Proposed 2009-2011 Revenue Package

            The chairs of the Revenue committees have released their proposal for the 2009-2011 Revenue Package. This package is composed of two House Bills, HB 2649 and HB 3405. The first is designed to collect revenue from Oregon households, and the second from Oregon’s businesses. These bills were passed out of the House Revenue Committee this afternoon and are now being considered by the Joint Committee on Ways and Means. As they are still working their way through the legislative process, both are subject to amendments that could change the following figures.

            HB 2649 establishes new income tax brackets and an Alternative Minimum Tax for households earning more than $250,000, or for single filers earning more than $125,000 for tax years 2009-2011. This bill would increase the top rate of income tax by 1.8 percent to create a 10.8 percent tax bracket for households earning between $250,000 and $500,000. The rate increases by another 0.2 percent to create an 11 percent tax bracket for these households earning over $500,000. After tax year 2011, the tax bracket for joint filers with income above $250,000, above $125,000 for single filers, is reduced to 9.9 percent. In addition, this proposal would phase out federal tax deductions for joint filers with Adjusted Gross Income (AGI) over $250,000, and single filers over $125,000. Lastly, HB 2649 would connect Oregon tax code to the one -year federal tax exclusion of up to $2,400 in unemployment benefits for tax year 2009. The total increase in taxes on Oregon households from this measure during the 2009-2011 biennium is estimated to be $472 million.

            Although this bill is being touted as a tax levied on wealthy households that should help replenish our revenue coffers during these times of economic difficulty, the fact is that the brunt of this tax burden will fall on Oregon’s businesses. The Legislative Revenue Office here in the Capitol estimates that there were 31,000 Oregonians making more than $250,000 in 2007. Of those 31,000, roughly 65 percent filed their taxes Schedule E. The majority of income from Schedule E taxpayers comes from pass-thru entities such as S-corporations, LLC’s, and LLP’s. This means that the majority of taxpayers affected by this proposal will be small businesses.

            The other part of this Revenue Package, HB 3405, establishes new tiers of Corporate Minimum Tax. It would increase the C-corporation minimum tax from $10 to various amounts depending on the corporation’s Oregon sales. For example, the low end of this tax would be $150 for C-corporations with less than $250,000 in sales, while the high end would be a $100,000 tax for those with sales over $250 million. This bill would also raise the S-corporation minimum tax from $10 to $150, impose a $150 tax on entities filing a partnership return, and create a second marginal corporate tax rate of 7.9 percent for tax years 2009-2010 to be applied to taxable income greater than $250,000. This marginal corporate tax rate reduces to 7.6 percent for tax years 2011-2012, and after tax year 2012 the rate of 7.6 percent applies only to ne t income greater than $10 million. Finally, HB 3405 increases the Secretary of State filing fee for domestic corporations from $50 to $100 and the filing fee for foreign corporations to $275. Unfortunately, many of Oregon’s businesses classified as S-corporations, LLC’s, and LLP’s would be subject to the taxes levied by both HB 3405 and HB 2649.

            Adding the $261 million in estimated revenue generated from taxing corporate businesses to the $472 million in estimated revenue generated from the new income tax brackets and Alternative Minimum Tax, the Revenue Package is anticipated to levy an increase of $733 million taxes on Oregonians. The Legislative Revenue Office has also provided an estimate of the impact this tax increase would have on employment in Oregon. A tax increase can be regarded as a decrease in the Gross State Product of Oregon–it reflects a decrease in overall demand to balance the state budget. The impact of this tax increase can therefore be estimated by dividing $733 million tax increase by Gross State Product for each job in Oregon, which was $68,204 in 2007. The result is an estimated reduction of 10,747 private sector jobs.

            These measures are being proposed at a time when 242,550 Oregonians were unemployed in April, bringing our unemployment rate to 12 percent. Private industry is experiencing the predominance of job loss in our state while our state government continues to inflate. Private sector employment decreased by 9,500 jobs in April while government employment increased by 2,500 jobs. In our rural Senate district economies that are so reliant on small businesses for growth, the current recession has hit the job market particularly hard. In April, Lake county reached a seasonally adjusted unemployment rate of 12.5 percent, Klamath county reached 14.9 percent, Jefferson county reached 16.4 percent, Deschutes county reached 15.9 percent, and Crook county reached the staggering rate of 19.9 percent.

            According to our Legislative Fiscal Office, Oregon has $4.9 billion in reserve funds accumulated from charges, licenses, and fees from various state agencies from the 2007-2009 biennium. 71 percent of that $4.9 billion can be used to back fill our state’s current budget deficiencies. In light of the fact that we have $3.5 billion available to fund essential programs and services for the next biennium, our office does not believe that the proposed Revenue Package and its vast tax increases is appropriate at this time. It is unfortunate that each session the Governor and the legislative leadership choose to create a political game out of the priorities of Oregon's citizens. The end game is always to force a vote for higher taxation in order to provide what should be prioritized as an essential part of the current budge t revenue. This recurrent debate demonstrates a severe symptom of what is so terribly wrong with our current political process. That symptom is political gamesmanship over substance and need.

            If you have questions or concerns regarding this proposed Revenue Package, please contact our office. In addition, we encourage you to contact the Co-Chairs of the Ways and Means Committee as well as the Democratic Leadership in the House and Senate as they are ultimately in charge of the budgeting process. It is important for them to hear the opinions and concerns of every Oregon citizen affected by the state budget. Contact information for the appropriate members is included below in case you are interested in doing so. Our newsletter subscribers have been outstanding in your civic participation in the issues facing our state this session. Please continue to be involved and keep up the citizen pressure in opposition to unwarranted government growth and spending. 

Senate and House Democrat Leadership:

Senate President Peter Courtney, 503-986-1600, sen.petercourtney@state.or.us
Senate Majority Leader Richard Devlin, 503-986-1719, sen.richarddevlin@state.or.us
Speaker of the House Dave Hunt, 503-986-1200, rep.davehunt@state.or.us
House Majority Leader Mary Nolan, 503-986-1440, rep.marynolan@state.or.us

Joint Committee on Ways and Means Co-Chairs:

Senator Margaret Carter, 503-986-1722, sen.margaretcarter@state.or.us
Senator Betsy Johnson, 503-986-1716, sen.betsyjohnson@state.or.us
Representative Peter Buckley, 503-986-1405, rep.peterbuckley@state.or.us
Representative Nancy Nathanson, 503-986-1413, rep.nancynathanson@state.or.us

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