 voter-approved measure to expand career-technical offerings and anti-dropout programs and initiatives to improve schools’ performance statewide. The money wouldn’t begin flowing to schools and early childhood programs until 2020-21.

School districts would have wide latitude to choose how to spend the money but would be held accountable to deliver improvements in third-grade reading rates, school attendance, freshman success and graduation rates.

The tax plan has taken shape over the last month, as a joint legislative committee first identified the type of tax — a hybrid gross receipts tax — that it would likely pursue, and then worked through a couple drafts of the specific bill language during the last two weeks. On Monday, Democrats passed the current version out of committee on a party line vote after a last-minute deal with the state’s largest business association to secure its agreement to remain neutral on the plan.

However, some businesses remain opposed to the plan and if it passes, might refer it to voters.

Passing the business tax and education spending plan is legislative Democrats’ top priority this session, and they have delayed other priorities in order to focus on it.

Rep. Diego Hernandez, D-Portland, was among the lawmakers who shared their personal connections to the bill on Wednesday, which in Hernandez’ case included both his own experience in Oregon public schools and his hopes for his nephew who is a second-grader in the Reynolds School District.

After years of cuts, Hernandez said, “We’re going to invest in a public education system that creates ... a pathway for students like my nephew to have an equal opportunity to succeed in our education system.”

— Hillary Borrud | hborrud@oregonian.com | 503-294-4034 | @hborrud

Visit subscription.oregonlive.com/newsletters to get Oregonian/OregonLive journalism delivered to your email inbox.