Editorial: Brown should veto tax hike bill

Published 12:00 am Saturday, March 31, 2018

Gov. Kate Brown has until April 6 to make up her mind about whether to veto a bill that would raise taxes on sole proprietors and other small-business owners across Oregon. While she needn’t officially reject or sign Senate Bill 1528 before April 13, she must make her plans known a week before that.

The bill was approved on a party-line vote hours before lawmakers left Salem in early March. It disconnects Oregon tax law from tax cuts for some small businesses approved by Congress a few days before Christmas.

Those pass-through businesses, generally sole proprietorships, partnerships, limited liability corporations and S corporations (The Bulletin’s parent company, Western Communications, is one), often pass their pretax income on to owners who pay taxes on it at individual rates. Under the new federal law, they’ll be allowed to deduct as much as 20 percent of their business income on their federal tax returns.

If Brown signs SB 1528 or allows it to become law without her signature, pass-through businesses will be unable to take the same deduction on their state tax returns. The net result? The state could collect as much as $244.4 million from the tax over the current biennium.

Lawmakers supporting the bill argued that it would give an unfair tax advantage to rich doctors, lawyers and others. Yet while the state may collect more tax dollars from doctors and lawyers, it’s because they make more money than owners of small shops in the first place. The latter will pay more taxes, as well, and they are likely to find the higher tax bills more burdensome than a taxpayer with a higher income will.

Brown knows full well that small businesses are the backbone of the Oregon economy. In fact, according to the Oregon Business magazine website, businesses with fewer than 50 employees make up 96 percent of companies in the state and employ 40 percent of the state’s workforce.

They do so without the benefits — the ability to borrow money easily is a big one — that larger corporations may have. The small-business tax increase that’s central to SB 1528 only makes their problems worse. Brown should veto it.

Marketplace