Tax Debate Starts with Sides Far Apart

Oregon voters rejected a corporate receipts tax in Measure 97, but backers of the initiative unveiled a modified version of the tax measure that leaves the sides on Oregon’s looming budget battle as far apart as they were during the campaign over Measure 97.

Oregon voters rejected a corporate receipts tax in Measure 97, but backers of the initiative unveiled a modified version of the tax measure that leaves the sides on Oregon’s looming budget battle as far apart as they were during the campaign over Measure 97.

Combatants in the Oregon tax debate will come to the 2017 legislature in February with positions far apart after the coalition that backed voter-rejected Measure 97 fired its first shot with a modified version of its tax plan.

Business leaders at the annual Oregon Business Summit signaled a willingness last week to discuss a tax hike in return for commitments to cut spending, in particular for the Public Employees Retirement System. Union-backed Better Oregon made no mention of PERS in unveiling its tax proposal this week.

In addition to tweaking Measure 97 provisions, Better Oregon threw in a health care provider tax aimed at hospitals and other health care professionals. That increase is intended to buttress state funding for the Oregon Health Plan, Oregon’s Medicaid program, which faces its own budget challenge as federal support for expanded coverage ratchets down.

The canyon-wide divide between the two sides is not surprising and perhaps even predictable. They have been battling for the past year over Measure 97, which supporters said would raise revenue to make Oregon’s budget sustainable and opponents claimed would dampen Oregon’s economy as the tax trickled down to consumers. Neither side believed defeat of Measure 97 meant the end of the war.

The modifications proposed by Better Oregon respond to criticisms that gained traction in the most expensive ballot measure campaign in the state’s history. The gross receipts tax was reduced from 2.5 percent to 2 percent and applied to all corporate entities with more than $100 million in sales in Oregon as opposed to $25 million in sales in Measure 97. Observers said that should relieve corporations such as Powell’s Books from paying the tax directly. The new plan exempts utilities, which said the tax would win up affecting electric and natural gas rates for lower income Oregonians. Projected revenue from the new plan would be $2 billion per year other than the $3 billion expected to come under Measure 97.

The changes are unlikely to satisfy business interests, whose spokesmen expressed incredulity at the reworked tax proposal, noting Measure 97 was defeated by a lopsided 19 percent margin in the November election. Proponents charged back that significant new revenue is needed to cover the state’s commitments to quality public education, access to health care and public employee retirement.

Several health care organizations were significant contributors to the campaign to defeat Measure 97 and under the revised plan have even more at stake. The Oregon health care industry has agreed to a 5.3 percent provider tax that enables the state to qualify for federal matching funds. This carefully negotiated and legislatively approved funding scheme is connected to Oregon’s Coordinated Care Organizations, which were established to improve the quality and cut the cost of health care for low-income Oregonians. Better Oregon wants to expand the tax and who pays it to include dentists, chiropractors, managed care organizations and ambulatory service centers with the goal of raising an additional $1 billion per year.

Advocates of any tax increase face the challenge of needing at least one and probably more Republican votes to meet the three-fifths threshold for passage. Democrats don’t have a supermajority in either the House or Senate in the 2017 session.

Governor Brown, who won the election in November to fill the remainder of John Kitzhaber’s term, must face re-election in 2018 for a full four-year term. In an abrupt moment at the Oregon Business Summit, Brown told business leaders they need to bring a credible tax and spending plan to Salem. She said a plan based on PERS cuts was dead on arrival.

The incoming Trump administration could play an inadvertent role in the Oregon budget debate. Assuming the GOP-controlled Congress follows through on its pledge to repeal Obamacare and makes funding changes in the way expanded Medicaid services are supporters, Oregon’s $1.5 billion-plus budget hole could deepen.

It may take a while before both sides, which are now standing on opposite sides of a gaping divide, find a way to sit down together and talk compromise. At the moment, neither side has a lot of motivation to take the first step toward a compromise with a chance of making it through legislative hoops and the governor’s desk. Chances are good this is a discussion that could extend to the end of the 2017 session – and possibly even extend it past a July adjournment date.