The recipe for getting out of Salem next month with a state budget that protects important services, including school funding, is no secret: It's a combination of expense controls and modest revenue increases. Lawmakers have started bringing out the necessary ingredients, but it is far from certain whether they will come together into a palatable solution.
In particular, a revenue proposal now on the table threatens to derail the compromises needed for a final budget deal. It must change if legislative leaders are to have any hope of fully closing a $1.4 billion budget shortfall.
As with any budget process (except the federal one), the state's nearly $21 billion general fund must balance spending with anticipated revenues. But even with an 8 percent increase in money available this biennium, state expenses are outpacing growth in tax dollars. As such, curbs on spending are essential not just for the 2017-19 biennium, but also to ensure that Oregon does not face budget deficits for years to come.
However, Democrats who control the 2017 Legislature are mostly unwilling to support spending cuts — including further changes to the Public Employees Retirement System — unless they are linked to higher business taxes. And, for their part, Republicans are not willing to take politically unpopular tax votes until they are assured the state is slowing its growth in spending.
Despite their minority status, Republicans have clout in these negotiations because a vote to raise taxes requires a super majority in both legislative chambers. And that means GOP members must be satisfied that any new tax increases are necessary, reasonable and fair.
The current proposal is not.
The latest tax plan from Sen. Mark Hass and House Speaker Tina Kotek, both Democrats, is preferable to the radical tax hike proposed by Measure 97, which was rejected by voters in the November 2016 election. However, the plan, which is backed by Gov. Kate Brown, envisions a similar, but smaller, version of a gross receipts tax that would start in 2019.
Most states have abandoned gross receipt taxes, also called corporate activity taxes. They tax the sales, not profits, of a business.
Proponents say gross receipts/corporate activity taxes are preferable to business income taxes, which they feel have too many loopholes. No matter what you call it, the tax punishes companies that have lots of sales, but make little or no profit.
What's more, many businesses faced with new taxes on their sales will pass them on to consumers in the form of higher prices.
This is especially concerning right now, because the Legislature is considering a transportation package that, according to a Portland Tribune analysis, would cost families about $200 a year in additional gas taxes and fees.
Luckily, there's an obvious solution. The revenue plan includes a short-term increase in the existing corporate tax rate, to close the gap between now and 2019 (when the new tax would kick in). This is actually a better place to start for a long-term answer. Oregon's existing tax system assesses businesses based on their net income — their profits. The rate increases proposed by Hass and Kotek are still excessive, but business leaders have said they are open to tweaks in the business tax rate.
Patrick Criteser, CEO of Tillamook Creamery and chair of the Oregon Business Plan, offered a plan to raise $500 million a biennium — $250 million a year — through the existing corporate income tax. That would cover more than a third of the shortfall, with the rest coming from slower growth in spending.
Without support from business leaders, Republicans aren't going to provide the votes needed to approve new revenue in Salem. That increases the odds that voters will see another nasty battle over a statewide ballot measure — pushed either by labor groups frustrated by the failure to come up with a plan or business groups unhappy with a Demcratic-crafted tax hike.
Of course, either side — business or labor — might proceed to the ballot no matter what the Legislature does.
But lawmakers can take steam out of a potential campaign by following through with a compromise that curtails spending while also raising a reasonable sum through tweaks to a tax system already in place.