Gov. Kate Brown is trying to have it both ways. She’s taking a tax break from Oregon businesses and she’s calling a special legislative session to give businesses a tax break.
If that sounds like election-year posturing by a governor who is seeking reelection, well, it is.
Brown riled Republicans and business leaders last week by announcing she would sign Senate Bill 1528, passed a few weeks ago by the Oregon Legislature. The bill is a reaction to congressional passage late last year of the Tax Cuts and Jobs Act.
The federal law gave a tax cut to “pass-through” entities — businesses whose profits or losses are passed directly to the owners and counted as personal income for taxation purposes. Such businesses generally are organized as sole proprietorships, LLCs, partnerships or S-corporations.
The state legislation, SB 1528, stops that tax break from also applying to Oregon income taxes. As Brown explained, such businesses still will get their federal tax cut but not the same cut in their state income taxes. Thus, the state will collect more tax revenue.
Brown said that’s not a tax increase, just a lack of tax cut.
Opponents disagree. One of them, state Sen. Brian Boquist, R-Dallas, confirmed this week that he will sue the state over SB 1528.
Boquist contends the bill raises taxes and thus needed a supermajority for passage in the Legislature. Instead, Democrats in the Senate and House passed it by simple majorities. Four Democrats — including Scappoose Sen. Betsy Johnson — joined all Republicans in voting no.
Meanwhile, Brown now wants the Legislature to hold a special session to give sole proprietorships a tax break.
If this sounds confusing and purely political, well, again it is.
During a special legislative session in 2013, Democrats gained Republican support for the so-called “Grand Bargain” by including a break for LLCs, partnerships and S-corporations. Sole proprietorships were left out of that deal, and Brown now says that was unfair to them.
The 2019 Legislature could make that change, even retroactively for this year. Instead, Brown said she would order lawmakers to hold a special session before June 30, asking them to broaden the 2013 small-business tax break to include sole proprietors.
Meanwhile, many of her fellow Democrats, particularly in the state House, have been trying to undo the overall 2013 tax break. And last week, Brown would not commit to whether the 2013 tax break was good long-term public policy. Neither was she ready to discuss tax reform, which she previously said would be a critical issue for the 2019 Legislature.
Boquist is right. Holding a special legislative session is about politics, not good government policy.