Beth Nakamura | The Oregonian/OregonLive

By Hillary Borrud



The Oregonian/OregonLive

Gov. Kate Brown’s proposal to lower Oregon income tax rates for thousands of sole proprietors would overwhelmingly benefit those earning at least $200,000 a year, according to a new analysis from legislative economists.

Owners of those businesses would receive more than 75 percent of the $11 million yearly tax break, the Legislative Revenue Office found. More than 40 percent of the tax savings would go to sole proprietors earning over $500,000 a year, the office said.

Approximately 12,000 tax filers could qualify. Less than one-tenth of the savings would go to sole proprietors earning less than $100,000 a year.

Brown is calling lawmakers to Salem May 21 to vote on the plan during what she hopes will be a one-day special session. The governor did not veto a bill that prevented a much larger state tax cut for businesses that was set to occur automatically as an outgrowth of the federal tax overhaul. Her decision drew outcries from Republicans and business groups.

If the governor gets her way, the state would extend an existing business tax break now given to people who get income from so-called pass-through businesses -- mostly partnerships and S corporations -- to sole proprietors as well. The break lets them pay lower taxes than wage earners making the same amount.

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Oregon Legislative Revenue Office

Under the tax break, people with pass-through businesses pay just 7 percent tax on income under $250,000, a rate otherwise reserved for joint filers with income up to $17,400. The Legislature created that tax break in 2013 during a special session aimed at trimming public pension costs and raising taxes.

During an interview with The Oregonian/OregonLive’s editorial board in mid-April, Brown called the business owners who would benefit “our moms and pops” and said “they deserve fairness.”

To qualify for the existing tax cut, pass-through businesses must have at least one part-time employee. Brown plans to impose a similar requirement on sole proprietorships. If she didn’t, it would be much more expensive: The state could lose $43 million a year in taxes, rather than $11 million, economists found.

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Oregon Legislative Revenue Office

The new economic analysis sheds light on what types of sole proprietorships are likely to get a break if lawmakers pass Brown’s plan. Health care and “social assistance” businesses would be the largest beneficiaries, with nearly 15 percent of the savings. Construction businesses would get a similar slice of the pie.

The potential tax loss from Brown’s plan is small in the context of the state’s roughly $21 billion two-year budget. However, lawmakers regularly wrestle over how to close budget gaps of a similar size. For example, the 2017 Legislature directed the state’s program for children and adults with intellectual and developmental disabilities to make $6 million a year in cuts after enrollment grew rapidly in a program to provide in-home support for kids with severe disabilities.

-- Hillary Borrud

hborrud@oregonian.com

503-294-4034; @hborrud