SALEM — Oregon Democrats unveiled details of a plan Tuesday to raise state taxes by $275 million, primarily by increasing taxes on higher-income earners and corporations.
“This is a starting point in a conversation about how we fund schools by cutting generous tax breaks that benefit corporations and the wealthy,” Rep. Phil Barnhart, D-Eugene, who chairs the House Revenue Committee, said in a statement.
But Republican House Leader Mike McLane, R-Powell Butte, who saw the tax package for the first time Tuesday, blasted the plan and the assertion that taxes needed to be raised at all. McLane pointed to a projected increase in state revenue and said the Legislature wouldn’t need a tax hike if Democrats would push for more substantial cuts to the state public employees pension system.
He called the Democrats’ approach “sadly predictable.”
Part of the plan includes extending Measure 67, which raised the corporate-minimum tax. The current proposal would end a current tax-rate cap and make all income subject to the tax.
Another centerpiece of the plan would reduce deductions for high-income filers. Rep. Jason Conger, R-Bend, voiced concern over what that could do to charitable organizations.
“The fact that the Democrats have focused the phase-out of deductions at high income levels won’t solve the problem for charities, because in many cases, I suspect, deductions are more of an incentive for those high-income earners,” he said.
But in the end, Conger, who sits on the House Revenue Committee, said he’s wondering, “Why are we even raising taxes?”
Scott Cooper, former Crook County judge and executive director of NeighborImpact, testified in front of lawmakers, echoing Conger’s concerns. He said the nonprofit he runs, which provides a variety of services to low-income individuals, needs every tool available to raise money.
“Please don’t take anything out of our toolbox,” he said.
Revenue officials estimated the measures would impact fewer than 5 percent of Oregonians.
In order to pass the measure, Democrats need two Republicans in both the upper and lower chamber to sign on to the proposal.
“It’s going to be a tough sell,” McLane said.
The legislation, House Bill 2456, has four key points that would fill the $275 million hole.
First, the plan would reduce the amount of deductions high-income earners can take. For individuals, the threshold is $125,000 and for couples, the amount is $250,000. Eventually, it would phase out the deduction for those above the $450,000 income level, and those taxpayers would then get the standard deduction. Revenue officials came up with a formula to take the difference between adjusted gross income and the threshold income level, multiplying it by 18 percent and subtracting that from claimed deductions.
Rep. Conger, a member of the Revenue Committee, called it “terribly convoluted.”
“We asked, ‘Where did the 18 percent come from?’ ” Conger said.
He said he was told the 18 percent has no basis other than “the fact that we wanted to collect $275 million amount of tax.”
A couple making $350,000 per year and filing a joint tax return would potentially lose $18,000 in tax deductions. This element of the plan, phasing out deductions, would raise an estimated $169 million.
The second part of the Democrats’ proposal would reduce or eliminate the same taxpayers’ personal exemption credit. Couples earning income above $250,000 would see their taxes increase by $366 a year. That portion of the plan would raise $38 million in the 2013-15 biennium.
The plan also has two components that would impact corporations. First, the bill would remove a current cap on the corporate minimum tax. That cap is now set at $100,000. The Democrats’ proposal also extends the corporate minimum tax of 0.1 percent, so all income is taxed, not just the first $100 million.
This portion of the proposal would raise $50 million in the 2013-15 biennium.
Finally, the legislation also targets off-shore tax havens.
It would require corporations that have headquarters in tax havens to report income from those locations on their Oregon tax returns. It would generate an estimated revenue of $18 million.
“What we’re really looking at here is a modest and fair proposal to move the balanced budget forward to meet the needs of the Oregonians,” Rep. Sara Gelser, D-Corvallis, said at the close of the hearing.
The House Revenue committee will hear more public testimony on the bill starting at 8 a.m. today.