Brown weighs signing $220 million biz tax bill

The bill, passed by Democrats, impacts deductions available to owners of small businesses and could become an issue in the fall campaign.

SALEM — Gov. Kate Brown is weighing whether to sign a bill intended to soften the impact of federal tax reform on the state's coffers as Republicans look forward to using the measure as a campaign issue.

Tax deductions created by federal law are available on state tax returns unless those provisions are specifically disconnected from Oregon law.

Senate Bill 1528 disconnects Oregon law from a federal deduction for owners of so-called pass-through businesses, whose business income "passes through" to be claimed on their personal income taxes.

Federal reforms contained in the Tax Cuts and Jobs Act, signed into law by the president in December, will allow owners of those businesses — such as sole proprietorships, partnerships, LLCs and S-corporations — to deduct up to 20 percent of their business income from their 2018 tax return.

The bill eliminates that deduction from Oregon income taxes and is expected to result in $244 million more in tax dollars in the state's current two-year budget than if Oregon allowed the new 20 percent deduction on state income taxes.

The bill was passed without any Republican votes.

Brown, a Democrat, has 30 business days after Saturday's adjournment date to sign the legislation.

There is disagreement as to whether the tax bill will play a role in November's election when the governor's seat, all House seats and some Senate seats are up for grabs.

Jim Moore, professor of political science and the director of the Tom McCall Center for Policy Innovation at Pacific University, said the substance of the tax bill won't alone motivate voters.

"It's too complex. It's too tax-nerdy. I mean, it's just too much," Moore said. "But the way the Republicans set it up was rather brilliant. By making it a party-line vote, they can say, 'We voted to make your taxes lower. The Democrats voted to raise them.'"

While all but four Democrats voted in favor of the legislation, all Republicans opposed it.

State Rep. Julie Parrish, R-Tualatin/West Linn, one of the leading critics of the bill in the House of Representatives, said the bill will negatively affect hundreds of thousands of Oregonians who will take that injury to the ballot box.

"Can it swing an election? You bet it can," Parrish said. "...Thousands of businesses are owned by Democrats, and this is going to be an issue for them."

Brown had expressed reservations about earlier versions of the bill, which set out to make more changes to the state's tax system than the one now up for her consideration.

The governor told reporters on Saturday that she liked the current version "better," but hadn't yet made a decision. She maintained that the federal bill was passed in Congress without a public hearing, and wanted to be "thorough" about the decision.

"We're still deciphering the implications of this legislation on Oregon, and we're gonna do lots of work before making a decision whether to sign or veto the bill," Brown said. "...We're taking a very hard look at the bill. We're looking at the implications for Oregon's small businesses and Oregon's economy. We're deciphering the impacts of the disconnect on Oregon's tax system and we'll make a decision to sign the bill after a thorough review or not sign the bill after a thorough review."

Speaker of the House Tina Kotek, D-Portland, said on Saturday that the state senate had passed a bill that "we felt we needed to adopt" in the House.

"We needed to take action," Kotek said. "It would have had a significant impact on the budget."

If the governor vetoes the bill, Kotek said it "will make for a very interesting budget rebalance at the beginning of the 2019 session."

Meanwhile, the Small Business Association has filed an initiative petition seeking state law to require that all "tax rates, calculations and loopholes afforded to the largest publicly-traded companies" be available to small and family-owned businesses." However, even if it gets the required number of signatures, it wouldn't be on the ballot until 2020.

And last month, a state senator announced his intention to sue the state over the process involved in passing the legislation.

State Sen. Brian Boquist, R-Dallas, argues the bill qualifies under the Constitution as one for "raising revenue," and as such should have required a three-fifths majority in both chambers and started in House of Representatives.

Boquist could not be reached for comment Monday afternoon.