SB1528 Good or Bad, You Decide.
Both the Senate Majority (Democrats) and Minority (Republicans) give statements on Senate Bill 1528 and the views are quite different. Below are the statements by both sides.
Senate Republican Office
Senate Democrats Pass Unfair Tax Hike on Oregon's Small Businesses
SALEM, Ore.- Today, by passing Senate Bill 1528-a whopping $1.3 billion small business tax hike-Oregon Senate Democrats sent a strong message to Oregon small businesses: Senate Democrats side with big corporations over small family-owned businesses.
"Under the Democrat's plan, big national corporations make out like bandits, while local small businesses get punished with a big tax increase," said Senator Herman Baertschiger (R-Grants Pass). "We should not be punishing mom and pop shops, start-ups, and young entrepreneurs who are the backbone of Oregon's economy. It is simply unfair."
According to the nonpartisan Legislative Revenue Office, SB 1528 will raise taxes on Oregon small businesses by nearly $200 million in 2018, and by $1.3 billion over the next 6 years. The measure eliminates the 20% deduction for small pass-through businesses, including LLCs, Partnerships, and Sole Proprietorships, by disconnecting Oregon from the federal tax code.
"Democrats claim that SB 1528 will merely prevent business from "double dipping," said Senator Brian Boquist(R-Dallas). "This is wrong. The state pass-through program only applies to 22,000 Oregon businesses, but SB 1528 will raise taxes on over 340,000 Oregon businesses. This is unfair, irresponsible, and possibly unconstitutional."
"Oregon's revenue forecast is bright, there is absolutely no budgetary reason to increase taxes. None at all," said Senator Jackie Winters (R-Salem). "Senate Republicans believe that hardworking small business owners should get to keep more of what they earn, so that they can do what they do best- create jobs. Today's vote shows who is actually fighting for small business."
Senate Majority Office (Democrats)
No second helpings until everyone else gets through the line SB 1528 eliminates double-dipping on tax breaks for the wealthy
SALEM – Senate Democrats protected state services that help everyday Oregonians get ahead, instead of providing an extra tax windfall to the wealthy.
Senate Bill 1528 – which passed on the Senate floor today – will stop owners of pass-through businesses from double-dipping on a 20-percent tax deduction at the expense of everyday Oregonians.
“This bill will not cause any small business in Oregon to pay one cent more in taxes than it did last year,” Sen. Mark Hass, D-Beaverton, said. “The folks we’re talking about already enjoy a lower state tax rate on their net income, and they just got a 20-percent federal deduction. We’re simply unhitching the state from the Trump tax train so they aren’t double-dipping on the deduction. Nobody should be able to get a second helping of tax breaks until everyone else has gone through the line for a first helping.”
The bill detaches the state from the federal tax code that provides a 20-percent deduction to pass-through entities such as S corporations, business partnerships and limited liability companies. Those businesses are not taxed, but individual owners pay taxes on the earnings the businesses generate. The federal change was part of President Donald Trump’s Tax Cut and Jobs Act that passed in Congress late last year. It allows business owners to pay taxes on 80 percent of their net earnings – or pass-through income – as opposed to 100 percent. Passthrough business owners still would get the additional 20-percent federal tax deduction; they just wouldn’t get the same break on their state taxes.
Senate Bill 1528 even found support from The Tax Foundation – a conservative-leaning think tank in Washington, D.C., that generally is critical of tax increases.
“Proponents of pass-throughs argue that they represent small businesses, but that isn’t always the case. Some of the largest businesses are organized under this structure,” Nicole Kaeding wrote on The Tax Foundation’s website. “The deduction was predicated on growing small businesses. Instead, it adds complexity to the tax code, and encourages creative accounting to take advantage of the large deduction. … Senator Hass’s proposal to limit the special passthrough deduction in Oregon is the right choice, protecting the state’s budget, while advancing sound tax policy.”
If the state does not disconnect from this tax break, there will be $244 million less to fund schools and other services in the current budget, and an additional $376 million hole will be blasted in the next biennial budget. In terms of education, $244 million is equal to 1,400 teachers or 10 school days.
Oregon’s current tax code already is extremely kind to pass-through business owners. In 2013, the Oregon Legislature lowered the tax rate paid on this type of income. An individual in Oregon pays the state’s top income tax rate for $125,000 or more, while a pass-through business owner doesn’t pay the 9.9 percent rate until reaching $5 million or more in net income.
Research from the non-partisan Legislative Revenue Office revealed that the existing tax breaks for the same individuals who would benefit from the double-dipping of deductions comprises mostly the wealthy. The research shows that 61 percent of the benefit will go to the top 5 percent of earners, making more than $200,000 per year. In addition, 84 percent of savings would go to the top 20 percent of tax filers who own pass-through businesses.
“This is a matter of fairness,” Senate Majority Leader Ginny Burdick, D-Portland, said. “Without Senate Bill 1528, a pass-through business owner with $100,000 in profits would pay roughly the same dollar amount in state taxes as a working family with an income of $62,000. Owners of these businesses already pay lower state tax rates than bus drivers, store clerks and their own employees. It’s one thing to give business owners a tax break for taking risks and creating jobs, but this hurts everyday Oregonians and puts more money in wealthy people’s pockets.”
The bill now goes to the House of Representatives for consideration.