SALEM — The Legislature met in a rare one-day special session on Monday to pass a bill requested by Gov. Kate Brown to give a tax break to up to 12,000 small businesses.
Under House Bill 4301, a 2013 tax break will be extended to sole proprietorships that have at least one full-time employee. The expanded break will cost the state $11.3 million in the 2018 tax year. The bill passed the House 51-8 and the Senate 18-12.
Democrats called the bill a good fix of a flawed tax system that left sole proprietorships out of the 5-year-old tax break.
“We can improve equity in the tax system by voting yes,” said Rep. Phil Barnhart, D-Eugene.
The final outcome of the vote was never in doubt, as many Republicans supported the tax break. But most of the debate was taken up by GOP lawmakers calling it a meager give-back after actions earlier in the year that blocked a large federal tax cut from being extended to state tax rates.
“It’s a take-it-or-leave-it bill,” said House Minority Leader Mike McLane, R-Powell Butte.
Brown had called the special session on the same day last month she announced she would sign Senate Bill 1528, which disconnected the state tax system from the federal system.
The move was made to head-off an estimated $240 million hit to state coffers that would have gone into effect if federal tax cuts passed by the Republican-majority Congress and signed into law were mirrored in the state system. Unlike the federal government, the state budget must be balanced — deficit spending is unconstitutional. Any tax cut would have to be offset by program cuts or new taxes and fees.
Democrats said businesses already received a similar state deduction on their taxes. Oregon was the only state where allowing the federal legislation to “flow through” to the state system would result in a major financial hit.
“It would be a double deduction,” Barnhart said.
Several Republicans called the session “political theater” to give Brown cover in an election year for not vetoing the Senate bill.
“It’s like a thief who comes into your home and steals $100, then returns the next day and offers you $1,” said Rep. Mike Nearman, R-Independence. “Of course you take it.”
Some liberal Democrats criticized the cut before the session, saying it would take more than $11 million from state programs and give it to wealthy business owners with an average income of $200,000. But none spoke during the debate.
Among those rising to castigate Brown was Rep. Knute Buehler, R-Bend, who won the Republican primary last week and will face Brown in November’s governor race.
“I think we can all agree this is an emergency manufactured by the governor,” Buehler said.
Instead of the business tax issue, Buehler said their were “real emergencies” such as foster care, public schools and pensions. “Issues you’ve avoided, ignored and made worse your last three years in office,” Buehler said.
In a nod to his campaign, Buehler said there would be a chance for change in November.
Republicans dominated the debate on the Senate side as well, but two attempts to amend the bill were shot down by the Democratic majority. In the end, many voted for the bill. Others voted no out of protest.
“We ought to reward the risk takers and entrepreneurs,” said Sen. Tim Knopp, R-Bend, who voted yes.
Sen. Herman Baertschiger, R-Grants Pass, said the Senate in the past had usually worked in the open and with input from both Republicans and Democrats. He voted no.
“Mark my words, this session will be known as the secret session,” he said. “Things done behind closed doors. People don’t know what is going on. And a predetermined outcome.”
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