Budget Battle Nears Final Showdown

Democrats and Republicans have presented similar, but different, revenue plans that could be the key to a final budget deal and adjournment of the 2013 session.Oregon lawmakers won't make their June 28 adjournment date as they continue to spar over a plan to balance the budget. But last week the sparring match took clearer shape when two rival revenue packages were unveiled by Democrats and Republicans.

The Democratic plan would raise $256 million more in revenue during the 2013-15 biennium, while the Republican plan would raise $352 million over the next two years, but also includes a $150 million tax cut for small businesses in the current biennium, which ends June 30.

A revenue-raising package is a precondition for majority Democrats to consider deeper cuts in public employee retirement benefits. However, some Democrats appear content to balance the budget with existing revenues and already approved PERS cuts and go home.

That's what might have happened except for Senator Chris Edwards, D-Eugene, who joined 14 Senate Republicans in voting down a $6.5 billion K-12 school budget. Edwards and Republicans may not have agreed on the reason for their vote, but the effect was the same — it forced leaders in both the House and Senate to consider alternatives to a balanced budget and more K-12 school funding.

Add to this political brew the support of business groups for tax hikes that affect their members. A willingness to go along with some relatively mild tax increases may result from looming ballot measures next year pushed by organized labor to impose even higher tax rates on corporations and high-wealth individuals. Legislatively approved tax increases now may take the wind out of the ballot measure sails next year.

The Democratic revenue plan raises $256 million by:

  • Increasing corporate tax rate (for C corporations) from 6.6% to 7.6% for income exceeding $2.5 million;
  • adding 25 cents to the state tobacco tax;
  • Limiting medical expense deductions for high-income seniors;
  • Eliminating personal income tax deductions for high-income earners; and
  • Eliminating overseas tax havens.

The Republican plan, as presented by Senators Larry George, R-Sherwood, and Brian Boquist, R-Dallas, would generate $352 million by:

  • Increasing corporate income tax rate to 7.6% for income exceeding $250,000 and 7.7% for income exceeding $10 million;
  • Adding 10 cents to the state cigarette tax;
  • Limiting medical expense deductions for high-income seniors;
  • Eliminating personal income tax deductions for high-income earners; and
  • Eliminating overseas tax havens, excluding Luxembourg.

The two somewhat similar plans are being debated actively behind closed doors in Salem. A key milestone is this Wednesday, when the Senate is scheduled to reconsider the vote that scuttled the K-12 budget bill.

Meanwhile, a lot of other bills — from major policy measures to other funding bills — have been stalled in a complicated game of political chicken amid disagreement over a balanced budget. Once a budget deal or decision is reached, there will be a flood of bills that finally move, creating paperwork and floor debate bottlenecks that are likely to stretch the session into July.