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Oregon Lawmakers Enter Special Session on Tax Breaks

The move is the latest reverberation from President Donald Trump's 2017 federal tax overhaul. Democratic legislators blocked part of that plan after finding it would benefit some Oregon businesses twice - and cost the state $217 million in its first two years.

Posted: May 21, 2018 3:14 PM
Updated: May 21, 2018 5:59 PM

By TOM JAMES , Associated Press

SALEM, Ore. (AP) — Lawmakers on Monday passed a tax break aimed at small businesses in Oregon during a one-day special legislative session convened by Gov. Kate Brown.

The Democrat Brown and legislative leaders in the majority party emphasized keeping the session focused only on passing the new break, which targets small businesses known as sole proprietorships, and limiting it to a single day. The tax plan passed 51-8 in the House and 18-12 in the Senate. Both votes included Democrats who broke from their party to vote against the measure.

Republicans objected to the scope of the plan as early numbers showed it benefiting established businesses more than struggling entrepreneurs. The plan specifically blocks more than 100,000 of the smallest businesses in the state from benefiting, or about 90 percent of sole proprietorships.

The move is the latest reverberation from President Donald Trump's 2017 federal tax overhaul. Democratic legislators blocked part of that plan after finding it would benefit some Oregon businesses twice - and cost the state $217 million in its first two years. But Republican legislators balked, and when Brown OK'd the block she promised to call the special session to create another, separate break for small businesses.

House Republican Minority Leader Mike McLane said Monday the process was forced through by the majority party.

"This is the governor's bill - any attempt to by the Republicans to shape it or modify its language were rejected by the Democrats," McLane said. McLane said his main request in negotiations had been to broaden who qualified for the bill, but that it had been denied.

House Speaker Tina Kotek, a Democrat, said legislators from her party had negotiated in good faith.

Passing the plan in a single day represented a success for Democrats, especially Brown, who first declared the ambitious timeline. Normal legislative rules require a days-long process of passing bills back-and-forth between committees.

Voting to suspend the rules required Republican cooperation: McLane said that despite objections, his caucus had agreed that holding up the process would only delay the inevitable, since Democrats control the Legislature.

The controversy surrounding the plan traces back to the Trump overhaul, which created a flat 20 percent deduction for pass-through income — business income claimed as personal income by a business owner. The Trump deduction affects only federal taxes, but because Oregon's personal income taxes are calculated using numbers from Oregonians' federal tax returns, the deduction was set to benefit some business owners twice: once on their federal taxes, and once when it reduced their state bill.

The first Democratic plan, passed earlier this year as Senate Bill 1528, allowed people to keep the federal deduction, but required it to be added back before calculating state taxes.

The new plan, called HB 4301, targets business owners who would have been eligible for the Trump deduction, but by expanding a state deduction instead - with a much smaller price tag.

"Republicans and Democrats in both houses support fairness for small businesses in Oregon," Brown said. "We were pleased to be able to get this done in one day."

Current state law gives a tax break on pass-through incomes to some types of businesses, but not sole proprietorships, which are often the smallest independent businesses, and include many independent contractors: The new Democratic plan expands that to include sole proprietorships.

The plan has a key limit: only businesses with at least one employee qualify, eliminating single-person operations.

About 12,000 businesses appear to be eligible, at an initial cost to the state of around $12 million per year, according to documents from legislative economists.

But the single-employee limit disqualifies about 90 percent of sole proprietorships, or just over 100,000 single-person businesses, said Chris Allanach, head of the nonpartisan legislative revenue office.

Early numbers also showed more than 40 percent of the benefit flowing to business owners already making more than $500,000 per year.

"Those sole proprietors who are just trying to get off the ground... get the least amount of benefit," said Rep. Greg Smith, a Republican, during the bill's first hearing of the day.

Sen. Mark Hass, a Democrat, said in the same hearing that broadening the break without study was hasty. Hass later voted against the bill.

Oregon Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 41348

Reported Deaths: 649
CountyConfirmedDeaths
Multnomah8955159
Marion5684107
Washington561274
Umatilla332844
Clackamas306165
Lane229427
Malheur189737
Jackson16176
Deschutes109813
Yamhill98315
Linn78815
Polk64315
Jefferson6009
Morrow5436
Lincoln51113
Union4652
Benton4336
Klamath4053
Wasco34715
Douglas3425
Hood River2771
Josephine2623
Columbia2531
Clatsop2370
Coos2360
Baker1143
Crook1002
Tillamook700
Curry571
Wallowa402
Lake340
Harney210
Sherman180
Gilliam110
Grant110
Wheeler10
Unassigned00

California Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 898799

Reported Deaths: 17305
CountyConfirmedDeaths
Los Angeles2968216974
Riverside657571279
San Bernardino617261070
Orange580101440
San Diego53928867
Kern33669416
Fresno30471436
Sacramento25094482
Santa Clara23881388
Alameda23133456
San Joaquin21528488
Contra Costa18413240
Stanislaus17509396
Tulare17425284
Ventura14124162
Imperial12700336
San Francisco12032140
Monterey1128487
San Mateo11002159
Santa Barbara9715120
Merced9439154
Sonoma9163134
Kings820183
Solano728674
Marin7045128
Madera498174
San Luis Obispo412132
Placer408857
Yolo314458
Butte304652
Santa Cruz275325
Napa192815
Shasta183930
Sutter183712
San Benito143215
El Dorado13084
Yuba129310
Mendocino112121
Tehama8528
Lassen7641
Lake67915
Glenn6523
Nevada6038
Humboldt5619
Colusa5496
Calaveras33917
Amador31716
Tuolumne2624
Inyo22715
Siskiyou1880
Del Norte1781
Mono1762
Mariposa782
Plumas630
Modoc290
Trinity260
Sierra60
Alpine30
Unassigned00
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