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Editorial: Brown tries to thread tax needle

Editorial: Brown tries to thread tax needle


Gov. Kate Brown's decision to sign a controversial tax bill while asking the Legislature to extend a tax break to the state's smallest businesses is a bit of a political gamble.

It also highlights a couple of facts about the governor that you may or may not be tracking:

First, she's running for re-election.

Second, regardless of what you might think about her tenure as governor thus far, she's got some pretty sharp political skills.

Brown said last week she was planning to sign the tax measure, Senate Bill 1528, which triggered substantial partisan debate during the closing days of this year's legislative session.

Here's what you need to know about that bill:

Oregon's tax code is connected to its federal counterpart, so any tax reform enacted at the federal level, such as the measure passed last year by Congress, generally is duplicated in the state tax system. Last year's federal tax reform included a provision allowing owners of certain types of businesses (generally sole proprietorships, partnerships, limited liability corporations and S corporations) to deduct as much as 20 percent of their business income on federal tax returns.

Since the federal tax system is connected to Oregon's tax code, owners of those businesses would have been able to take the same deduction on their state returns. But the Legislature, without one vote from a Republican, approved Senate Bill 1528, which breaks the connection between the federal tax reform and the state tax code on this provision.

The results? The state pockets an additional $244 million in tax revenue, money Brown said the state desperately needs. But owners of those businesses miss out on a state tax break that would have come their way had the Legislature done nothing.

That's part of the reason why business leaders and Republicans were urging Brown to veto the bill — and, to all appearances, it did seem as the governor agonized over the measure, asking for both proponents and opponents to lobby her.

On Friday, though, she announced her intention to sign the bill. But she also said she planned to call the Legislature into a June special session to consider extending a state tax break to sole proprietors, typically the state's smallest businesses. The move struck some political observers as an attempt to thread a particularly narrow tax needle.  

Politically, though, the gambit could be a stroke of brilliance: By signing the bill, Brown can say she's taken steps to try to plug the budget gap the state will again face in 2019. And if the special session pushes through a tax break for small businesses (an outcome which is not guaranteed), she can hit the campaign trail and paint herself as a champion of small business. 

There's a potential downside for Brown, but it must seem to her like a risk worth taking: If the special session somehow implodes (always a possibility), she might still be able to argue to voters that Republicans short-circuited her effort to give tax relief to small businesses. Her argument would depend, to some extent, on voters forgetting that Brown could have vetoed the bill in the first place, a veto that would have given sole proprietors (and some other businesses) that tax relief, but in the heat and dust of an election campaign, that's a detail that easily could be obscured.

No wonder that Republicans in Oregon seemed caught flat-footed by Brown's decision last week. 

Now, the action shifts to the special session, which of course will take place in the shadow of the November elections. The results of that session will shape how Brown and her Republican opponent frame this issue going into the campaign season.

But there's a not-so-hidden message to Brown's political rivals in her announcement last week: Underestimate her at your own risk. (mm)


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