Oregon heads for ballot brawl over tax increase
Despite a compromise proposal, rivals say reaching an agreement before November is unlikely
When a proposed statewide $15-an-hour minimum wage measure gave businesses heartburn, Gov. Kate Brown intervened to float a compromise plan last month and then worked to make the proposal even more palatable to both supporters and opponents.
In contrast, Brown has stayed squarely on the sidelines when it comes to a new initiative aimed for the November ballot that is arousing just as much opposition: a $2.6 billion annual tax increase on many large corporations.
Aside from some Democratic senators, nobody is proposing an alternative including the business community that would be affected. That might seem surprising in light of Oregons long history of compromise and alternative measures to defuse impending ballot warfare. So why is the state headed for a serious political rumble?
Some say theres scant incentive for supporters to consider common ground, thanks in part to an expected federal court ruling that could drastically reduce the clout of public employee unions in future election cycles. The sponsors of the measure say theyre done compromising on tax measures as they did under former Gov. John Kitzhaber.
I think the coalition thats behind the measure is saying We dont want to just have peace, we want to make peoples lives better, said Ben Unger, the former lawmaker who leads the group spearheading the initiative, Our Oregon. I would rather help people than avoid disagreeing.
Huge budget boost
Initiative Petition 28 focuses new taxes on a swath of corporations with $25 million or more in Oregon sales. The tax is not on profits, but on gross receipts. It would generate $5.2 billion in Oregons next two-year budget period. That money, which is supposed to boost education and health spending, would increase the states $18.5 billion general fund by nearly a third.
The money raised would be seven times the amount raised by the corporate tax measures that spawned a bruising labor-business fight in 2010. Observers are predicting that the opposition campaign alone will spend $15 million to $20 million a staggering, record-shattering sum.
Supporters already are airing out their arguments that Oregon schools and other services desperately need funding, and that out-of-state companies will bear the brunt of the hike. Opponents, however, say the increase will result in higher prices for consumers and local companies, too.
On Monday, Sen. Mark Hass (D-Beaverton) introduced an alternative. His bill would eliminate the states corporate income tax, a proposal that would reduce state revenue by roughly $1.1 billion every two years. In its place, it would create a commercial activity tax of 0.39 percent, which would generate nearly $2.1 billion, starting with the 2017-19 two-year state budget.
Hasss proposal also would increase the earned income tax credit and double the standard deduction for personal income tax. Of the roughly $1 billion in new revenue generated, half would go to public education. The other half would provide tax relief for middle- and low-income Oregonians.
For the past three months, Ive been trying to put together a compromise plan, Hass said. We can avoid this remarkably divisive campaign war thats looming in the coming months. We dont have to do that.
The bill has support from Senate Democratic leadership, but it faces a major hurdle in the Oregon House, where Democratic leaders have so far refused to consider an alternative corporate tax measure. Any tax legislation must originate in the House.
Senate Majority Leader Ginny Burdick (D-Portland) said resistance from business and labor groups to any alternative has dulled the prospects for legislation.
There just has not been the kind of interest that you need to make a move like this and have it succeed, Burdick said. It just does not exist right now.
Rep. Ann Lininger (D-Lake Oswego) said she would like to see business leaders and community advocates work together on a proposal that can pass in the Legislature.
I have spoken with people from both communities who would support reaching a compromise, she said. We need to see if thats possible.
But so far, theres little evidence that other political players have been persuaded. And past compromise revenue efforts have not panned out.
Kitzhaber effort failed
The initiative has its roots in a Kitzhaber-led push to tackle the belief, widespread in Salem, that the money flowing into state government has not kept up with demands for government services. After his return to office in 2011, Kitzhaber sought to forge a compromise between business and labor, involving talks, polling and focus groups in Eugene and Bend. Those efforts were put on hold when all sides concluded that the hoped-for sales tax measure wasnt the answer.
We really worked hard to find something that everyone could agree to, recalls former Kitzhaber chief of staff Curtis Robinhold. In the end, we didnt find new revenue options that everyone could agree to or that we thought would pass muster with the voters.
Kitzhaber always planned to seek out other alternatives in his final term, participants and former aides agree. But that never happened, thanks to escalating controversy over the appearance that his fiancee, Cylvia Hayes, profited personally from her role in his office.
In January 2015, as Kitzhaber struggled to cope with the situation, the union-backed Our Oregon group filed its petition for the tax increase. The measure likely wouldnt have had the governors support because of his belief in avoiding large-scale ballot warfare, participants in the talks say.
Weeks later, when Kitzhaber resigned, that became less of an issue for the public employee unions backing the measure.
Not in compromising mood
Meanwhile, a ruling that is expected this summer by the U.S. Supreme Court could hamper those unions ability to raise political funds in the future, potentially adding to the urgency behind the measure, several Democrats say privately.
Heather Conroy, executive director of Service Employees International Union Local 503, said the urgency is primarily because years of talks have gone nowhere.
We really just cannot wait any longer to put forward a solution. ... We need to see change, she said.
Brown, whos running for re-election and is expected to receive strong union support, has not taken a position on whether the initiative makes sense.
Its a complicated issue, and shes consulting with stakeholders, and she has not reached a conclusion about it herself, said spokeswoman Kristen Grainger. Theres definitely still time to consider the measure and whats going to happen.
House Speaker Tina Kotek (D-Portland), who generally leans in support of the measure, said she hadnt heard any alternatives from the business community, and added that a much smaller measure probably would not be enough to make Initiative Petition 28 go away.
We have a revenue problem in this state, Kotek said. While the measure is not perfect, she said, it would solve our revenue problem.
Lininger said she agrees that Oregon needs additional revenue to strengthen our education system, help struggling seniors and fund other core programs.
Our K-12 students receive almost three weeks less instructional time than the national average, she said. Some class sizes are too large as well.
But Oregon needs tax reform that allows the state to meet important community needs and maintain an attractive business climate at the same time, Lininger said. With teamwork, I think we can make progress on both goals.
But Oregon Business Association head Ryan Deckert said the magnitude of the tax increase has businesses focused on beating the measure, rather than modifying it.
It kind of focuses the mind, he says. Job one is to defeat that. ... I think theres just a collective No way.
He, like initiative supporter Unger, expressed confidence about who will win.
We think that when consumers and citizens in Oregon see how this will affect them, they will react negatively, said Deckert, a former Democratic state senator.
Duncan Wyse of the Oregon Business Council sounds resigned to a brawl.
Were not negotiating with the unions on this proposal, he said. If they want to take the proposal off the table and have a conversation, fine, but they havent done that. Theyre very committed, as I understand it, to put it on the ballot.
Though efforts by Hass and others did not lead to a serious push for the February legislative session, an April special session is still possible if a compromise is within reach.
State Sen. Betsy Johnson (D-Scappoose) said more needs to be done.
I think it is incumbent on the entire Legislature to avail ourselves of every opportunity to seek middle ground, Johnson said. But, she adds, with a looming election season, I think that middle ground is harder and harder to find.